The talent at some of America's hottest artificial intelligence companies often passes through Boston-area universities before heading west to build billion-dollar businesses in Silicon Valley. Massachusetts business and political leaders say California's proposed tax on billionaires is an opportunity to change that.
Home to Harvard University, the Massachusetts Institute of Technology and scores of biotechnology startups, Massachusetts has struggled to date to leverage what should be a built-in advantage when it comes to the AI boom that's powering much of the nation's economic growth.
Of the 20 most valuable venture-backed U.S. AI companies, half have co-founders who attended MIT or Harvard, according to PitchBook data. None of them are headquartered in Massachusetts.
The higher concentration of investors in California, particularly those focused on early-stage funding, is a major motivator to go west, founders say. The gulf between VC funding raised in California and Massachusetts more than quintupled between 2005 and 2025, according to National Venture Capital Association data.
That calculus could change if California moves ahead with a proposed one-time 5% wealth tax on individual assets of more than $1 billion, mainly to fund healthcare. The measure, headed for the November ballot, would be especially painful for startup founders who have yet to realize the value of their businesses through an acquisition or a public offering, said Ankit Gupta of Y Combinator. Firms can be worth billions on paper, potentially leaving founders with huge tax bills and limited liquidity, he said.
"There are startup founders that can just straight-up go bankrupt from this," Gupta said. He was hired last fall as the first general partner for the startup accelerator in the Greater Boston area in more than a decade. While Massachusetts voters backed a 4% surtax on annual personal income exceeding $1 million in 2022, that's much more manageable, Gupta said.
"It's not like we don't believe in taxes or something like that," he said. "Having the taxes based on income and not unrealized gains is sane."
Y Combinator is "investigating" opening an office in Cambridge, Chief Executive Officer Garry Tan said in an interview. While Austin, another hotspot for startups, is great, "we want to go where the engineering talent is," he said, referring to MIT in particular.
Long criticized for its high taxes, Massachusetts' top individual rate actually trails states such as New York and California, even after factoring in the millionaire's tax. Other states are also adopting their own millionaire's taxes, making Massachusetts less of an outlier.
Massachusetts Governor Maura Healey has been making the case for the state directly to Silicon Valley executives and investors. Last month, she met with Anthropic PBC, Y Combinator and life-sciences company Genentech during a trip to San Francisco, according to official calendars obtained through a public records request. She was accompanied by her economic development secretary, Eric Paley, who previously led venture firm Founder Collective, an early investor in Uber Technologies Inc. and SeatGeek Inc.
"If there is a possibility that states are going to start taxing illiquid assets, that will be very frustrating and concerning to innovation leaders, and I do think Massachusetts could be quite advantaged in that scenario," Paley said in an interview.
The region's economy is in need of a boost, with biotechnology in a rut and universities and hospitals struggling under the Trump administration's funding cuts. While Genentech, a subsidiary of Roche Holding AG, is opening a new research center on Harvard-owned property in Boston, Anthropic has only a small operation based out of a Cambridge WeWork.
Local CEOs are offering Boston Mayor Michelle Wu pitch lists of companies to target, including those who might be interested in having a second headquarters on the East Coast. Wu has said she's in talks with San Francisco Mayor Daniel Lurie on convening a bicoastal business development summit.
The Boston region's politicians, founders, investors and academics see an opportunity to turn the region into the capital of "applied AI." If California's making the super-intelligent machines, then Boston can be the place where those machines are put to work doing things like assisting hospital patients and creating life-saving drugs.
At one of her innovation summits at Harvard's new David Rubenstein Treehouse conference
"Our proximity to the best talent in the world, and the institutions that produce that talent, and the communities that are the most determined and passionate about making a difference in the world — that is a real value proposition for any company," she said.
Still, it's been difficult to get that talent to stay. The trend is self-reinforcing, with founders decamping to California to find and work alongside other talent. Jesse Zhang, a Harvard graduate, said he located Decagon, his AI customer service startup
The cofounders of Cursor, an AI-powered code editor that struck a
"If those were here, it really changes the economy," said HubSpot Inc. cofounder Brian Halligan. His January
That month, a group of Boston-area businesses including wearable-fitness company Whoop Inc., DraftKings Inc. and the AI-music generator startup Suno launched the Massachusetts AI Coalition with a goal of doubling the roughly 120 Massachusetts-based tech and biotech companies valued at $1 billion or more over the next five years.
Starting with a February kickoff event that featured a surprise virtual appearance by OpenAI CEO Sam Altman, the coalition is working to recruit out-of-town companies to Boston and organize meet-ups for existing firms to develop a greater sense of community.
It's also launching "founder starter parks," which promise a free supply of AI-enabling GPUs, dedicated co-working space and introductions to successful founders and operators to those who commit to stay in Massachusetts for six months or more.
If young founders can be persuaded to stick around long enough for their startups to reach 10 employees, "it becomes incredibly hard to say, 'Let's pick up and move to the Valley,'" said Ryan Durkin, a Whoop executive leading the coalition.
Cody Coleman, CEO of San Jose, California-based Coactive AI, got his undergraduate and master's degree at MIT before heading to California to attend Stanford University's doctorate program and co-found the video and image analytics company. The Bay Area's computer science research and AI talent made it easier to get Coactive off the ground, he said. But he doesn't see "a zero-sum dynamic" between Boston and Silicon Valley.
"Boston has an extraordinary concentration of ambitious, technically strong founders and researchers," Coleman said. "As we continue to grow, I'd absolutely consider expanding our presence in Boston given the talent base and research strength in the area."
