Massachusetts remains a venture capital powerhouse amid cost-driven declines in business formation and private sector jobs
AT A GLANCE:
- Massachusetts still has the asset base to be a leader in venture capital. However, the lead over Texas has eroded from 2.5 to 1 in 2018 to 1.4 to 1 in 2025, and Texas outraised the Commonwealth in the first quarter of 2026. One good quarter interrupts that trend; it does not reverse it.
- Venture capital measures money in, not jobs out, and on the output measure Massachusetts went from one of the best business formation rates in the country in the 2010s to the lowest from 2020 to 2024 with roughly 35,000 fewer private-sector jobs than in January 2020.
- Only about 0.5 percent of new businesses ever raise outside equity like venture capital; it is the ordinary firms, the ones that do most of the hiring, that face the state’s high-cost structure instead. This is why Massachusetts needs broad-based tax and cost relief.
BOSTON – Massachusetts remains one of the nation’s leading innovation economies, attracting significant venture capital and ranking third nationally in business research and development. But that strength increasingly masks weakness in the broader economy, according to a new study published by Pioneer Institute.
“The state’s innovation economy and its overall economy are different things,” said Jeffrey Calabrese, author of “Massachusetts Reclaims its Lead Over Texas in Venture Capital While the Overall Economy Struggles.” “The venture capital that drives innovation is an input, while the broader economy is measured by outputs like jobs and business creation.”
In 2023, Massachusetts’ third-place ranking in business research and development confirms its status as a venture capital powerhouse, though its advantage over competitors has narrowed. In 2018, Massachusetts firms raised two and a half times as much venture capital as their Texas counterparts. By 2025 the ratio fell to 1.4 to 1. Texas startups actually outraised Massachusetts firms in the first quarter of this year before Massachusetts saw a resurgence in the second quarter.
Part of the disconnect is structural. Venture capital in Massachusetts is concentrated in research-intensive sectors like the life sciences, software, robotics and AI. These companies can attract enormous investments but tend to employ comparatively small teams of scientists and engineers in their early years.
In 2020, California, Massachusetts and New York attracted 73 percent of U.S. venture capital investment but accounted for just 37.5 percent of employment in venture-backed companies.
Cambridge biotech Biogen provides a local example of this phenomenon. Its research remains concentrated in Massachusetts, but its largest manufacturing footprint is in North Carolina.
Meanwhile, the broader state economy continues to show signs of weakness. From January 2020 to September 2024, Massachusetts had the nation’s lowest average net quarterly business formation rate – one tenth of the national average. The number was especially surprising because from 2010-2019 the Commonwealth ranked second in net business formation.
Massachusetts experienced a net loss of 17,549 businesses over nine consecutive quarters ending in September 2024.
The Commonwealth also had fewer private sector jobs at the beginning of this year than in January 2020. National employment grew by 4.65 percent during that time, while Massachusetts employment declined by 1.06 percent.
While targeted incentives can be effective at attracting venture capital, Calabrese argues that reviving the broader economy will require broad-based relief from high taxes and housing, healthcare and energy costs, as well as permitting and regulatory regimes that add expense and delay.
Most Massachusetts businesses—and an even larger portion of small businesses—are pass-through entities taxed through their owner’s individual income tax returns. Income tax relief would therefore reach businesses across the economy, including construction and engineering firms, professional practices, small manufacturing, retailers and restaurants.
North Carolina provides a compelling comparison. Over the past decade, the state reduced its personal income tax from 5.8 percent to 3.99 percent and its corporate tax declined from 6 percent to 2 percent, with the latter scheduled to be eliminated in 2030. Since 2020, North Carolina has added about 400,000 private sector jobs. Despite cutting its personal income tax rate by roughly a third, inflation-adjusted state tax revenue grew by about a quarter between fiscal 2014 and fiscal 2024.
“Massachusetts is increasingly a tale of two economies,” said Pioneer Executive Director Jim Stergios. “Our venture-backed companies keep us at the forefront of global innovation. But hundreds of thousands of small and mid-sized businesses drive the broader economy—where most people live and work. Beacon Hill needs to focus on making Massachusetts a place where regular hardworking people can grow businesses and create jobs.”
About the Author
Jeffrey Calabrese is a Senior Fellow at Pioneer Institute, where his research focuses on policies that impact economic opportunity. He spent fifteen years across financial services and technology, most recently as Global Head of Data Science & Analytics at HarbourVest Partners, a Boston-based private equity firm. Before that, he spent ten years at Goldman Sachs in data leadership roles within the Prime Services business. He also led Sales Engineering at Buildium, a Boston-based property technology company that was acquired by RealPage for $580 million. Jeff is a former chair of the Town of Winchester Finance Committee, and he serves as an elected Town Meeting Member. He holds a J.D. from Suffolk University Law School, is a member of the Massachusetts Bar, and earned a B.S. in Finance, summa cum laude, from Northeastern University.
