When Julie Arsenault decided to turn her side hustle into a full-time job, she did something few fledgling entrepreneurs would consider: She moved out of San Francisco.

After working at multiple high-growth startups in the Bay Area, she packed up her belongings in 2016 and moved to Reno, Nevada, where she expected her living expenses to plummet. She figured lower costs would help her devote more time and resources to Panty Drop, an underwear subscription service that she had been trying to grow since 2014. "I could cut my rent and other living expenses in half, which was a big selling point," she adds.

Arsenault is part of a growing contingent of entrepreneurs choosing to move away from established startup hubs like San Francisco, San Jose, and New York City. While such a move may make a founder less attractive to potential investors, there are few other downsides, say those who've made the leap. And even that difficulty is becoming less pronounced in certain pockets of the U.S., which have been plowing increased resources into building up burgeoning innovation centers. 

"The stories of people moving out of these places used to be incredibly rare," says Arnobio Morelix, the chief innovation officer at Startup Genome, an entrepreneurial ecosystems research organization. "Now there are some high-profile people doing it, and there are several compelling alternatives to Silicon Valley and New York City."

For the past two years, Inc. has partnered with Startup Genome to document this migration in its annual Surge Cities list, which ranks the 50 best places to start a business in the U.S. The rise of Austin, which has been No. 1 on the list two years in a row, is but one example of an emerging hub that's quickly becoming a beacon for founders. Startup investor Tim Ferriss moved to Austin from Silicon Valley in 2017, and Outdoor Voices founder Tyler Haney relocated to Austin from New York the same year. More recently, the city gets high marks for its growing population, increasing number of early-stage funding deals, and newly minted unicorns. For example, in October of 2019, the energy workforce platform RigUp raised $300 million at a $1.9 billion valuation.

The trend lines extend beyond this data, too. About 8.2 percent of Silicon Valley-based tech founders, or 1,240 startups, intend to move their companies to another city in the next 12 months, according to Startup Genome's May 2019 Global Startup Ecosystem Report. Additionally, about 2 percent of tech founders in New York City--which amounts to roughly 165 startups--plan to relocate in the same time period. It's unclear if this is more or less consistent with past years, as Startup Genome changed the parameters of its survey after 2015. 

Where they go when they leave typically includes places with a lower cost of living and relative ease of doing business. Reno is the top destination for tech founders leaving Silicon Valley, for instance. The city has become a growing hub for tech behemoths; Apple, Google, and Tesla all built data centers in the area in the past six years. Reno has also seen large increases in population and annual salaries, according to the Milken Institute, which ranked the best-performing cities in the U.S. last year. 

New York tech founders tend to resettle in New Orleans, Jerusalem, and Miami, and to a lesser degree in Austin and Mumbai, according to Startup Genome. Other top destinations include Fresno, California; Austin; and Miami.  

Weighing the tradeoffs. 

Funding in emerging hubs tends to be less plentiful than in more popular startup hubs, says Arsenault, whose company booked around $200,000 in 2019 revenue. She says she had to work harder to raise $435,000 through angel investors after relocating.

For Maxeme Tuchman, her move to Miami in 2016 was prompted by the desire to start her company closer to her professional and family support systems. The Florida native was living in Washington, D.C., as she was gearing up to launch Caribu, an interactive video-calling platform that lets far-flung parents and grandparents read and draw with children. 

Tuchman adds that setting up shop in a smaller city with a less competitive market helped her fledgling company stand out. She wondered: "Where do I have the best chance of really creating that opportunity? You already have to spend so much time trying to compete with S.F., why not do it in a place with a smaller ecosystem?"

Despite these benefits, Tuchman and Arsenault remain exceptions to the rule. The number of founders leaving Silicon Valley and New York for smaller U.S.-based cities is still lower than the national average of tech founders leaving any U.S. city for another metro area, which is about 9 percent, according to Startup Genome's survey. 

"People might be moving out, but the cities are still compelling places and people are still coming in," Morelix says. "They are still the best places in the world for strong tech ecosystems."

Published on: Feb 18, 2020