Venture capital is the fuel that powers high-tech innovation and entrepreneurial startup companies. Previous research has been hampered by a lack of data, or more specifically, by the availability of only highly aggregated data at the state or metro level. This study overcomes this hurdle by using more detailed zip code-level data to identify microclusters of venture capital investment and startup activity at the neighborhood level.

Its main findings are as follows.

The top 20 neighborhoods or zip codes for venture investment include nine in San Francisco, five in San Jose, three in Boston-Cambridge (one in suburban Waltham and two in Cambridge close to MIT) and one each in San Diego (close to the University of California, San
Diego), Dallas, and New York (close to New York University).

These top 20 neighborhoods account for more than $10 billion, nearly a third of the total venture capital. Furthermore, less than one percent (0.2 percent) of all zip codes, or 83 zip codes, attracted more than $100 million in venture capital investment. These neighborhoods account for 60.7 percent of all venture capital investment.

There are two billion dollar venture capital neighborhoods, both in downtown San Francisco: South of Market/Mission District (94103) and Rincon Hill (94105). Palo Alto, neighboring Stanford University, is a close third with $988 million in venture capital investment. Three more neighborhoods – two in San Francisco and one in San Diego, close to the University of California, San Diego, received more than half a billion in venture capital investment.

When it comes to industry, venture capital investment breaks down as follows.

Software: Fifteen of the top 20 neighborhoods are located in the San Francisco Bay Area, eight in San Francisco and seven in San Jose. These top 20 zip codes account for $5.2 billion or 43.5 percent of all software investment.

Biotech: Eight of the top 20 neighborhoods are located in San Francisco, five in Boston, two in San Diego, and two in Washington, D.C. Venture investment in biotechnology is often located near universities or research centers. These top 20 neighborhoods account for $3 billion or over half of all biotech investment.

Media and Entertainment: Six of the top 20 neighborhoods are located in San Francisco, four are located in New York, three in San Jose, and two in Los Angeles. These top 20 neighborhoods attract nearly $2 billion or nearly two-thirds (62.9 percent) of all venture investment in media and entertainment.

Medical Devices: Three metros — San Francisco, Boston-Cambridge, and Los Angeles — each have three neighborhoods in the top 20. These 20 leading neighborhoods attract $1.1 billion or nearly half (46.5 percent) of all venture investment in medical devices.

Information Technology Services: Eight of the top 20 neighborhoods are in San Francisco with three each in San Jose and New York. These top 20 neighborhoods attract more than $1 billion or over half of all venture investment in information technology services.

Comparing these industries, neighborhood-level venture capital investment shows clear evidence of an urban shift back to downtown areas, while investment in biotechnology is more clustered around major universities and research institutes.

Venture capital investment and startup activity are spiky — tightly concentrated not just in cities and metro regions, but in distinct neighborhood micro-clusters across the United States.

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Exhibit 2: Top 20 Zip Codes by Venture Capital Investment

Rank	Zip Code	Neighborhood	Metro	Venture Capital Investment*	Share of Venture Capital Investment
1	94103	South of Market / Mission District	San Francisco	$1,057	3.20%
2	94105	Rincon Hill	San Francisco	$1,004	3.04%
3	94301	Palo Alto	San Jose	$998	3.02%
4	94107	Potrero Hill / Dogpatch / South Beach	San Francisco	$885	2.68%
5	92121	Sorrento Valley	San Diego	$568	1.72%
6	94080	South San Francisco	San Francisco	$501	1.52%
7	02451	Waltham	Boston-Cambridge	$484	1.46%
8	94104	Financial District	San Francisco	$481	1.45%
9	94025	Menlo Park	San Francisco	$426	1.29%
10	94043	Mountain View	San Jose	$402	1.22%
11	94041	Old Mountain View	San Jose	$392	1.19%
12	94063	Redwood City	San Francisco	$378	1.14%
13	02139	Cambridge / MIT	Boston-Cambridge	$377	1.14%
14	94065	Redwood Shores	San Francisco	$369	1.12%
15	75034	Frisco	Dallas	$368	1.11%
16	94085	Sunnyvale	San Jose	$351	1.06%
17	02142	MIT	Boston-Cambridge	$320	0.97%
18	95054	Santa Clara	San Jose	$313	0.95%
19	10012	Soho / NYU	New York	$310	0.94%
20	94111	Financial District / Embarcadero	San Francisco	$306	0.93%
Top 10 Zip Codes				$6,807	20.60%
Top 20 Zip Codes				$10,291	31.14%

*In millions of U.S. dollars