(The original post can be found here on Techcrunch)
Falling startup costs have caused an explosion in the number of software companies being started. As a result, new startup ecosystems are springing up all over the world to support the success of these companies and jumpstart regional economic growth. Since startups are one of the biggest drivers of job growth and economic growth, this is a big democratizing force. Previously, most startups were located near Venture Capitalists in Silicon Valley, Boston and New York City, because as Paul Graham noted “when starting a startup was expensive, you had to get the permission of investors to do it.” Now companies are being started everywhere.
Entrepreneur magazine claimed “the overarching theme of SXSW this year was that you don’t need to be in Silicon Valley to do a startup.” With so many options, how do entrepreneurs decide where to start their company? What are the advantages and disadvantages of different ecosystems? And what are the characteristics that differentiate entrepreneurs across ecosystems?
There has been plenty of qualitative reporting about benefits of different startup ecosystems, but to date there’s been very little data to support these intuitions.
One year ago, we started the Startup Genome Project to crack the innovation code and increase the success rate of startups. In September, we launched the Startup Compass, and have had more than 13,000 companies use this simple benchmarking tool to evaluate their performance, align their team and better allocate their product development and customer acquisition resources. As a result, we have now crossed the threshold of critical mass of data in the world’s top startup ecosystems to begin comparing them to each other. For the first time we now have the opportunity to create a Startup Ecosystem Index with a live pulse on how the world’s startup ecosystems are evolving.
As we’ve started to dig into the data we have begun to uncover valuable insights into the strengths and weaknesses of different startup ecosystems. As this study study progresses we hope it will yield insights for entrepreneurs deciding where to start their company, investors deciding where to allocate their capital, large companies looking for acquisition targets and policy makers who want to make their startup ecosystems flourish. The world is in need of economic revival and unleashing a Entrepreneurial Renaissance is our best hope.
Currently, the three most popular ecosystems worldwide are Silicon Valley, New York City and London. And today, we are releasing 22 insights on how they compare.
Defining Characteristics of Each Ecosystem:
Silicon Valley: Biggest throughput. Strong early stage funding ecosystem. More mentors. Most Ambitious. High Risk.
New York City: Diverse. Niche Focus. Marketplace and Social Network focus. High risk.
London: Well educated. Bet big on perceived proven winners. Project Management / E-Commerce Focus. Low Risk.
- Startup Throughput: The Silicon Valley startup ecosystem is 3x bigger than New York City, 4.5x bigger than London, 12.5x bigger than Berlin, and 38x bigger than Boulder.
- Startup Success Rate: The Silicon Valley ecosystem has proportionally 22% more companies that make it to the scale stage than in NYC and 54% more than in London.
- Availability of Capital: On average Silicon Valley startups raise 2-3x more money in the first 3 stages of development: Discovery, Validation, and Efficiency. But in the scale stage, compared to Silicon Valley, New York City startups raise 27% more money and London startups raise 30% more money.
- Job Creation: In the Efficiency and Scale stages, Silicon Valley startups create 11% more jobs than NYC startups and 38% more jobs than London startups.
- Risk Profile: The number of high risk companies decreases steadily through the startup lifecycle, except in New York City where the number of high risk companies spikes from 45% to 67%, and has 4x more high risk companies in the scale stage than Silicon Valley.
- Product Types: Compared to New York entrepreneurs Silicon Valley entrepreneurs are 2x more likely to build games, 50% less likely to build marketplaces, 23% more likely to build social networks, 3.5x more likely to build infrastructure and 2.5x less likely to build financial tools. Compared to entrepreneurs in Silicon Valley, London entrepreneurs are 50% more likely to build e-commerce products, 35% less likely to build social products, 3.5x less likely to build products based on user-generated content and 2x more likely to build project management software.
- Market Type: Silicon Valley entrepreneurs are 13% more likely to tackle new markets than London entrepreneurs whereas London entrepreneurs are 21% more likely than entrepreneurs in Silicon Valley to tackle existing markets with better products. New York entrepreneurs have the highest proportion of companies trying to resegment existing markets with niche products. They are 30% more likely to build something niche than entrepreneurs in London.
- Market Size: Entrepreneurs in Silicon Valley are much more “ambitious” than entrepreneurs in New York City and London. Silicon Valley entrepreneurs are 22% more likely to estimate their market size as greater than 10 billion compared to New York City entrepreneurs and 120% more likely than entrepreneurs in London. They are also almost 2x less likely to estimate their market size to be less than 100 million.
- Revenue Streams: Subscription is the most popular revenue stream everywhere. Compared to London, Silicon Valley entrepreneurs are 4.4x more likely for their primary revenue stream to be Lead Generation, 3.6x more likely for it to be virtual goods and 2.6x less likely for it to be the rapidly fading model of license fees.
- Perceived Competitive Advantage: Compared to Silicon Valley Entrepreneurs, New York City entrepreneurs are 4.3x more likely to consider content their primary competitive advantage, 40% more likely for it to be niche focus, and 90% less likely for it to be team. Compared to Silicon Valley entrepreneurs London entrepreneurs are 58% more likely to consider technology their primary competitive advantage and 5.3 less likely to consider user experience to be.
- Product Development: London and NYC companies outsource 34% more of their product development than Silicon Valley companies.
- Adaptability: Pivoting happens much more frequently in Silicon Valley. Pivots happen 45% more on average in Silicon Valley than New York City and 33% more than London.
- Mentorship: The Silicon Valley and New York City ecosystems have more helpful mentors than the London ecosystem. Silicon Valley companies have 46% more helpful mentors than companies in London.
- Thought Leaders: In Silicon Valley, Steve Blank and Paul Graham are the most popular startup experts. In London, Paul Graham is by far the most popular expert and NYC shows their local pride, voting Fred Wilson as their favorite startup expert.
- Work Ethic: Companies in Silicon Valley work 35% more than companies in New York City. In Silicon Valley teams work 9.5 hours a day on average vs. 8 hours in London and 7 in New York City.
- Founding Team Composition: Silicon Valley founding teams are 34% more likely to be technical heavy than founding teams from NYC. Whereas NYC founding teams are almost 2x as likely to be business heavy than Silicon Valley founding teams.
- Founder Education Background: In London most founders have a masters degree, whereas in Silicon Valley and NYC most founders have just an undergraduate degree. But NYC has 2.2x more founders with PhDs than Silicon Valley.
- Founder Gender: New York City has almost double the female founders of Silicon Valley and London (80-20 vs 90/10 ratios, respectively).
- Founder Age: The average age of founders in all three ecosystems is about the same, with an aggregate average of 33.5.
- Founder Experience: Silicon Valley founders have on average started almost twice as many startups as founders from NYC and London.
- Founder Motivation: Silicon Valley has 30% more founders that want to change the world than London or New York. New York has 50% more founders that want to make a good living than Silicon Valley or London. London has 2x more founders that want to make a quick flip than Silicon Valley or New York.
- Founder Challenges: New York City startups are 3.7x less likely for team building to be their biggest challenge, at the same time they are almost 2x as likely to consider “having too much do and being over capacity” their biggest challenge.
These insights are part of a new Startup Genome research initiative on Startup Ecosystems, in which we will be releasing regular mini reports on new startup ecosystems as we receive a critical mass of data. We’ve brought on two brilliant researchers to work on this project: Danny Holtschke from Maastricht University and Jessica Richman from Oxford University.
Here is a list, in ranked order by average throughput, of what we’ve found to be the 25 most active startup ecosystems around the world.
- Silicon Valley (San Francisco, Palo Alto, San Jose, Oakland)
- New York City
- Tel Aviv
- Los Angeles
- Sao Paulo
- Washington D.C.
To reach the critical mass needed to analyze these burgeoning ecosystems, we are partnering with local media outlets who can help us get enough entrepreneurs in their area to sign up for the Startup Compass and contribute to the Startup Genome. In exchange we are offering them exclusive early access to data they can share with their ecosystem.
We have a number of great supporters already including Endeavor, Mamstartup in Warsaw,Startupi in Sao Paulo, SGentrepreneurs in Singapore, and Startup America & Microsoft BizSpark in other cities around the world.
We’d love to find local support for each of these ecosystems. If you are interested or have any suggestions please contact us at firstname.lastname@example.org
There is so much more we’d like to do with this project but we are a start-up ourselves and our resources are limited, so we are also opening up the opportunity for a few sponsors to underwrite some of research and development costs of the Startup Ecosystem Index in exchange for appearing on the reports. To date our research reports have been downloaded more than 25,000 times and have been covered in over 100+ blogs and publications in more than 15 languages. We’d love to have a vision aligned company help us create even more impact. If you are interested or have any suggestions please send us an email at email@example.com
We hope you are as excited as we are about the potential of this project to further democratize entrepreneurship around the world. And if you run a software company, do check out the Startup Compass. In addition to helping you make better decisions, you will be contributing to generating insights that can allow startup ecosystems everywhere to flourish.
If you would like receive the full Startup Genome Ecosystem report once it’s released you can sign up here.
Finally, we’d like to share what a few friends in Silicon Valley, New York City and London had to say about their startup ecosystem:
“People in Silicon Valley really believe in “pay it forward”. It’s not all transactional and tit-for-tat. Folks help each other and those not as far along as them. It’s also very accepting of failure; if you have some real catastrophes on your resume, that’s considered a badge of honor – there are not a lot of places on the planet that’s true. It’s also the easiest place in the world to start a company. Everyone is here to help you kick ass. “
– David Weekly, Founder of PBworks
I moved my first company, Tickle.com, from Boston to San Francisco in 2000. As a Boston-area native, I feel like most people from back east are highly protective of their ideas. I was amazed to find people in Silicon Valley to be openly sharing ideas, even if another entrepreneur may steal it. It took me several years to really get it. Silicon Valley is full of great ideas, but ideas are cheap… and execution is the hard part. If you think you have a great unique idea, I’d bet 5 other people in Silicon Valley already thought of it. It’s because we share ideas, we riff off each other and sometime great companies are born. But the key to taking a new born idea to an IPO is the ability to execute. Silicon Valley has the best combination of factors to provide for that success including the highest concentration of VC’s, highest density of tech entrepreneurs and engineers, great schools pumping out more smart grads every year, countless hugely successful VC-backed world-changing companies, pride in a merit-based system that rewards intelligence and hard work and above all… an attitude that supports collaboration to build incredible things. It’s extremely hard to replicate all of that in another location, especially the belief that we, in Silicon Valley, can change the world through innovation.
– Rick Marini, Founder of Branchout
The diversity and multicultural nature of the London startup ecosystem both in terms of startup founders and those working in startups makes London a vibrant and exciting place to be. My own startup Enternships.com is comprised of people of various nationalities including American, Iraniana, Romanian, Indian, Chinese as well as British, which enables us to share insights from different parts of the world whilst working towards a common vision.
London also provides a great base to access global markets – with Europe on your doorstep and strong global communications links and a relatively smaller pool of people (compared to Silicon Valley) working on similar issues you have a better chance of standing out, being recognised and ability to access emerging economies.
– Rajeeb Dey, Founder of Enternships
The beauty of the London startup ecosystem is that all parts of the startup value chain are worldclass: Universities and research institutions as an innovation engine, successful entrepreneurs and angel investors act as mentors, a financing ecosystem that ranges from early to late stage, creative input and thinking from all of the arts, tech companies and large industry, and finally some of the world’s leading media companies. There are few places in the world that can claim this combination of assets to be natural, and while there are still lots to work on, the breadth of startups in London is a testament to these origins.
– Philipp Moehring, Associate at Seedcamp
BraveNewTalent currently has it’s HQ in London but also has an office in Silicon Valley and Bangalore. There is a cluster of tech talent in all three locations. We chose to locate our development team in London so we could compete better for the 50X engineers than we could in the Valley.
In London there is a fantastic network of peers among the other tech Founders. I find the community hugely helpful.
– Lucian Tarnowski, Founder of Brave New Talent
People always speak about Europeans being less risk friendly due to cultural reasons. I believe this is too superficial. Entrepreneurs are less risk friendly because the market favors this behaviour. In Europe you have the same downside as a startup in the US but in case things go right you will face a slower and thus smaller upside than you do in the US. Europe is fragmented into countries with their own markets, cultural behaviours, media and language. This slows things down to the extent that startups have to treat countries with populations of only 8 million with their own market entry strategies. This fundamental difference in the system creates market dynamics that favor behaviour that seeks to limit downsides (e.g. skipping product/market search aka cloning).
The only way out of this is to think global and act global from day one. In Europe, London may be the only place that provides that kind of international uplink . But London is more than that. London’s strength is that it is more than “just” a web-tech startup hub. It is one of the most important cities in dozens of industries: finance, media, advertising and fashion to name a few. This creates an environment that’s very special and unique in London.
– Andreas Klinger, Founder of Lookk
I believe NYC is the most diverse ecosystem of all these three cities. It has a quickly growing startup community, the access to capital and the talent pool, but at the same time it is also the home of big media, of style, of finance. Above all, NYC is very supportive of entrepreneurial initiatives and ideas.
It wasn’t a strategic decision, but all three co-founders ended up in NYC. We have been considering to move the company to SFO, but believe that because our company is at the intersection of sustainability, e-commerce and design, it makes more sense to be in NYC. Plus, we just love it here 😉
– Fabian Pfortmueller, Founder of Holstee
NYC has key assets for the founder with vision beyond the start-up realm to leverage:
– culture (arts & multi-cultural population)
– commerce (multiple global industries)
– connectivity (midway west coast, europe/middle east/africa, midway from Boston to DC, schools & government)
It may have been the case thus far that entrepreneurs have been overshadowed by Wall Street, but as the Mayor has indicated, Silicon Alley is strategically & geographically well positioned for more startup capital & resources.
– Neil Anderson, Partner at Hubitat