Massachusetts still ranks among the nation's top innovation economies, but a new study from Pioneer Institute reveals a widening disconnect between the state's venture capital strength and its struggling broader economy. While the Commonwealth attracted significant venture funding and placed third nationally in business research and development during 2023, the report finds that ordinary business creation and private sector employment have collapsed even as innovation investment remains robust.

The data shows Massachusetts' venture capital advantage over Texas eroding rapidly. In 2018, firms in the Commonwealth raised two and a half times as much venture funding as their Texas rivals. By 2025, that ratio had fallen to just 1.4 to 1, and Texas startups actually pulled in more capital than Massachusetts companies during the first quarter of 2026. Meanwhile, the state's performance on traditional economic measures has cratered. From January 2020 through September 2024, Massachusetts posted the nation's lowest average quarterly business formation rate—one tenth of the national average—a stunning reversal for a state that ranked second in net business formation from 2010 to 2019. The Commonwealth suffered a net loss of 17,549 businesses over nine straight quarters ending in September 2024. Private sector employment also declined by 1.06 percent between January 2020 and early this year, while national employment grew by 4.65 percent during the same period, leaving Massachusetts with roughly 35,000 fewer private sector jobs than before the pandemic.

Study author Jeffrey Calabrese argues that "the state's innovation economy and its overall economy are different things," noting that venture capital represents money flowing in rather than jobs coming out. The report explains that part of this disconnect is structural: venture funding in Massachusetts concentrates in research-heavy fields like life sciences, software, robotics, and artificial intelligence, where companies can attract massive investments but employ relatively small teams of scientists and engineers during their early stages. The report points to 2020 data showing that California, Massachusetts, and New York captured 73 percent of U.S. venture capital but accounted for just 37.5 percent of employment at venture-backed firms. Cambridge biotech Biogen illustrates this pattern locally, keeping its research in Massachusetts while maintaining its largest manufacturing operations in North Carolina.

Calabrese argues that reviving the state's overall economy will require broad-based relief from high taxes and the expensive housing, healthcare, and energy costs that burden ordinary businesses—plus streamlining permitting and regulatory systems that add both expense and delay. The report notes that most Massachusetts businesses, particularly small ones, are pass-through entities taxed through their owners' individual income tax returns, meaning income tax cuts would help construction firms, professional practices, small manufacturers, retailers, and restaurants across the economy. Only about 0.5 percent of new businesses ever raise outside equity like venture capital; it's the ordinary companies that do most of the hiring and face the state's high-cost structure head-on. North Carolina offers a compelling counterexample: after cutting its personal income tax from 5.8 percent to 3.99 percent and dropping its corporate tax from 6 percent to 2 percent over the past decade, the state added roughly 400,000 private sector jobs since 2020 while inflation-adjusted tax revenue still grew by about a quarter between fiscal 2014 and fiscal 2024.