It's being called the great inversion. New research shows that venture capital investments in high tech are shifting from the suburbs of municipalities like San Francisco, Boston and Seattle to urban centres which are demonstrating their value as crucibles of innovation. The findings are contained in a report by Richard Florida, author of such influential works such as The Rise of the Creative Class and Cities and the Creative Class, which argue that cities with diverse, educated populations and strong cultural amenities are powerful magnets for innovation and hence the financing to support it.

Entitled Startup City: The Urban Shift in Venture Capital and High Technology, the report examines the move away from financing high-tech companies in suburban areas surrounding cities and into urban cores. Florida, director of the Martin Prosperity Institute at the Univ of Toronto's Rotman School of Management and global research professor at New York Univ, draws heavily on his previous research and that of influential theorists like Michael Porter and Jane Jacobs, He also uses data sets from 2011 and 2012 to bolster his ongoing research into the "changing and increasingly urban geography of venture capital and high tech startups".

The data sets were generated by the US National Venture Capital Association/ Thompson Reuters and Dow Jones using telephone area codes and mailing zip codes to parse data of total number of VC deals in the US, the number of firms receiving VC and the dollar value for VC in the metro areas of 11 leading regions.

The most dramatic example of the shift is in the San Francisco Bay area which was home to nearly $11 billion in VC investment in 2012 or more than 40% of the national total for that year. The data show that while suburban Silicon Valley secured about $4 billion, it was outstripped by San Francicso proper which attracted $7 billion.

It's a similar story for the urban centres within the Boston-New York Washington (BosWash) corridor. The cities within the corridor, including Boston, New York, Washington and Philadelphia, account for $6.2 billion in VC investment or 23% of the national total.

Cities within the third largest area of VC investment — southern California stretching from Los Angeles to San Diego — attracted $3 billion in VC or 11.4% of the national total.

For Florida, the reasons for the shift are obvious and powerful.

"Venture investment tracks the geography of talent, being correlated with the percentage of adults who are college grads and the percentage of the labor force holding knowledge-work jobs in the creative class (those spanning science and technology, management, the professions, and arts, media and entertainment)," states the report " It makes intuitive sense that venture capital would be drawn to the deep talent pools that are found in great cities and around research universities and college towns."

The main cities account for more than half the investments in six of the 11 regions. In three — New York, Austin and San Diego — that share is more than 80% while in Seattle it accounts for two thirds. Two cities — Philadelphia and Dallas — buck the trend and continue to see the bulk of VC investment in suburban areas surrounding the cores.

The report concludes that the shift can be attributed to several key trends:

* access to talent (high tech workers are choosing to live in denser, diverse urban cores that are less car-dependent);

* density and efficiency of urban centres:

* the changing nature of technology (the current focus on software, cloud computing and apps alow companies to shrink their footprints).

On the downside, the VC shift to urban centres is resulting in inequality and backlash as rapidly rising rents are exposing the economic gap between high tech workers and everyone else).

The report notes that data covering a longer time period is required to better understand "the full extent of the urban shift in venture capital and startup activity.'. It can be found at www.martinprosperity.org.

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