Innovation Isn’t Real Estate: Why Startup Hubs Waste Money
The garage myth keeps fooling policymakers
Innovation is not a real estate play, and your innovation district is likely disappointing entrepreneurs. Yet cities, universities, and corporations keep pouring millions into gleaming new “innovation spaces” and “hubs,” mistaking glass walls and free Wi-Fi for entrepreneurship. To some extent, understandably; startup folklore inspires us with stories of the innovation spaces of 3M, Xerox PARC, or Stanford Research Institute, or of the garage startups (HP in Palo Alto or Jobs and Woz in Cupertino), but that folklore has been bastardized into the belief that if you just build a nice space, innovation will show up like DoorDash. Too many communities (likely yours), ignore the fact that those innovation spaces became legend because of the culture, people, and programming within them.
A graveyard of “innovation districts”
Support of innovation looks like meaningful attention, relevant mentorship, tested programming driving outcomes, and collisions of experience. If you don’t believe it, look beyond the pretty space and popular event, at the graveyard of empty incubators and “innovation districts” that litter cities, and then look further at the fact that almost all are struggling to find partners, sponsors, and investors, to support the work they hope thrives within.
Such space is as useful to founders as a broken Keurig; nice looking, but no actual coffee.
Events, meetups, and packed demo days are the most seductive of false positives. They look like momentum, they photograph well, and they give economic development officials and city leaders the impression that something meaningful is happening. But activity isn’t impact. It’s no different than bragging about website traffic when none of it converts to sales; vanity metrics that hide the absence of real outcomes. A tour through an innovation hub buzzing with people and branded swag can easily persuade a visiting delegation or justify another grant, but when the dust settles, most of those “wins” evaporate. What matters is not attendance at happy hours or applause at pitch nights, but whether companies actually raise capital, grow revenue, and create jobs. Without that, the hub is just theater.
The core problem is that policymakers and real estate developers confuse inputs with outputs. They think physical infrastructure is the spark, when it’s actually just overhead. Harvard Business Review studies have noted that mentorship is the single most valuable resource for entrepreneurs, outweighing capital (which I’ve also pointed out is fishing in the wrong pond) and co-working space. Innovation happens when knowledge transfers, networks expand, and founders are forced to validate their markets. A building does none of that.
When space actually matters
There are exceptions. Labs and robotics centers matter because they rely on specialized equipment you can’t replicate at home: wet labs, CNC machines, and clean rooms. In those sectors, infrastructure is a necessary catalyst. But the folklore of the startup garage comes from the fact that brilliant partners within a space of their own focused on changing the world; the majority of startups (SaaS, AI, fintech, media, consumer products) don’t need a $40 million “innovation cathedral,” and that $3,000,000 grant your city just gave to a company promising innovation in exchange for property, got taken. What they need is access to advisors who’ve actually built companies, structured programs that pressure-test their assumptions, and communities that foster both trust and competition.
MIT already told us this
The irony is that we already know how ecosystems thrive. MIT’s Regional Entrepreneurship Acceleration Program (REAP) found that successful startup regions require five stakeholders: government, universities, corporations, risk capital, and entrepreneurs – engaged in intentional programming.
Space isn’t even part of the framework – though arguably (or rather, already, and you should be using it): corporations and universities have it.
What governments should be doing is aligning policy and capital with those interactions. That means funding early-stage risk by funding programs, platforms, conferences, and promotion of the ecosystem, so private investors are encouraged to step in because the entrepreneurs are footing the bill when their precious resources are better allocated elsewhere. It means embedding mentorship into economic development budgets, supporting seasoned founders to guide the next generation rather than expecting them to volunteer out of goodwill. It means reforming procurement, so startups can win government contracts and validate markets early. And it means incentivizing universities and corporations to open their doors (labs, data, and distribution channels) as well as their real estate. Ecosystems grow where governments reduce friction, lower the cost of experimentation, and expand access to customers and capital. Everything else is ribbon-cutting theater; and entrepreneurs are waking up to the fact that the theater isn’t worth the price of admission.
Why local leaders keep funding spaces
Real estate is tangible, and mayors love a photo-op in front of renderings. I’m serious, your city is doing it because Austin did it, or whatever city your City Council saw it being done in during an offsite in order to learn about innovation. Because “innovation” makes zoning requests easier to sell. Because universities need donor bait.
The result? Spaces that become empty calories for ecosystems; burning budgets that should be spent on seed funds, accelerators, and mentors.
HP didn’t need an innovation district to get started. Dell didn’t emerge from a capital-intensive coworking space. The lesson of garages and dorm rooms isn’t that scrappy space is the magic; it’s that founders will find a way. The real determinant of whether they succeed is whether the surrounding ecosystem provides knowledge, networks, and capital to scale.
What Cities Should Fund Instead of Co-Working Spaces
I’m not going to let you go after merely complaining; here’s a curated blueprint of infrastructure, platforms, programs, and perks – things startups usually pay for themselves, but smart cities could subsidize to actually move the needle:
Mentorship Networks with Stipends Pay actual founders, operators, and investors to mentor startups; even for a few hours a month. Don’t expect generosity – compensate wisdom. Note that to help, this has to be heavily curated to ensure that the mentors are startup experienced and not just consultants in their field. So, is there infrastructure? You bet, why not put Intro or Clarity in place? Government dollars here pay dividends in founder behaviors and ecosystem trust.
Startup Procurement Pathways Open city contracts to startups by streamlining the RFP process and seeking the solution to the problem rather than a business that meets certain metrics, true pilot opportunities for innovation. That’s what moves the dial: real customers, revenue, and market validation funded by policy shifts. I know, for example, there are technologies available for greater effectiveness in Public Safety, such as putting police in vehicles via video and a smartphone, during a traffic stop.
Global Training Platforms & Community Access Subsidize access to professionally designed startup tools and assessments. Example: Google for Startups offers founder toolkits; Founder Institute provides structured “Entrepreneur Assessment” and a global network. Ewing Marion Kauffman Foundation calls for building “market infrastructure” like this (not Accelerators) to close capital access gaps.
Technical Stack Sponsorships Cover essential SaaS and hosting costs: web hosting (e.g., WP Engine), collaborative analytics or anything better than Google since they screwed theirs, dev sandbox environments, or even GitHub credits. Identify the recurring tools that early-stage startups pay for and supply them citywide, getting friction out of the way.
Customer Pipelines via Corporate Partnerships Facilitate programs where universities or big employers open their supply chains or pilot budgets to startups. As Steve Case once framed it: “Corporations should pledge to source more goods and services from local startups… bettering an ecosystem helps attract talent.” Real money, real validation.
Ecosystem Continuity Platforms One of the biggest failures in most regions is letting founders “fall out” when they don’t fit one program (which is usually the case). A rejected accelerator applicant often just disappears. Instead, cities should invest in ecosystem platforms that track applications and referrals, so no founder is lost. Tools like Startup Space or EcoMap Technologies, Inc. already provide this infrastructure; offering ecosystems a single database where rejected applicants can be routed to more appropriate resources. This ensures every entrepreneur gets redirected rather than abandoned.
Recognize and Fund Venture Studios as Engines of Startup Creation Treat venture studios as what they are: operating businesses that generate revenue while systematically spinning out startups. Unlike coworking spaces, studios actually build companies from the ground up, providing teams, infrastructure, and capital efficiency that most founders can’t access alone. Cities should recognize them as legitimate vehicles of economic development and direct civic grants toward covering a portion of their operating costs – structured with impact-oriented milestones (e.g., jobs created, capital raised, startups launched). This isn’t subsidy for rent; it’s investment in a factory for innovation, where public dollars are matched with private-sector discipline.
Want the stack for your city? Intro as a service > Founder Institute assessment and network with programming > WP Engine and GitHub infrastructure > Applicant reallocation with ecosystem continuity -> all pumped through Corporate Partners, Venture Studios, and Procurement
If you’d rather fund drywall and neon signs, go ahead but for crying out loud, stop calling people like me when founders are frustrated or capital isn’t showing up – your impact is just as surface-level. If you’re serious about startups that scale, creating jobs and solving real problems, then wiring these frameworks into your ecosystem is where public funding becomes breakthroughs. We know how to do it, stop reinventing the wheel because you want it your way. What policy should do: remove friction, fill gaps, and connect dots, not wax poetic about “innovation districts” or being the next Silicon Valley.