The map of the startup ecosystem is currently being redrawn as both investors and founders are adapting to a new economic reality — one that’s unlikely to sustain previous levels of funding.

In the U.S. and across the globe, 2021 marked the year of the most generous seed funding sprees. Since then, rising interest rates, supply chain disruptions, and inflation surges have all contributed to a more targeted and cautious approach from venture capital holders, who are now targeting AI, software as a service (SaaS), fintech and health tech startups. That tightening of capital means that startups must now rely more heavily on fundamental business health and the strength of their local ecosystems.

Simultaneously, local government initiatives that reduce the cost of doing business and create an environment that provides support and opportunities for these new companies also play a vital role in the success of a city’s startup scene.

With that in mind, we analyzed two categories of U.S. cities — those with populations below and above 1 million. Specifically, we measured their performances across a range of indicators — such as office or coworking costs; networking opportunities; startup density and survival rate; Kickstarter funding success; and the percentage of college-educated individuals — to ascertain which were the best breeding grounds for new businesses.

Here are some of the takeaways:

Populations Above 1 Million 

• Phoenix leads all major U.S. cities in startup density and growth
• San Antonio’s cost advantage — cheapest labor and office rents for startups
• Jacksonville, Fla., leads in freelance growth
• New York City #1 for networking opportunities
• San Diego’s research hub advantage — highest share of residents with bachelor’s degrees

Population 500,000 to 1 million 

• Austin, Texas, is #1 in new business growth & startup density
• Tucson, Ariz.’s triple advantage — lowest costs for office space, labor & living
• Fresno, Calif., freelancer workforce grows by 19% between 2019-2023
• Nashville, Tenn., & Austin, Texas, leverage creative industries for top crowdfunding performance

Cities With 1 Million+ Residents

Garnering 62.1 out of a total of 100 points, Phoenix led the ranking for U.S. cities with more than 1 million residents. As a matter of fact, the city amassed a solid series of first-place finishes, including collecting maximum points for its startup density and percentage increase. In addition, Phoenix boasted the second-highest jump in its total share of college-educated residents, extending its prospective talent pool by nearly one-third between 2019 and 2024.

Runner-up San Antonio totaled 57.1 points with strong performances across metrics that looked at the cost of doing business in various cities. For instance, it ranked first for both labor costs — with median earnings just below $43,000 per year — and regional price parity (RPP), while also having some of the lowest rates for renting office and coworking spaces. Unsurprisingly, these inherent advantages boost startup chances of survival: Two-thirds of new companies in San Antonio are still active up to five years after their initial establishment.

Next, Dallas and Fort Worth, Texas, occupy the following two positions with their numbers closely mirroring each other and demonstrating the strength of the wider metro area to which they belong. Noteworthy performances include ties for second place across the startup density and growth metrics, as well as the share of freelancers.

Then, in fifth place, Jacksonville, Fla., recorded the most significant percentage increase in its college-educated residents between 2019 and 2024, as well as the highest share of freelance workers within its labor force. Furthermore, the Jacksonville office and coworking rates are unbeatable among cities with more than 1 million residents.

Otherwise, honorable mentions include San Diego (eighth place overall), which boasts the highest percentage of residents with at least a bachelor’s degree, as well as the highest share of consulting firms within its local economy.

New York City came in last, mainly weighed down by metrics associated with the costs of doing business in the city. Nevertheless, it shone in terms of Kickstarter success rates and networking potential in a testament to the city’s creative potential, despite mounting challenges.