Top 5 American cities for startups

While the San Francisco Bay Area — including Silicon Valley — has become an unofficial mecca for all things tech, S.F. isn’t the only place where startups thrive. Several other American cities are rising to compete with the Bay, offering budding companies room to play outside the shadows of giants like Google, Apple and Facebook, and at lower (read: lifestyle-friendly) prices.

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Below, we’ve curated a list for you of surprising and not-so-surprising locales where you might consider putting down startup roots. Our method? Looking at city tax breaks for small businesses, government programs, talent pools, culture, and more.

If you happen to live in one of these cities already, you should be good to go. If not, then you might consider making the move. Even if you’re not a founder in the making, you couldn’t ask for a more vibrant, inspiring scene than the startup world. (Although we might be biased.)

Without further ado:

1. San Francisco. Let’s just get this one out of the way. Why? Because if it didn’t make the cut, people would question the rest of the list. As home to Silicon Valley forerunners Stanford Research Park, Hewlett-Packard, and Xerox PARC, the Bay Area gets the legacy win here. The culture couldn’t be more fertile for startups.

Today, Google, Apple and Facebook employees wait on corners all over the city to have shuttles take them an hour south to work. And unsurprisingly, a healthy number of San Francisco-based startups claim one or more former Googlers as founders, including Instagram, Twitter, Pinterest and so many more — most of which settled in the Bay Area. Given the prominence of tech in the local zeitgeist, it’s nearly impossible to sit in a bar in the city and not overhear a conversation about so-and-so’s startup or startup idea.

Also, while San Francisco’s legendary pricey-ness seems like it would deter burgeoning, young entrepreneurs, its proximity to the epicenter of the venture capital universe is beyond compare. About 30 miles south, Palo Alto’s Sand Hill Road is lined with VC firms that are constantly on the lookout for the “next big thing.” Being able to take a meeting in the middle of the day is invaluable when a seed round or first round of funding is on the line, making SF and the Peninsula just south of it a no-brainer choice for most startup world denizens.

2. Los Angeles. Not that many people think of startups in a city dominated by the entertainment business. It makes sense, though, that a large metro area brimming with creative professionals (28.8% of Santa Monicans identify this way) would support some innovative companies. Plus, it’s a lot cheaper to live in any number of neighborhoods and suburbs ringing LA than in the Bay. Across the board, the cost of living is lower (domestic beer is $.40 cents less in LA after all).

LA’s young startup scene brings new meaning to City of Angels, with more and more angel investors and VCs settling in SoCal. AngelList, an online community for startups, reports that Los Angeles is home to nearly 1,300 startups and 1,500 investors. And the National Venture Capital Association reports that, in 2011 alone, VCs made 208 deals worth close to $2 billion with startups in and around the city. These numbers are likely to grow in coming years as LA produces more startup stars to join Fandango, Ticketmaster and Legal Zoom (like maybe one of these).

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And don’t forget, LA has Ashton Kutcher. Hey, that’s no laughing matter. SoCal techies should check out Socaltech.com, a growing community of startup folks swapping news, job listings, event announcements and more.

3. Denver. Heading east, our next stop is mountain country: Denver and its almost equally-attractive neighbor, Boulder. Like SF, Denver has its share of big names. Lower costs of real estate and doing business have made it a logical outpost for branches of Oracle, HP and SAP, all of which have nestled in the Denver Technological Center to the southwest of the city. This puts technology in the air, helped along by the DTC’s relatively new Innovation Pavilion, which match-makes startups with relevant companies, academic institutions and government firms to help them get off the ground.

Like LA, Denver and Boulder are also home to an impressive number of people identified as self-identified creatives (about 29.3% of the population). Education levels are also pretty high, with 69.1% having earned a bachelor’s degree or higher. It makes sense that Boulder is home to a small colony of government research organizations, including the National Institute of Standards and Technology and the National Center for Atmospheric Research. That’s a lot of smart people close together.

While Denver has yet to produce a blockbuster startup success story, its roster of names isn’t too shabby: ReadyTalk, Mapquest, Photobucket, and more. There’s a reason Brightkite founders Brady Becker and Martin May chose Denver for their newest play Fork.ly, after pioneering the place check-in concept.

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4. Washington, D.C. Landing on the east coast now, a trend is starting to emerge. Cities that concentrate brilliant, passionate people around certain ideas tend to be fertile ground for startups. Whether their interests are the movies or atmospheric pressure, these people tend to have the drive, skills and path-breaking ideas that could strike tech gold. In D.C., it’s politics. Every year, a deluge of kids from the best schools with diverse degrees pour into the D.C. metro area (46% of residents over 25 have a four-year degree; 25% have a graduate or professional degree). And, increasingly so, they’re looking for meatier opportunities than garden variety Congressional staffer jobs.

If you’re skeptical about the growing startup scene in and around the nation’s capital, look no further than Proudly Made in D.C., a website dedicated to the city’s robust community of entrepreneurs, engineers, designers and more. Given the site’s full calendar of events, it’s clear that D.C.’s penchant for networking and schmoozing isn’t lost on its tech crowd. Startups located close to the city include green-energy play Opower, Uber cab sibling Taxi Magic, GroupOn rival Living Social, and the list goes on.

Evidence has shown that nothing’s better for startups than a city that wants them. And D.C. and its surrounding cities want them badly. For example, just down the road in Baltimore, the Maryland Technology Development Corporation joined forces with the newly-minted Propel Baltimore Fund and the Abell Foundation to make angel investments ranging from $50,000 to $220,000 in startup companies locating in the city.. And, on the east coast, where most techies might think the choice is only between New York and Boston, D.C. offers a more relaxed (San Franciscan, shall we say), and much cheaper vibe.

5. New York, New York. Where better to end this list than the second-most obvious contender for best American tech city? Combine the smarts and flash-bang creativity of SF and LA with the frenetic pace and pedigree of the Northeast and you have a winning formula — despite the crushing cost of living that drives many techies to the outer boroughs. There’s a reason why Silicon Alley is a term, and why VentureBeat editor Matt Marshall recently relocated here. You can’t ignore the comet-like success of Foursquare and GroupMe (which was bought by Skype for an estimated $85 million).

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Following the financial collapse in 2008, a lot of young bright things — including an army of software engineers, designers and others — found themselves unemployed, looking to do anything except finance. New York responded well to this trend, spinning startup-friendly policies to keep the cream of the crop in town. This has allowed capital to flow more freely for new businesses and support founders in their efforts. Among other things, Mayor Bloomberg has announced an initiative to create a council on technology and innovation, and is backing a series of public forums on immigration to help startups source and keep top talent.

If New York keeps it up, we might have to coin a term for techsters to replace Mad Men. Taking a gander at this cool heatmap of startup activity in New York, it looks like there might be an epicenter around Gramercy Park. Ideas anyone?

Runners-up

1. Austin. A clear choice, given that San Francisco takes a field trip there every year for SXSW. It also came in first on PayScale’s 2010 list of cities to find the best jobs — with a major nod toward the tech industry.

2. Seattle. Wedged between Amazon and Microsoft, startups that take root in this rainy city have precedents for success and a lot of roaming tech talent to draw from. Zillow and Jobster certainly have.

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3. Raleigh/Durham. A dark horse candidate. At the start of this year, North Carolina and N.C. State University held an Innovation Summit designed to energize the city’s tech community. Now it plans to build an Innovation Center to house startups — and suck in VC dollars.