{ "title": "The Shifting Geography of Start-ups", "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt", "canonical": "https://www.imf.org/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt", "overlayPath": "/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt/index.md", "summary": "US entrepreneurial activity is migrating from traditional hubs like California to more rural Western and Southern states", "sections": [ { "heading": "Overview", "content": "- US entrepreneurial activity is migrating from traditional hubs like California and New York to more rural Western and Southern states.\n- Wyoming has seen 50 percent growth in start-ups over the past decade.\n- Seven of the top ten states in entrepreneurial activity are south of the Mason-Dixon Line or the 36th parallel." }, { "heading": "Start-up clusters and data centers", "content": "- Data centers are focal points for start-ups, attracted by abundant land, electric power, water, and favorable local regulations.\n- Major commitments and projects:\n - JPMorgan Chase and Starwood Property Trust: $2 billion for a 100-acre data center development in West Jordan, Utah.\n - JPMorgan Chase: $2.3 billion loan in January 2025 for a facility in Abilene, Texas.\n - Meta: $800 million, 715,000-square-foot data center in Cheyenne, Wyoming.\n - Amazon: two data centers in Madison County, Mississippi, for a total cost of $10 billion.\n - Google: $2 billion center in Fort Wayne, Indiana, and a $1 billion center in Virginia.\n- Clustering effects:\n - Geographic proximity of firms along the AI tech supply chain fosters a sociocultural mindset that encourages experimentation and risk taking.\n - Observing peers’ success reinforces entrepreneurship and rapid innovation." }, { "heading": "AI technology, productivity, and firm behavior", "content": "- AI tech enables start-ups to perform tasks traditionally done by large firms (analyzing massive datasets, automating complex processes).\n- PitchBook: AI start-ups accounted for 22 percent of first-time venture capital financing in 2024.\n- Start-ups more readily incorporate new technologies due to lack of legacy constraints.\n- Evidence on firm-level AI adoption:\n - 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.”\n- Examples of productivity and application:\n - Medical offices in Boise, Idaho: use AI tech to read X-rays without a large hospital.\n - Manufacturing: advanced analytics for inventory management.\n - Remote workers in Wyoming: AI for data entry, scheduling, and email management." }, { "heading": "Business formation and measurement", "content": "- Census Bureau’s Business Formation Statistics: explosion in new business applications since 2020.\n- Bureau of Labor Statistics metric on planned wage payouts captures idea implementation (hiring) vs. Census data capturing idea formation.\n- BLS data show a sharp increase in entrepreneurial activity across the US during 2010–20 compared with the previous decade.\n - 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.\n - The 15 weakest-performing states are located east of the Mississippi." }, { "heading": "Economic dynamism, employment, and wages", "content": "- 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.\n- AI-driven start-ups tend to be capital- and skill-intensive, requiring fewer workers.\n- Productivity and wage increases concentrate in highest-skilled workers; automation reduces wages for routine-task workers.\n- Increase in number of start-ups can boost regional risk-taking culture, spawning more firms rather than producing a few large employers.\n- Population density appears unrelated to entrepreneurial activity:\n - Among top 10 states for start-up activity, New Mexico and Wyoming have between 5 and 20 people per square mile.\n - Florida and Texas have 150 to 400 people per square mile." }, { "heading": "Regional drivers and notable regional features", "content": "- Postpandemic shift from Western states toward South Atlantic and Southeastern states driven by:\n - Venture capital reallocation.\n - Aggressive state-led incentives: tax breaks and public-private R&D partnerships.\n - Cost-of-living advantages.\n - Enhanced ecosystem building (incubators).\n - Remote work trends.\n- Southeastern investing approach: smaller, more directed checks to promising founders, offering resilience amid high exit rates.\n- Manufacturing and research clusters:\n - Automobile manufacturing clusters near Atlanta, Georgia (Mercedes-Benz USA and Porsche North America).\n - 7,000-acre Research Triangle Park in Raleigh-Durham, North Carolina.\n - Cummings Research Park in Huntsville, Alabama—the second-largest research park with business incubators and Fortune 500 companies.\n- Example corporate acquisitions affecting independent start-up growth:\n - Microsoft acquired all of Inflection AI and its entire 70-person workforce in 2024.\n - Microsoft acquired Nuance Communications in 2022." }, { "heading": "Case study: Wyoming", "content": "- Policy and regulatory features making Wyoming attractive:\n - No state income tax or corporate income tax.\n - Low business formation costs and filing fees.\n - No citizenship or residency requirements.\n - Strong privacy protections; does not share business or personal records with outside agencies.\n - In 2023, the Wyoming Banking Board approved a cryptocurrency bank.\n- Result: entrepreneurs consider Wyoming a top choice for start-ups despite being the least populous US state." }, { "heading": "Policy implications and recommendations", "content": "- Targeted industrial policy can help emerging regions harness local potential:\n - Invest in infrastructure (energy, power capacity) to support power-hungry facilities like data centers.\n - Invest in education and skills development to supply labor for capital- and skill-intensive start-ups.\n - Design regulatory frameworks that lower entry barriers and protect privacy where appropriate.\n - Use state-led incentives (tax breaks, public-private R&D partnerships) to attract investment.\n - Support ecosystem building (incubators, directed venture checks) to increase resilience against high exit rates.\n- Consider trade-offs:\n - Ensure affordable energy and resources to support data centers and AI infrastructure.\n - Address distributional effects of AI-driven productivity gains that favor highest-skilled workers.\n\nSource: \"The Shifting Geography of Start-ups,\" SWATI BHATT, September 2025.\n\n---\n\n Content in this bundle\n\n- The Shifting Geography of Start-ups\n - The Shifting Geography of Start-ups (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - The Shifting Geography of Start-ups (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt" } ], "bullets": [ "[Markdown version](/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt/index.md)", "[Structured JSON version](/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt/index.json)", "[Bundle manifest](/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt/bundle-manifest.json)", "Authors: SWATI BHATT", "Published: September 3, 2025", "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:", "Clustering effects:", "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:", "Examples of productivity and application:", "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.", "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:", "Postpandemic shift from Western states toward South Atlantic and Southeastern states driven by:", "Southeastern investing approach: smaller, more directed checks to promising founders, offering resilience amid high exit rates.", "Manufacturing and research clusters:", "Example corporate acquisitions affecting independent start-up growth:", "Policy and regulatory features making Wyoming attractive:", "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:", "Consider trade-offs:", "**The Shifting Geography of Start-ups**" ], "related": [ { "title": "The Shifting Geography of Start-ups", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2025/09/bhatt.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2025/09/bhatt.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2025/09/bhatt.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt/index.md", "json": "/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt/index.json", "bundleManifest": "/en/publications/fandd/issues/2025/09/the-shifting-geography-of-startups-swati-bhatt/bundle-manifest.json" }, "generatedAtUtc": "2026-09-15T20:06:45.065Z" }