2007 Series • No. 2007–3
Community Development Discussion Papers
Venture Capital Investment in Secondary Cities: Issues and Opportunities for Impact
Venture capital has been one of the major drivers of the U.S. economy. Using the State of the Inner City Economies database of the Initiative for a Competitive Inner City, we found that secondary cities – which we have defined as cities outside the 40 largest U.S. metro areas – have received far less than their proportionate share of private equity deals and dollars. By failing to attract capital at similar rates to larger cities, secondary cities are missing a major engine of job and wage growth. Notably, however, a number of secondary cities have managed to assemble the right combination of factors to significantly outperform their peers. To understand this better, we interviewed the leaders of 17 venture capital firms (including both national firms and regional firms and firms representing more than one-half of the top 10 investors in secondary markets). We also interviewed and surveyed 53 companies in secondary markets that successfully received venture capital investment funds, as well as industry experts and venture funding facilitators. Based on these interviews and surveys, our research posits six plausible factors that enable successful secondary cities to attract more venture capital than their peers.