It's no longer just Silicon-Valley based cities San Francisco and San Jose that are making headlines for startup activity. Chicago is now home to the most profitable startups. Washington, D.C., is now experiencing the most growth in entrepreneurial activity this year. But despite the promising trends, the Bay Area is still poised to remain the undisputed startup hub in the U.S.
According to a recent piece in the Wall Street Journal, nearly half of all of the venture capital money in the U.S. went to Silicon-Valley based startups. That's up from around 30 percent in 1995.
"If this trend continues, in a generation or so it will be the only place anyone can build a startup," the Journal's Christopher Mims writes. He says that part of the reason why Silicon Valley startups are gobbling up so much venture capital money is because many companies (especially unicorns) are choosing to stay private longer. Thus, they need to keep returning to VC rounds in order to fund their company. Because most of these companies are based in Silicon Valley, this creates a "feedback loop" where the money that's already located there stays concentrated there.
But Midwest and East Coast-based entrepreneurs shouldn't give up on building a billion-dollar company just yet. A number of venture capital firms, such as Revolution Growth and Binary Capital, have launched or plan to launch funds dedicating to dolling out tens of millions or hundreds of millions of dollars to startups outside of Silicon Valley.
Steve Case, one of the co-founders of Revolution Growth and AOL, told Inc. last year that being located outside of Silicon Valley offers many benefits--your money lasts longer, you are able to hold onto employees longer, and you have the ability to interact with your customers more.
"There's an economic advantage to being somewhere else," Case says.
However, things like the allure of a cheaper cost of living can't entirely stop Silicon Valley's rise. Currently, the amount of venture capital money that's being invested in Bay Area startups is growing at a rate of about one percent per year--meaning that Silicon Valley will only take a bigger share of startup money.
In order to offset this trend, there need to be more funds like Revolution Growth and Binary Capital dedicated to steering some venture capital money away from Silicon Valley. Otherwise, as Mims writes, it will be "Silicon Valley eating the world."