MOVE OVER SILICON VALLEY. While the 25-mile stretch of California may have long held the honor of being one of the top spots for entrepreneurial activity, it can no longer maintain that claim with as much zeal as it once did. Now, long-ignored states like New Jersey and Delaware are gaining ground.

The recent 2008 State New Economy index compiled by nonprofit Ewing Marion Kauffman Foundation and Washington, D.C.,-based think tank, the Information Technology and Innovation Foundation (ITIF), found that states with both pervasive high-speed Internet access and a heavy concentration of highly-educated workers were most successful at attracting entrepreneurs – and the employees they need to make a venture work. (The index measured how states fare in terms of creating skilled jobs, patent originations, initial public offerings, and technology proliferation, among other things.) Plain and simple: “Research shows that people who have more education are more likely to start a company,” says Robert D. Atkinson, president of ITIF and primary author of the Index.

Claiming the perennial top spot is Massachusetts, which each year graduates droves of potential entrepreneurs from such highly-acclaimed universities as Harvard and Massachusetts Institute of Technology. Up next: Washington, which has long played second fiddle to Silicon Valley (California, by the way, has dropped from second to eighth place on the Kauffman and ITIF list since 1999). Washington’s entrepreneurial roots — as the birthplace of Microsoft (MSFT), Amazon.com (AMZN) and Starbucks (SBUX) — remain strong thanks to a business-friendly tax system. Maryland took third place, jumping eight spots since 1999 as a result of a flurry of biotech and government activity.

View our slideshow for more on the New Economy Index's list of the best states to set up shop.