Texas now has one more metric to bolster that whole "Everything is bigger in Texas mantra"--its rate of new business creation.

The Kauffman Foundation recently released its annual Startup Activity Index, which highlights the states and metro areas experiencing the highest rates of startup activity. Austin came in at No. 1 on the list of metro areas, and among the 25 U.S. states with the largest populations, Texas took the title of most startup activity. Among the 25 least-populated U.S. states, Montana has the honor.

Kauffman looks at three key metrics to determine the rate of startup activity in each state or metro area: the percentage of adults becoming new entrepreneurs in that area, the percentage of entrepreneurs who are starting businesses out of opportunity versus out of necessity(because they were unemployed), and startup density (measured as the number of startups per 1,000 employer businesses). Kauffman gathers its data from a number of sources, including the U.S. Census Bureau and the U.S. Bureau of Labor Statistics.

This is the second year in a row Austin has come in at No. 1 on Kauffman's list, thanks in particular to its high rate of new entrepreneurs, at 0.6 percent. That means in any given month in Austin, there were 600 new entrepreneurs for every 100,000 adults.

Other Texas cities ranked highly on the list, including Houston (No. 7), Dallas (No. 12), and San Antonio (No. 13). Many of the usual startup hotspots also found favorable positions on Kauffman's list, including Los Angeles (No. 3), San Francisco (No. 4), and New York (No. 5).

One of the most important things to remember when looking at the Kauffman rankings is that there's no one right way to slice how healthy a state or city's startup activity is. When calculating the rate of new entrepreneurs, for example, Kauffman includes all new business owners regardless of how they incorporated their business, and whether or not they are an employer or non-employer business. The rankings might look a little differently if you take into account the number of jobs created by the startups in each city, or the amount of venture capital money each city receives (which, unsurprisingly, puts San Francisco at the top of the list).

But there are other signs that the entrepreneurial scale is (somewhat) tipping in favor of Texas. In January, the San Francisco Chronicle examined the growing trend of Bay Area tech companies moving to or opening outposts in Texas (particularly among smaller startups), due to the fact that housing costs are skyrocketing. The newspaper found that since 2014, nearly two dozen Bay Area tech companies reported either relocating to Texas or opening other offices there. In addition, between 2009 and 2012, approximately 1,430 Bay Area households relocated to Texas, and took nearly $390 million in taxable income with them.

This doesn't mean, however, that the battle to lure entrepreneurs will be fought solely between Texas and California. There were a number of cities that experienced large increases in startup activity rates from 2015 to 2016, and that could be a sign of good things to come. Those cities include Orlando, (which experienced the largest jump in rankings, moving up from No. 33 on Kauffman's Startup Metro Index last year to No. 21 this year), Kansas City, Cincinnati, Nashville, Detroit, and San Francisco--which earned a surprisingly low No. 9 spot last year.

Published on: Aug 25, 2016