The Shifting Geography of Start-ups

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US entrepreneurial activity is migrating from traditional hubs like California and New York to more rural Western and Southern states.
Wyoming has seen 50 percent growth in start-ups over the past decade.
Seven of the top ten states in entrepreneurial activity are south of the Mason-Dixon Line or the 36th parallel.

Data centers are focal points for start-ups, attracted by abundant land, electric power, water, and favorable local regulations.
Major commitments and projects:
- JPMorgan Chase and Starwood Property Trust: $2 billion for a 100-acre data center development in West Jordan, Utah.
- JPMorgan Chase: $2.3 billion loan in January 2025 for a facility in Abilene, Texas.
- Meta: $800 million, 715,000-square-foot data center in Cheyenne, Wyoming.
- Amazon: two data centers in Madison County, Mississippi, for a total cost of $10 billion.
- Google: $2 billion center in Fort Wayne, Indiana, and a $1 billion center in Virginia.
Clustering effects:
- Geographic proximity of firms along the AI tech supply chain fosters a sociocultural mindset that encourages experimentation and risk taking.
- Observing peers’ success reinforces entrepreneurship and rapid innovation.

AI tech enables start-ups to perform tasks traditionally done by large firms (analyzing massive datasets, automating complex processes).
PitchBook: AI start-ups accounted for 22 percent of first-time venture capital financing in 2024.
Start-ups more readily incorporate new technologies due to lack of legacy constraints.
Evidence on firm-level AI adoption:
- Dinlersoz and Goldschlag (US Census Bureau): “since the early fall of 2023, the smallest firms had a relatively high AI use rate, although the rate of increase was lower than for larger firms.”
Examples of productivity and application:
- Medical offices in Boise, Idaho: use AI tech to read X-rays without a large hospital.
- Manufacturing: advanced analytics for inventory management.
- Remote workers in Wyoming: AI for data entry, scheduling, and email management.

Census Bureau’s Business Formation Statistics: explosion in new business applications since 2020.
Bureau of Labor Statistics metric on planned wage payouts captures idea implementation (hiring) vs. 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, 10—California, Colorado, Idaho, Missouri, Montana, Nevada, South Dakota, Texas, Utah, and Washington—lie west of the Mississippi River.
- The 15 weakest-performing states are located east of the Mississippi.

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.
Productivity and wage increases concentrate in highest-skilled workers; automation reduces wages for routine-task workers.
Increase in number of start-ups can boost regional risk-taking culture, spawning more firms rather than producing a few large employers.
Population density appears unrelated to entrepreneurial activity:
- Among top 10 states for start-up activity, New Mexico and Wyoming have between 5 and 20 people per square mile.
- Florida and Texas have 150 to 400 people per square mile.

Postpandemic shift from Western states toward South Atlantic and Southeastern states driven by:
- Venture capital reallocation.
- Aggressive state-led incentives: tax breaks and public-private R&D partnerships.
- Cost-of-living advantages.
- Enhanced ecosystem building (incubators).
- Remote work trends.
Southeastern investing approach: smaller, more directed checks to promising founders, offering resilience amid high exit rates.
Manufacturing and research clusters:
- Automobile manufacturing clusters near Atlanta, Georgia (Mercedes-Benz USA and Porsche North America).
- 7,000-acre Research Triangle Park in Raleigh-Durham, North Carolina.
- Cummings Research Park in Huntsville, Alabama—the second-largest research park with business incubators and Fortune 500 companies.
Example corporate acquisitions affecting independent start-up growth:
- Microsoft acquired all of Inflection AI and its entire 70-person workforce in 2024.
- Microsoft acquired Nuance Communications in 2022.

Policy and regulatory features making Wyoming attractive:
- 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.
Result: entrepreneurs consider Wyoming a top choice for start-ups despite being the least populous US state.

Targeted industrial policy can help emerging regions harness local potential:
- Invest in infrastructure (energy, power capacity) to support power-hungry facilities like data centers.
- Invest in education and skills development to supply labor for capital- and skill-intensive start-ups.
- Design regulatory frameworks that lower entry barriers and protect privacy where appropriate.
- Use state-led incentives (tax breaks, public-private R&D partnerships) to attract investment.
- Support ecosystem building (incubators, directed venture checks) to increase resilience against high exit rates.
Consider trade-offs:
- Ensure affordable energy and resources to support data centers and AI infrastructure.
- Address distributional effects of AI-driven productivity gains that favor highest-skilled workers.

Source: "The Shifting Geography of Start-ups," SWATI BHATT, September 2025.

The Shifting Geography of Start-ups
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