Why startups benefit from moving to Silicon Valley

A recent paper suggests that the answer is often yes, but that certain regions stand to benefit more than others.

Silicon Valley, in particular, is a great destination for startups because of what the paper refers to as the “entrepreneurial ecosystem” — an extensive network of organizations, from venture capital firms to other startups, that help foster new ideas and innovation.

Specifically, startups that relocate to Silicon Valley are 277% more likely to achieve an initial public offering or equity raise through an acquisition than if they stayed home. Such a move also increases the likelihood of securing venture financing by about 218% and obtaining a patent by 60%, according to Jorge Guzman, an associate professor at Columbia Business School and author of the study.

Other Hubs

Relocation to other tech hubs, such as Denver, Los Angeles, Boston and New York, also brings varying degrees of benefits to startups, but in most cases the benefits are no greater than those of moving to Silicon Valley, the paper found.

“Silicon Valley has the best ecosystem by any metric: venture capital, patents, startup creation,” Guzman says.

Guzman analyzed 405,536 companies that registered in Delaware but were headquartered in another state between 1988 and 2014. He identified companies that moved their headquarters to another state within two years of registering. He chose this group of companies because previous academic research has found that companies that register in Delaware are more likely to file for an IPO, receive venture capital funding, or be acquired.

He used several techniques to control for the fact that the highest quality companies are most likely to relocate to the nation’s tech hubs. He used machine learning algorithms to estimate the growth that companies would have had if they had stayed in their original location. He also compared companies that relocated to the same tech hubs at different times and identified variables that could provide alternative explanations for companies’ relocation decisions, such as the age of the founders, state income tax rates, and even weather patterns.

Key Indicators

Guzman also sought to understand which elements of the entrepreneurial ecosystem most influence startup growth. He looked at metrics such as the amount of venture capital, patents per capita, and number of entrepreneurs per capita. He found that patents per capita was the metric most strongly linked to startup growth. This suggests that local idea generation is more important than the availability of capital or the presence of other startups, he said.

The startups Guzman studied relocated more than a decade ago, and since then, many new tech hubs have emerged and grown in other parts of the country. Still, Guzman believes Silicon Valley may continue to hold an advantage over other regions because it remains a center of innovation. In his paper, he cited a 2022 study by PricewaterhouseCoopers and CB Insights that found the share of venture capital flowing to Silicon Valley has remained at about 50% for more than a decade.

“Silicon Valley is truly the poster child for innovation,” he says.

Lisa Ward is a writer in Vermont. Contact her at reports@wsj.com.