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

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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:

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.

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

Never miss an opportunity that’s right for you.

Author

David Luther

David Luther was the Content Marketing Editor for the Zippia Advice blog. He developed partnerships with external reporting agencies in addition to generating original research and reporting for the Zippia Career Advice blog. David obtained his BA from UNC Chapel Hill.

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