Popular thinking would have you believe that the Seattle region is a sure bet to make any list of the hottest places in the country for entrepreneurs and startups. But in a new report from the Kauffman Foundation this week, the Emerald City and surrounding tech towns fail to crack the top 25 in a ranking of startup activity in 40 large metro areas.
Since Forbes pointed out the top 25, it’s worth noting that Seattle barely missed at No. 26 on the Index of Startup Activity. But the city (with Bellevue and Tacoma added as part of the area) actually suffered one of the steepest drops in rank, falling seven spots from 2015’s No. 19 position. Virginia Beach, Va., led that class, falling 14 spots from 18 last year to 32 this year. Chicago and Sacramento, Calif, also both fell seven spots.
For the second year in a row, Austin, Texas, landed at No. 1 on the Kauffman list, with Inc.com crediting the hip city’s 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,” Inc. reported.
Orlando, Kansas City, Cincinnati, Nashville, Detroit and San Francisco were the top cities when it came to positive movement in rank.
According to Kauffman, the Index of Startup Activity is calculated based on three components: Rate of new entrepreneurs, which measures the percent of the U.S. adult population that became entrepreneurs, on average, in a given month; opportunity share of new entrepreneurs, which measures the percentage of new entrepreneurs who were not unemployed before starting their businesses; and startup density, defined as employer firms less than one year old employing at least one person besides the owner, with all industries included in this measure.
Seattle’s Heather Redman, an executive at Indix Corporation and an angel and early stage fund investor and board member, shared her thoughts with GeekWire on how the Index works and what Seattle could be doing better:
“My thoughts are two fold. First, Kauffman measures a very broad definition of entrepreneurship, not tech entrepreneurship, where most of Seattle’s energy is currently (although we have historically had great non-tech entrepreneurs).
“Second, Kauffman measures what the current state of entrepreneurship is and not the potential for it. What Seattle has is very high potential. We have very high innovation scores and very high talent density and wealth scores. What we don’t have is enough organized, aggressive capital, which is what our particular brand of innovation and talent needs to make the transition from potential for entrepreneurship to actual company starts and ultimately great new foundations of the ecosystem. We have got to fix that and everyone here who cares about jobs, philanthropy and innovation can be part of the solution. It’s about the money.”
Seattle entrepreneur and investor Chris DeVore also offered his insight:
“Just scanned the article and looks like the definition of ‘startup’ is any new business, not one focused on technological innovation, or seeking venture capital. It may well be that there are fewer new small business starts in the Pacific Northwest — possibly because the employment opportunities in existing businesses are so strong — but if you cut the same data to focus on venture-track / venture-scale software companies I’d be willing to bet that most of the listed cities quickly fall away and you’re back to the usual suspects: Silicon Valley, Seattle, NY, LA, Boston and Austin.
“I get that Fortune has a national readership and needs fresh stories to tell; I also know that Kauffman is focused on entrepreneurship broadly, not just in tech. So long story long, I don’t think this is worth getting too revved up about — the sky is definitely not falling for the Seattle innovation community (I’ve honestly never seen it stronger or more diverse than it is today).”
Meanwhile, unless you’re headed to Austin to start a food truck or tech company, keep up with GeekWire’s monthly ranking of Pacific Northwest tech companies in the GeekWire 200, which has the latest highlights on the hottest startups.