We first looked at large metropolitan areas with high concentrations of small businesses and track records of incubating successful start-ups. Then we checked in with the U.S. Patent Office to pinpoint cities that in 2010 boasted patents issued per 10,000 residents near or above the national average of 1.8. We also sought out cities with a good amount of private venture capital already invested in start-ups, courtesy of data from ZoomProspector.com.
Finally, in a nod to the tight budgets that many entrepreneurs face, we included a cost-of-living score from the Council for Community and Economic Research that’s specifically calculated for the self-employed. A score below 100 means a city has a lower-than-average cost of living for entrepreneurs. Depending on your business, access to seed money, creative talent and other resources can justify setting up shop in an expensive locale.
Take a look at our list of ten of the best cities for entrepreneurs.
1. Houston
Metro population: 5,946,800
Number of small businesses: 81,114
Self-employed cost-of-living score: 91.2 (U.S. avg. = 100)
Invested venture capital: $130,820,000
Patents per 10,000 residents: 3.7 (U.S. avg. = 1.8)
Standout start-ups: Websitealive.com, White Fence, Spotmau Corp.
Houston may not look like -- or cost as much as -- San Francisco or Boston, but the Space City’s start-up infrastructure ranks among the country’s best. Entrepreneurs benefit from low living costs, no state personal income tax and a franchise tax capped at 0.575% for businesses with less than $10 million in annual revenue. Even better, high-powered incubators such as the Houston Tech Center, the Rice Alliance and Capital Factory funnel money and mentorship to promising start-ups. An absence of city zoning laws and a plethora of coworking spaces mean office space also comes cheap. In the off-hours, entrepreneurs flock to Midtown bars for events such as the Startup Houston Happy Hour and OpenCoffee Club.
2. Indianapolis
Metro population: 1,756,241
Number of small businesses: 27,553
Self-employed cost-of-living score: 89.0
Invested venture capital: $173,940,000
Patents per 10,000 residents: 2.8
Standout start-ups: ExactTarget, Angie’s List, MyJibe
Indianapolis is an entrepreneurial scene on the verge of making it big, say the founders of Verge, an Indy-based networking group that exploded over the past year. Cheap housing and office space, a low cost of living, and an excess of young talent from half a dozen universities feed the city’s start-up community. Indianapolis offers a slate of weekly networking events, nearly a dozen start-up incubators and a laundry list of venture capitalists, including big-time angel investors like Gravity Ventures and Halo Capital. While Verge has grown to 1,300 active members, there’s still far less competition here than in Silicon Valley. On our list, only San Francisco and Seattle boast more venture capital than Indy.
3. Raleigh-Cary N.C
Metro population: 1,130,490
Number of small businesses: 19,776
Self-employed cost-of-living score: 95.3
Invested venture capital: $57,856,000
Patents per 10,000 residents: 11.2
Standout start-ups: ChannelAdvisor, iContact, ReverbNation
Raleigh is home to three world-class universities and anchors one corner of the 7,000-acre Research Triangle Park. Young talent and big investors have flocked to the city for 50 years. Increasingly, small businesses are also getting in on the life science and technology action once owned by heavyweights such as GlaxoSmithKline and IBM. Raleigh recently announced a city-sponsored summit for entrepreneurs, as well as an “innovation and entrepreneurial center” for use by start-ups. The area boasts four incubators and one of the Southeast’s largest venture-capital firms. Plus, living costs here fall 5% below the national average, while average incomes are the highest in the state.
4. St.Louis
Metro population: 2,812,896
Number of small businesses: 47,241
Self-employed cost-of-living score: 92.3
Invested venture capital: $11,260,000
Patents per 10,000 residents: 2.5
Standout start-ups: Aisle411, Inclusion Sports, GremIn.com
St. Louis is a small pond compared with other places on our list, but the city gives local start-ups enough tax breaks and incentive programs to make it big. Living costs are dirt-cheap, and the corporate franchise tax maxes out at a mere 0.03%. Government agencies such as the St. Louis Development Corporation, supply low-interest loans to small businesses and subsidize coworking spaces, such as the tech-minded T-REx. And this fall, Capital Innovators, a small-business incubator funded by several private companies and local government agencies, launched a 12-week accelerator program geared toward tech start-ups. In addition to connecting participants with mentors and investors, the incubator grants its start-ups an automatic $50,000 in seed funding.
5. Seattle
Metro population: 3,439,809
Number of small businesses: 71,462
Self-employed cost-of-living score: 118.7
Invested venture capital: $308,970,000
Patents per 10,000 residents: 11.9
Standout start-ups: WhitePages.com, Intelius, Zillow
Seattle is better known for major tech operations than for scrappy, small-time start-ups. But the city’s tech monoliths provide big opportunities for entrepreneurs: Amazon Web Services sponsored a start-up conference in September, for instance, and Microsoft promotes early-stage start-ups through its BizSpark initiative. Seattle also boasts its own branch of TechStars, the nationally prominent and highly moneyed accelerator, as well as eight coworking spaces and near-daily networking events. Those bells and whistles don’t come cheap. Seattle’s living and business costs skew above the national average. But they’re still 20% to 30% cheaper than West Coast hubs such as San Jose. 4.5
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