The Creative Class
Where does the creative class reside and where are they going? Established tech hubs have a large creative class already. We are seeing people migrate out of those hubs because the cost to live there is so high. San Francisco especially. Richard Florida wrote an article where he tried to map it. He defines the creative class as people employed in knowledge jobs.
My home city of Chicago is middle of the pack. I see people leaving Chicago and coming. Growth of the creative class is slow and it’s certainly something to watch since taxes and cost of living have risen exponentially over the past couple of years and it looks like they will rise even more given the pension crisis. However, the number one thing keeping outsiders away from moving to Chicago is fear of violent crime. Even though that doesn’t play out in the neighborhoods where creatives reside, outsiders don’t know the difference. A group of graduate students at the University of Illinois found that stat a few years ago in a comprehensive study they did on entrepreneurship in the Midwest.
Why are creatives important? Because the creative class jobs are generally higher paying with higher upside. If we want to increase standards of living for people across the board, it’s important to create and attract creative class workers. The good news is that only 60% of these kinds of jobs require some sort of college degree. What was interesting to me is where the momentum is. Word of mouth travels on the rails of momentum. If you are younger and in the creative class, are you hearing a conversation about people moving to these towns?
Why is venture capital so important? It creates jobs. I saw a statistic where venture capital investment represented .02% of all investible capital but created 21% of new jobs. Investible capital includes all the money that goes into all investment classes which is in the many trillions of dollars.
Large Metros with the Fastest Growth in Creative Class Shares, 2005-2017
Fastest Growth | |
Salt Lake City | 24.1% |
Pittsburgh | 19.7% |
Cincinnati | 19.6% |
Grand Rapids | 17.9% |
Cleveland | 17.3% |
Richmond, Virginia | 16.8% |
Las Vegas | 16.7% |
St. Louis | 16.4% |
Seattle | 16.0% |
Baltimore | 16.0% |
Fastest growth can be a bit deceiving since a high percentage gain can come off a smaller base. But, anecdotally in conversations, I have heard Pittsburgh is a destination. The others have not come up in the circles I run in.
My generation is also moving. But, they are moving to tax havens and warmer climates like Florida, Arizona, South Carolina, Tennessee. They are fleeing places like Illinois. Illinois lost population again last year and is the only state in the country to see that happen save West Virginia. People are starting to leave Connecticut, New York, California and New Jersey for lower tax states. This is more a symptom of retirees or future retirees moving. While they might be in the creative class, they aren’t moving to become a part of a new creative class center.
If we flip the data a little, here are the large cities with the largest creative classes in 2017. The surprise to me here is Baltimore. It’s in the Washington DC area so the creatives must be in Baltimore since the politicos are in DC. Again, if you are younger, are you hearing these cities in conversations? I wonder what new cities might be coming up in conversations. For example, Tennessee has a lot of in-migration but none of their major cities shows up in the data. You’d think Nashville would be a place with a lot of momentum in the creative class given the music industry. Los Angeles isn’t in the top tier either.
Large Metros with the Largest Creative Class Shares in 2017
Largest Shares | |
San Jose | 51.3% |
Washington, D.C. | 50.7% |
San Francisco | 48.1% |
Boston-Cambridge | 46.8% |
Raleigh | 46.5% |
Austin | 45.0% |
Baltimore | 44.9% |
Seattle | 44.3% |
Denver | 42.3% |
Philadelphia | 42.2% |
Again, you need to tease the data to see if it’s a startup hub. The way to do that is follow the venture capital dollars. Where are the investors investing more dollars in more deals? In Chicago, our investment dollars are flat this year and actually went down a bit in the first quarter of this year.
When you see the money start to flow to new tech hubs at all stages, especially seed and Series A stages, you will know a rise of the rest is happening. It’s important to note, the pie isn’t fixed. A gain in one city doesn’t mean another city lost. Once a city has established itself, like San Francisco, New York, or Boston, startup funding is a gift that keeps on giving. There are network effects and even though the broader city goes through a lot of difficulty, those network effects are hard to break.
The upshot is this: While some smaller places, mainly in the U.S., do well on a per capita basis, venture capital increasingly flows to large global cities, with all their density and dynamism. Here is some 2016 data from Richard Florida.
Rank | Metro | Venture Capital Investment (millions) | Share of Global Venture Capital Investment |
1 | San Francisco | $6,471 | 15.4% |
2 | San Jose | $4,175 | 9.9% |
3 | Boston | $3,144 | 7.5% |
4 | New York | $2,106 | 5.0% |
5 | Los Angeles | $1,450 | 3.4% |
6 | San Diego | $1,410 | 3.3% |
7 | London | $842 | 2.0% |
8 | Washington | $835 | 2.0% |
9 | Beijing | $758 | 1.8% |
10 | Seattle | $727 | 1.7% |
11 | Chicago | $688 | 1.6% |
12 | Toronto | $628 | 1.5% |
13 | Austin | $626 | 1.5% |
14 | Shanghai | $510 | 1.2% |
15 | Mumbai | $497 | 1.2% |
16 | Paris | $449 | 1.1% |
17 | Bangalore | $419 | 1.0% |
18 | Philadelphia | $413 | 1.0% |
19 | Phoenix | $325 | 0.8% |
20 | Moscow | $318 | 0.8% |
Top 20 Total | $26,790 | 63.6% |
Here are some 2017 data on the United States. Clearly, the Bay Area is still and always be the kahuna. Combine SF with San Jose and it’s 44% of all VC invested in the US. No surprise there.
Metro | VC Investment 2017 (millions) | Share of U.S. Total 2017 |
San Francisco | $25,215 | 33.20% |
New York | $12,344 | 16.25% |
Boston | $8,737 | 11.50% |
San Jose | $8,345 | 10.99% |
Los Angeles | $6,545 | 8.62% |
Chicago | $1,839 | 2.42% |
Seattle | $1,734 | 2.28% |
Washington | $1,551 | 2.04% |
Austin | $1,174 | 1.55% |
Atlanta | $1,157 | 1.52% |
Miami | $1,043 | 1.37% |
What’s interesting is none of the “fastest creative class” growth cities turn up in 2017 data on venture capital investment. New York saw its level of venture capital investment explode from less than $2 billion in 2006 to more than $12 billion in 2017. It accounted for more than 20 percent of the total U.S. growth in venture capital over this period, as its share more than doubled from 7.5 percent in 2006 to more than 16 percent in 2017. Los Angeles was the only other startup ecosystem had statistically meaningful growth, 9.4%, when related to venture capital growth nationwide. Will the new creative class entering cities attract VC investment and turn into startup hubs? Remains to be seen.
If I were looking to put myself in a startup hub, I’d follow the money and I’d also follow the conversation. I’d try and expand my network to listen to word of mouth conversations about where people are going. That might be where the growth opportunity lies. You can expand your network a variety of ways. Reading, listening to podcasts, sifting through data all will help. You can go visit as well and go to some meet-ups where you meet people you never would have met had you stayed put. It’s fair to say out of the cities with high venture capital investment, only three are lower tax/lower cost of living and they are at the bottom of the list.
Source: http://pointsandfigures.com/2019/07/14/the-creative-class/
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