Innovation Ratings by State (Michigan #39)

THE UNITED STATES OF INNOVATION: RANKING THE STATES (AND A DISTRICT) FOR INNOVATION

OUR STATISTICAL RANKING REVEALS WHICH STATES HAVE THE MOST THRIVING STARTUP COMMUNITIES, AND WHICH STATES HAVE WORK TO DO.

Try as governments might, a thriving startup culture isn't legislated into existence. "Those that emerge have a group of entrepreneurs who are active in their community and have decided, hey, we're going to make this market better," says Scott Case, CEO of Startup America Partnership. They're the ones--usually a mix of first-timers and serial founders--who create networks and provide leadership. Where are they thriving right now?

THE UNITED STATES OF INNOVATION

• A Sunny Outcome: Why Florida Is Soaring High
• Rising From The Bottom: What Oklahoma and West Virginia Are Trying To Do Better
• Life Among The Crowd: Is Entrepreneurial Density Important?
• What's Growing In South Dakota?
• What's Hot In Alaska?
• State Swap: Which City Fares Better?
• Does Wealth Lead To Innovation?

We crunched the numbers, beginning by assessing the Bureau of Labor Statistics' launch rate of all private-sector businesses, as well as the Kauffman Index of Entrepreneurial Activity's percentage of people who are starting new businesses and how that percentage changed over time. Then, to see the health of young firms in particular, we tallied the percentage of jobs contributed by those less than three years old and how that percentage changed over the past five years. To analyze the self-described startup community, we incorporated the health and growth rate of Startup America members and a tally of AngelList andFundable members.

The result is a list with California near the top, as expected, but with new arrivals above it. Some developing startup cultures, like Iowa's, weren't yet reflected in the numbers, and some longtime hot spots like Massachusetts dropped down. "It used to be that there was only a small number of places like this, of which Boston and Silicon Valley have a long history of being leaders," says Scott Stern, professor at MIT's Sloan School of Management. But as they multiply, "that's a real bright spot if you want to have confidence in the economy." Read on to see how innovation is happening all over, and how your own community can learn from the winners.

RANKING THE STATES (AND A DISTRICT) FOR INNOVATION

1 // Florida 2 // Texas 3 // Maryland 4 // Arizona 5 // Alaska 6 // California 7 //Colorado 8 // New York 9 // New Jersey 10 // WashinGton, D.C. 11 // Nevada 12 //Connecticut 13 // Georgia 14 // Delaware 15 // New Hampshire 16 // Missouri 17 //Rhode Island 18 // Utah 19 // South Carolina 20 // Kentucky 21 // Vermont 22 //South Dakota 23 // Wyoming 24 // North Carolina 25 // Montana 26 // Washington 27 // Idaho 28 // Virginia 29 // Hawaii 30 // Maine 31 // New Mexico 32 // Wisconsin 33 // North Dakota 34 // Oregon 35 // Ohio 36 // Indiana 37 // Arkansas 38 // Illinois 39 // Michigan 40 // Tennessee 41 // Massachusetts 42 // Nebraska 43 // Pennsylvania44 // Alabama 45 // Iowa 46 // Minnesota 47 // Kansas 48 // Louisiana 49 //Mississippi 50 // Oklahoma 51 // West Virginia

TOP FIVE STATES FROM THE DATA WE CRUNCHED

ENTREPRENEURIAL ACTIVITY (2011) +
1 Arizona
2 Texas
3 California
4 Colorado
5 Alaska

PERCENT GROWTH IN ENTREPRENEURIAL ACTIVITY (2010–2011) +
1 South Dakota
2 Arizona
3 Connecticut
4 Missouri
5 Kentucky

STARTUPS PER MILLION RESIDENTS (2012) -
1 Washington, D.C.
2 Vermont
3 Rhode Island
4 Maryland
5 Colorado

REVENUE PER STARTUP (2012) -
1 Iowa
2 Maine
3 Florida
4 Ohio
5 New Jersey

PERCENT GROWTH IN STARTUPS PER MILLION RESIDENTS (2011–2012) -
1 Montana
2 Kentucky
3 New Mexico
4 Hawaii
5 Alaska
Sources: +Kauffman Foundation; -Startup America

PERCENT OF TOTAL EMPLOYMENT FROM FIRMS LESS THAN THREE YEARS OLD (2008–2010) ^
1 Nevada
2 Wyoming
3 Montana
4 Idaho
5 Florida

LEAST PERCENT DECLINE IN EMPLOYMENT FROM FIRMS LESS THAN THREE YEARS OLD (2006–2010) ^
1 South Dakota
2 Delaware
3 Vermont
4 New York
5 Arkansas

ANGELLIST STARTUPS PER MILLION RESIDENTS *
1 Washington, D.C.
2 California
3 Massachusetts
4 New York
5 Washington

RATE OF PRIVATE-SECTOR ESTABLISHMENT BIRTHS (THREE-MONTH PERIOD ENDING JUNE 2012) ^
1 North Dakota
2 Florida
3 Nevada
TIE Alaska; Washington, D.C.; Utah
Sources: ^ Bureau of Labor; Statistics: *Angellist

FUNDABLE ENTREPRENEURS PER MILLION RESIDENTS 
1 Nevada
2 Washington, D.C.
3 Georgia
4 Florida
5 Colorado

FUNDABLE INVESTORS PER MILLION RESIDENTS 
1 Washington, D.C.
2 Nevada
3 New York
4 Florida
5 California
Source: Fundable

TO TAX OR NOT TO TAX

The top 10 states on our list are a mix of low taxes (Florida, Alaska, Texas) and high taxes (Maryland, New York, California). Do taxes really affect startup cultures?

• Taxes make a big impact: “While corporate tax matters for big companies, many small businesses file under the personal income tax code. Being in a state without personal income tax can be a boon.” 
  --Scott Drenkard, economist, the Tax Foundation
• Taxes aren’t everything: “Few people say, ‘I’m starting a business, so I better move to a less-taxed state.’ Most would rather live where there is good infrastructure.” 
  --David Kautter, managing director, Kogod Tax Center at American University

SHOW STARTUPS THE SEED MONEY

Most accelerators offer mentoring and office space, But their financial deals vary greatly across the country.

$25,000

• Launch Pad
• Tech Accelerator, Miami.
• No equity taken.

$25,000

• Furnace
• Scottsdale, Arizona.
• Small percentage of equity taken, typically 3% to 5%.

$30,000

• Surge Accelerator
• Houston.
• No equity taken. Optional investment of up to $100,000 in return for equity is available.

$50,000 +

• Amplify L.A
• Los Angeles.
• In exchange for 5% to 15% equity.