The city of Boston is relatively small. With a population of 600,000 it is the 21st largest city in the United States and a combined metro area that ranks it at 10th. Nevertheless, it is constantly ranked as one of the most innovative places in the world. Presently, only a few companies in Boston are large enough where they are able to allow other startups to plug into them. Nevertheless, the startup industry in Boston is emerging rapidly. There are four important factors, intellectual capital, venture capital, advisors/angels/accelerators, and successful companies, that work together to create the perfect environment for a startup. Boston has all four of these influences working together perfectly, which makes it a great place for startups to thrive.
1. Intellectual capital: academia, innovation, diverse industries and ideas
Boston is a hub of academia. MIT, Harvard, Boston University, Boston College, and Tufts are just a few of the many prestigious colleges located in the area. In total there are 74 colleges and universities in the Boston area. That equates to about 265,000 students. Out of the 74 colleges, 8 of them are research universities that pump $7 billion into the economy each year on research and development. From this we see about 265 patents, 208 commercial licenses, and 41 start-up companies yearly. Boston is a leader in innovation. Interestingly, in 2011 the Boston/Cambridge area issued more patents per capita than San Francisco, Los Angeles, or New York City. The only city in the United States that issued more was San Jose. There is even an innovation district in Boston that is currently growing at a fast pace.
2. Venture capital
Venture capital is the money provided to seed, early-stage, emerging, and emerging growth companies. There are venture capital funds that invest in companies in exchange for equity in the company it invests in. In 2012 $3 billion was invested in venture capital in Massachusetts, compared to $14.1 billion in California and only $1.8 billion in New York. However, the venture capital investment per capita in 2012 was greater in Massachusetts at $454 per person, than in either California, $368 per person, or New York, $92 per person.
3. Advisors, angels, accelerators
An angel investor is an affluent individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. Accelerators are fixed-term programs that include mentorship and an educational component that end in a public pitch event or demo day. The proximity of Boston to New York City is a huge advantage. With thousands of startups and mature companies in New York, there are many advisors and angels who are eager to invest in emerging Boston startups.
4. Successful companies- to partner, poach and/or sell to
Many major technology companies such as IBM, Disney Research Science at Play, eBay, Cisco Systems, Microsoft, Google, and Amazon, are expanding and opening up offices in Boston. These large companies are very helpful for startups because they invest in and purchase new companies. Startups are able to plug into these larger companies to help them grow.
Boston has all of the right ingredients that make it the perfect ecosystem for new companies. The startup industry in Boston is currently booming. Over the next few years we should expect to see many more companies starting and others growing in the Boston area.