## The Shifting Geography of Start-ups

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### Start-up clusters and data centers
- Airloom Energy in Laramie, Wyoming, is developing a compact wind turbine system using wing-like blades on a horizontal oval track; the company plans to break ground this year on a pilot project.
- Wyoming has seen 50 percent growth in start-ups over the past decade.
- Decentralization of innovation has produced start-up clusters in smaller cities and rural areas, often centered around data centers located where land, electric power, and water are abundant and local regulations are favorable.
- Major data center investments cited:
  - JPMorgan Chase and Starwood Property Trust committed $2 billion for a 100-acre data center development in West Jordan, Utah.
  - JPMorgan Chase made a loan of $2.3 billion in January 2025 for a facility in Abilene, Texas.
  - Meta plans to build an $800 million, 715,000-square-foot data center in Cheyenne, Wyoming.
  - Amazon is building two data centers in Madison County, Mississippi, for a total cost of $10 billion.
  - Google is building a $2 billion center in Fort Wayne, Indiana, and a $1 billion center in Virginia.
- Data centers foster entrepreneurial culture and proximity along AI tech supply chains encourages experimentation and rapid innovation.

### AI tech, start-ups, and productivity
- AI tech enables start-ups to perform tasks traditionally dominated by large corporations (analyzing massive datasets, automating complex processes).
- Examples of AI-enabled productivity gains:
  - Medical offices in Boise, Idaho, using AI to read X-rays without a large hospital.
  - Manufacturing firms using advanced analytics to manage inventory.
  - Remote workers in Wyoming using AI to streamline data entry, scheduling, and email management.
- PitchBook: AI start-ups accounted for 22 percent of first-time venture capital financing in 2024.
- Small firms had a relatively high AI use rate since the early fall of 2023, though the rate of increase was lower than for larger firms (per Emin Dinlersoz and Nathan Goldschlag).
- Increased start-up activity often leads to higher labor productivity and potentially higher wages, especially for highest-skilled workers; automation reduces wages for routine-task workers.

### Business formation trends and measures
- Census Bureau’s Business Formation Statistics show an explosion in new business applications since the onset of the pandemic in 2020.
- Bureau of Labor Statistics (BLS) data on planned wage payouts capture idea implementation (hiring) versus Census data capturing idea formation.
- BLS data show a sharp increase in entrepreneurial activity across the US during 2010–20 compared with the previous decade.
- Of the 15 top performing states (2010–20), 10—California, Colorado, Idaho, Missouri, Montana, Nevada, South Dakota, Texas, Utah, and Washington—lie west of the Mississippi River; conversely, the 15 weakest-performing states are located east of the Mississippi.

### Economic dynamism, employment, and sectoral effects
- Census data indicate 7 of the top 10 states for start-up activity in 2010–25 were in the South.
- Federal Reserve research: young, high-growth start-ups accounted for less than 6 percent of employment in 2024, compared with almost 10 percent in 1985.
- AI-driven start-ups tend to be capital- and skill-intensive, requiring fewer workers.
- Economic dynamism may reflect more numerous start-ups and a regional boost to risk-taking culture rather than large start-ups employing many workers.
- Population density is unrelated to entrepreneurial activity among top start-up states; examples:
  - New Mexico and Wyoming: between 5 and 20 people per square mile.
  - Florida and Texas: 150 to 400 people per square mile.
- Larger firms often acquire start-up founders’ ideas (examples: Microsoft’s acquisition of Inflection AI and its 70-person workforce in 2024; Microsoft’s 2022 acquisition of Nuance Communications).

### Targeted investing, regional strengths, and examples
- Drivers of the postpandemic shift toward the South and Southeast:
  - Venture capital reallocation and more nuanced, smaller, directed checks to founders.
  - Aggressive state-led incentives (tax breaks and public-private R&D partnerships).
  - Cost-of-living advantages.
  - Enhanced ecosystem building (incubators).
  - Remote work trends.
- Manufacturing and research clusters spur spillovers:
  - Automobile manufacturing headquarters (Mercedes-Benz USA and Porsche North America) in the Atlanta, Georgia, area.
  - Research Triangle Park in Raleigh-Durham, North Carolina (7,000-acre research cluster).
  - Cummings Research Park in Huntsville, Alabama (the second-largest research park).
- Multibillion-dollar deals that illustrate Southeast AI tech integration: OpenAI deals with Epic Games and fintech OneTrust in 2020 (both headquartered in the Southeast).

### The Wyoming case and business environment features
- Wyoming characteristics attracting entrepreneurs:
  - No state income tax or corporate income tax.
  - Low business formation costs and filing fees.
  - No citizenship or residency requirements.
  - Strong privacy protections (does not share business or personal records with outside agencies).
  - In 2023, the Wyoming Banking Board approved a cryptocurrency bank.

### Policy implications and challenges
- Emerging regions can cultivate entrepreneurial ecosystems to harness local potential and evolve into dynamic start-up hubs, offering a model for less-developed economies.
- Key challenges include providing cheap energy and other resources to power data centers and other power-hungry facilities.
- Policymakers can play a critical role through targeted industrial policy:
  - Investing in infrastructure.
  - Investing in education.
  - Designing regulatory frameworks that foster innovation and lower entry barriers for new ventures.

*Swati Bhatt, "The Shifting Geography of Start-ups," F&D, SEPTEMBER 2025.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/09/bhatt.pdf_