San Francisco climbs rankings in startup activity
San Francisco ranked fourth among U.S. metropolitan areas for startup activity, up from ninth in 2015 but trailing Austin, Miami and Los Angeles, according to a report released Thursday by the Ewing Marion Kauffman Foundation of Kansas City, Mo.
The report includes small businesses such as coffee shops and clothing stores, not just tech, which explains why the San Francisco-Oakland metro area does not come in first.
Startup activity in the San Jose metropolitan area dropped from third to eighth between 2015 and 2016, according to the report, which analyzed data from the Bureau of Labor Statistics.
The foundation defined startups as businesses that are less than a year old and employ at least one person in addition to the owner; it filtered out entrepreneurs who were looking for work just before starting their companies, to focus on those creating startups to seize a market opportunity.
The change in fortunes of San Francisco and San Jose may relate to living preferences.
More founders, companies and venture capitalists have moved from the San Jose area to San Francisco, according to Stanford adjunct Professor Steve Blank, who teaches entrepreneurship.
In the Bay Area, founders and employees from the Millennial age group are increasingly choosing to live in city centers, said Dennis Conaghan, executive director of the San Francisco Center for Economic Development.
Startup activity across the country has increased over the last two years, after hitting its lowest level in two decades two years ago, according to the report.
Startups take longer to recover from recessions — such as the one in 2007-09 — than large businesses, said Arnobio Morelix, a senior researcher at the Kauffman Foundation.
The Kauffman Foundation publishes a different entrepreneurship report that ranks metropolitan areas based on the number of initial public offerings relative to the total number of businesses in each area, among other metrics.
Comparing entrepreneurship in the Bay Area with other regions is like comparing apples to oranges, said Blank of Stanford.