by Rudolf Dömötör
Start-ups have become the main driver of job creation, innovation, and economic growth throughout the world. Next to having a great idea executed by just the right team, the ecosystem hosting the start-up is critical to the success of a new business venture. What makes a good start-up ecosystem? What can we learn from the most important start-up hubs in the world?
Talent, Capital, and Mentors
Growth oriented technology start-ups involve a high level of risk and uncertainty – they rarely succeed, but when they do, they can succeed brilliantly. Thus, they need a specific support infrastructure that helps them to get started and scale their businesses. The most important determinants of an entrepreneurship ecosystem include:
- access to the right talent (well trained and capable of dealing with uncertainty)
- access to capital (mostly angel investors and venture capital, crowdfunding is gaining in importance)
- access to customers (ideally including early adopters for proof of concept)
- access to engaged and experienced mentors and networks (including incubation/accelerator programs)
Other than that, the legal/political system (e.g. taxes and grants, support institutions, level of bureaucracy), intensity of R&D activities in the region (both public and private), and culture and social norms (e.g. tolerance of risk and failure, social status of entrepreneurs, openness and diversity) do have a significant impact on the likelihood of start-up creation and success, respectively.
And the winner is…
Various rankings of start-up ecosystems all over the globe may use different methods and different sets of indicators. However, they usually have one thing in common: Silicon Valley ranks first. Given its unique combination of tech talent, entrepreneurial visionaries, access to venture capital, and a diverse and open culture, Silicon Valley has practically become synonymous for high growth technology start-ups.
However, other regions all over the world are worthy competitors. According to the 2015 Start-up Ecosystem Ranking Report by Compass, runners-up include New York, Tel Aviv, Los Angeles, Boston, Singapore, Sao Paolo, and Bangalore. The most vibrant start-up cities in Europe are London (#6), Berlin (#9), and Paris (#11).
Let’s have a quick look at some of the world’s most vibrant start-up ecosystems:
- biggest tech start-up ecosystem in the world (14,000-19,000 start-ups; 1.7-2.3 million high-tech workers)
- 10,000+ angel investors reside in the San Francisco Bay Area
- venture capital funds invested $22.05 billion in the first three quarters of 2015
- unique combination of top tech talent (Stanford University), visionary entrepreneurs (Hewlett-Packard, Apple, Google, Tesla, Facebook,…), and a diverse and open culture (more than 50% of start-up founders are immigrants) have made Silicon Valley evolve into the “Mecca” of tech entrepreneurship
New York City:
- fastest-growing technology start-up ecosystem in the US over the past 10 years (7,100 to 9,600 active tech start-ups today; 90,000 new tech jobs have been created since 2008)
- recent surge was initiated by city and state policies favouring business incentives to attract tech companies in the wake of the financial crisis and job exodus
- the local GDP of approximately $1.5 trillion makes New York’s ecosystem a large playground to test and market all kinds of products
- NYC provides a particularly fertile environment for B2B start-ups in media and publishing, fashion, real estate, and finance
- biggest start-up hub in Europe (3,200-4,500 start-ups)
- London-based tech companies raised EUR 2.11 billion of venture capital funding in 2015
- FinTech capital of the world (~44,000 employees in this industry, that’s more than in NYC)
- 12 incubators and 24 accelerators; 70+ co-working spaces
- new companies can be set up online and within 24 hours
- incentive for investors: 50% tax break for investments in seed-stage start-ups up to £ 100,000
- third largest start-up hub in Europe next to London and Paris (1,800-3,000 start-ups)
- has recently emerged as one of Europe’s hippest start-up hubs
- successful in markets like e-Commerce, gaming, and marketplaces
- With 49% foreign and 27% female employees, Berlin is the most gender equal and second most diverse ecosystem in Europe
- 6 incubators and 8 accelerators; 50+ co-working spaces
- City of Berlin offers 3 months “Give Berlin a try“ packages for approx. 5,200 EUR to new start-ups and companies relocating to Berlin
- ranks as #1 start-up ecosystem outside the USA (3,100-4,200 active start-ups)
- in 2015, 373 companies in the “start-up nation” raised around $3.58 billion and 69 companies were sold for the total sum of $5.41 billion
- due to renowned universities and the Israeli Defense Forces, local tech talent is abundant
- 80+ incubators and accelerators; 10+ co-working spaces
- City of Tel Aviv offers a free start-up exchange program to entrepreneurs from Berlin, Munich, and Paris for a period of 1 week to up to 3 months
Given the positive impact of innovative new business ventures on economic growth, job creation, and innovation, many regions struggle to join the circle of successful start-up ecosystems. Chile provides one noteworthy example on how to kick-start its local entrepreneurial climate: in order to attract global innovation talent, the Latin American country introduced “Start-up Chile”. This program offers equity free investments from $10,000 to $86,000 plus acceleration to international start-ups moving to Chile. Other countries, including Canada, Australia, and New Zealand, are offering specific start-up visas. These are designed to speed up the immigration process for aspiring entrepreneurs and to facilitate connecting them with the existing innovation systems (universities and investors).
However, there is no “gold standard” of an entrepreneurship ecosystem. It’s neither worthwhile nor possible trying to emulate Silicon Valley somewhere else. Entrepreneurship ecosystems consist of a set of individual elements (culture, talent, public and private support, capital markets, and markets) that combine in complex ways. Each entrepreneurship ecosystem evolves under a unique set of circumstances and should fit its own local entrepreneurship dimensions, style, and climate.
Rudolf Dömötör is Managing Director of WU Entrepreneurship Center. He recommends the first Startup Guide Vienna, which the Center launched together with Vienna Strategy Hub in March 2017. The book is part of an international series and provides a valuable overview of and insights into the vibrant startup ecosystem of Vienna.