Based on their friendliness to small business, the best states include Texas, New Hampshire, Utah, Louisiana, and Colorado.
Cities like Birmingham in Alabama and Boise, Idaho show up as surprise champions of younger small business owners, according to a Thumbtack report on the best cities for Millennial entrepreneurs.
The survey includes responses from 18,000 small business owners nationwide to questions about the friendliness of local tax laws, licensing rules, the regulatory environment, and what business owners see as the opportunities for training and networking in their area.
Based on their friendliness to small business, the best states include Texas, New Hampshire, Utah, Louisiana, and Colorado, while the worst include Rhode Island, California, Connecticut, and Illinois.
Other cities that were found most friendly to small businesses include Charleston, South Carolina, Nashville, Boulder, Richmond, Virginia, and Austin, which was by far the largest city on the list.
Jon Lieber, chief economist at Thumbtack, noted the small number of major cities like Austin simply reflects where they received enough responses to provide ratings.
"We don't like to rate cities where we don't have a lot of responses because a few outliers can really screw things up," he said.
"I think the thing to keep in mind is that we are measuring perceptions of the friendliness of cities, not necessarily how great they are for running a business," Lieber said. "To give you an example, San Francisco and San Jose are obviously the best places in the country to found and run a technology start-up, and for the service professionals in our survey, there are spillover effects from having high income, high growth companies nearby."
However, he pointed out the pros still give the two cities bad reviews because the government makes things much harder than they need to be.
"So I think that Millennials reflect the views of our pros broadly when they say that coastal cities are generally too complicated to operate in and impose too much red tape," Lieber said. "To a certain degree there is a correlation between these wealthier cities and the unfriendliness of their governments - maybe they don't think they have to try as hard to attract small business."
More than a quarter of young people are self-employed, and they are launching 160,000 startups per month, according to a report from the U.S. Chamber of Commerce Foundation.
Millennials say the ability to get a loan or credit is the biggest challenge to starting a business, with almost two-thirds saying that they do not receive enough support from banks, while another obstacle is the lack of education and resources to run a small business.