These Are the 10 Worst States to Fund a Startup in 2017

We analyzed the worst (and best) states for getting your startup off of the ground based on the all-important availability of venture capital funding.

David Lutherby David LutherRankings - 4 months ago

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When you hear “startup” your mind immediately goes to Silicon Valley, or maybe the HBO show about a startup in Silicon Valley: Silicon Valley. And there’s a ready explanation for this, that the vast majority of funded startups (40 percent) are in the Bay Area, quickly followed by NYC and Boston (about 25 percent).

But if you’re interested in getting your super awesome idea for a cat-walking gig economy app and want to steer clear of the Valley, the alley, and Kendall Square; where do you go? Probably nowhere — since it’s a terrible idea — but if you won’t listen to that advice then at least try to avoid the ten worst states for startups:

  1. Alaska
  2. Hawaii
  3. Mississippi
  4. Oklahoma
  5. Wyoming
  6. North Dakota
  7. South Dakota
  8. West Virginia
  9. Alabama
  10. Montana

We have a complete list showing how all fifty states stack up at the bottom of the page, but first, here’s a rundown on what qualities the best states have — and consequently what the dubious top ten on our list lack.

What we used to determine the worst places for startups

Even if you’ve identified a niche, product, service, market, and all of that other jazz, probably the most important thing for your startup’s success (beyond a competent and knowledgeable team) is access to funding.

worst states for startups

VCs are near startups and startups near VCs, meaning that the more VC action happening, the more likely you are to find successful startups. So, we used PwC MoneyTree data for the first three fiscal quarters of 2017 to compare the volume and value of VC deals in each state. Specifically, we looked at:

  • The raw number of VC deals in each state
  • The total value of those deals

We ranked each state by those criteria based on the available data for each fiscal quarter of 2017. Then, we added up their scores and ranked them accordingly.

Why these states are so terrible for startups

The reason the Bay Area is so solid for startups is kind of like a zen koan: it’s the startup mecca because it’s the startup mecca. Startups need mentors, talent, and venture capital funding — and all of these factors thrive in a cluster.

The average Seed and Series A stage companies take about 10 percent longer to raise funds outside of California, New York, and Massachusetts, which equates to spending an additional month chasing Series A capital and two more months hunting for Series B capital — that’s critical time in the lifecycle of a startup.

And startups tend to acquire other nearby startups. Crunchbase showed 335 acquisitions in California since 2006, and 225 of them were of other companies based in California. Even If you assume acquisitions were to be distributed across states weighted by their startup population, that number is about 39% higher than you would expect.

But this only explains why about two thirds of startups are in the top three states, but not why almost none are in the bottom ten, or why they’re so damn bad for startups.

Sadly, the worst states for startups suffer primarily because there is simply no money or educational capital available in these states, which have largely weak economies and few universities. The main three reasons startups struggle in these state are:

  • It takes longer to raise money.
  • It decreases your odds of being bought.
  • It decreases your odds of success.

So if you want that cat-walking app to really get its legs under it, you should trying walking it around the Bay Area.

The worst states to found a startup

State Rank Fewest Vc Deals Lowest Vc Value
Alaska 1 1 1
Hawaii 2 3 2
Mississippi 3 2 3
Oklahoma 4 4 4
Wyoming 5 5 6
North Dakota 6 6 7
South Dakota 7 8 5
West Virginia 8 9 8
Alabama 9 11 12
Montana 10 10 14
Arkansas 11 14 11
Kansas 12 16 10
Louisiana 13 13 13
Maine 14 7 20
Vermont 15 18 9
Iowa 16 21 15
Nevada 17 20 16
Idaho 18 12 27
New Mexico 19 15 24
New Hampshire 20 19 22
Delaware 21 23 19
Kentucky 22 17 25
Tennessee 23 27 17
Wisconsin 24 26 18
Nebraska 25 24 23
Rhode Island 26 22 26
Indiana 27 32 21
Oregon 28 29 28
Connecticut 29 28 30
South Carolina 30 25 34
Arizona 31 30 32
Missouri 32 31 31
Michigan 33 34 29
Minnesota 34 35 33
New Jersey 35 33 37
Ohio 36 38 35
Virginia 37 39 36
Maryland 38 37 40
Utah 39 36 41
Georgia 40 42 39
Pennsylvania 41 43 38
North Carolina 42 41 42
Florida 43 40 44
Colorado 44 45 43
Illinois 45 44 45
Texas 46 47 46
Washington 47 46 47
Massachusetts 48 48 48
New York 49 49 49

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