Study puts Hub on top of the tech heap

Study puts Hub on top of the tech heap

Massachusetts entrepreneurs and investors are used to second-banana status. So it may come as a surprise that two reports released last week put the Bay State firmly at the top of the technology pyramid.

For the fifth time in a row.

The Ewing Marion Kauffman Foundation, a prominent institution for entrepreneurial research, has ranked Massachusetts number one five times running in a periodic study examining the strength of states’ innovative industries, education and government leadership. California, number two in 1999, slipped over the past decade to number seven on that list.

A second study, less ambitious in scope, put Massachusetts at the top in a count of venture-capital financings per capita. California leads by far in absolute numbers, according to the study published by the venture research blog However, Massachusetts’ 6.6 million people produced 659 venture-capital financings in the past 12 months, more than any other state.

The numbers, coupled with a fall in state jobless numbers, to 8.1 percent, gave Massachusetts state officials reason to crow.

“I would take ours — the hand that we have — over pretty much any other state in the union,” said Greg Bialecki, state secretary of housing and economic development.

In addition to technology-related sectors, he said Massachusetts’ pool of financial services firms is better poised for the coming decades than New York’s or London’s, due to its focus on long-term investments.

California, meanwhile, has fallen under high taxes, too much red tape, and a lack of investment in education and infrastructure by its fiscally troubled state government, said researchers at the Information Technology and Innovation Foundation (ITIF), which co-authored the study with Kauffman.

“California led the world in investment in building blocks for the future: highways, roads, infrastructure and higher education,” said ITIF founder and president Robert Atkinson. “They don’t do that as much any more.”

In Massachusetts, Bialecki touted the state’s recent partnership with EMC Corp. (NYSE: EMC) and Cisco Systems Inc. (Nasdaq: CSCO) to build a $5 million data center in Holyoke. He also mentioned new efforts at improving partnership between the UMass system and the state’s private universities.

Still, venture firms remain focused on California. Cambridge firm General Catalyst Partners recently announced its intention to open a satellite office in Silicon Valley — a second attempt at establishing a California hub.

The closure of its first attempt, which was headquartered in Southern California, underscored the differences between Silicon Valley and the rest of the state, said Michael Schreck, a former general partner who directed the effort.

In spite of having San Diego, a biotech hub, Southern California’s investor community is more interested in Hollywood, middle-market buyout or wealth management, Schreck said.

When startups do get funded, incentives are often misaligned.

“Because there’s so much affluence, entrepreneurs expect the Bentley prior to the liquidity event,” he said, “and that’s just backwards.”

In past Kauffman-ITIF comparisons by metro area, Boston lags behind Silicon Valley, Atkinson said. Indeed, recent data from venture tracking firm CB Insights suggest New York City may be replacing Boston in the number-two spot for early-stage Internet startup financing.

Prolific early-stage venture firm First Round Ventures, based in Philadelphia, is relocating principal Phineas Barnes to New York. Barnes, who spends a fair amount of time scouting deals in Boston, said New York has surpassed Boston in consumer Internet.

Echoing the comments of Silicon Valley super angel Ron Conway and other high-profile investors, Barnes said: “If you look at ad tech, media and consumer Internet, New York is the hub,” he said. “If you took the life sciences and things out of it, it’s hard to think of Boston as the hub.

Boston Business Journal – by Galen Moore

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