Most states lack developed, late-stage startup capital ecosystems, PitchBook finds

June 28, 2018

While many state startup capital ecosystems have a healthy density of early-stage startups, few states have developed strong late-stage ecosystems, according to a new report from PitchBook – 2Q 2018 PitchBook Analyst Note: VC Ecosystems. PitchBook researchers contend that one potential factor leading to these underdeveloped late-stage ecosystems is the limited number/size of exits coming from those ecosystems. They contend, however, that healthy early-stage startup density could indicate the potential for future growth in many state VC ecosystems, if those ecosystems increase the number of companies with exits. Via this new report, PitchBook outlines a proposed framework for the evaluation of venture ecosystems in the United States. The framework is comprised of three key indicators:

  • Density – The number of businesses that have received venture funding by stage of funding, relative to state population;
  • Resources – Local capital that is available for venture-backed startups, participation of outside investors, and the relative cost of doing business; and,
  • Talent – Founder experience, local university pipeline, gender and diversity of founders.

For states with more developed late stage ecosystems, entrepreneurs face a difficult issue – proximity to capital is expensive. The researchers found that states with the most access to local capital ($2.5 million plus per VC-backed startup) also have the highest costs of labor and housing (relative to the national average). In comparison, states with an average of $1 million per VC-backed startup have labor and housing costs closer to the national average.

In the final section of the report, PitchBook researchers looked at the key talent components of a startup capital ecosystem, including experienced founders and workforce talent. With regards to startup founders, they found little variance between states with most states having between 3 and 5 percent experienced founders. PitchBook researchers, however, found that states differ with regard to local talent retention. The four states that performed the best for local talent retention included Utah (39 percent retention rate); Massachusetts (37 percent); Pennsylvania (34 percent); and, Michigan (34 percent). The researchers contend that one of the driving factors for talent retention was quality of those states’ institutions higher education, especially the existence of highly ranked research universities and top-tier colleges.


venture capital