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Welcome to the Global Startup Ecosystem Ranking. It has been almost three years since the last Startup Ecosystem Report was released (in November 2012), and since then the startup sector has grown at a booming pace.
The centerpiece of the 2015 Startup Ecosystem Ranking is our updated and revamped component index, which ranks the top 20 startup ecosystems around the world. The index is produced by ranking ecosystems along five major components: Performance, Funding, Talent, Market Reach, and Startup Experience.
Twenty years ago, almost all tech startups were created in startup ecosystems like Silicon Valley and Boston. Today, technology entrepreneurship is a global phenomenon, with startup ecosystems similar to Silicon Valley rapidly emerging all around the world. An interconnected, global startup landscape is taking shape and we’ve gathered the data and crunched the numbers that nobody else has to help you understand how to best navigate this brave new economic world. In September 2011, we wrote a blog post about the coming “Entrepreneurial Enlightenment” and the factors behind its emergence. The era is in full bloom now and there has never been a better time to be a tech entrepreneur, as entrepreneurs are now blessed with the tools, resources, and market conditions to scale a company to billion dollar “Unicorn” status faster than ever before.
The rise of the startup ecosystems all around the world should also be seen in the context of the larger socioeconomic structural shift taking place. Information Era businesses have become the dominant source of economic growth, significantly automating or altering much of the industrial and service businesses of the previous economic era. Many others have described aspects of this structural shift under different names, such as Marc Andreessen’s widely circulated Wall Street Journal essay, “Why Software is Eating the World”, Deloitte Center for the Edge’s semi- annual “Shift Index”, or Richard Florida’s Creative Class Group, which has published numerous books on the topic, such as the “Rise of the Creative Class.”
Given technology startups’ critical role in the information economy, the importance of healthy startup ecosystems only stands to increase in the future. With this report we want to accelerate the development of startup ecosystems around the world by answering critical questions for entrepreneurs, investors, and policy makers that are difficult to answer without the data we have gathered and analyzed in this report, as well as to raise the general populace’s awareness of the increasing socioeconomic importance of startup ecosystems.
One of our main goals with this report is to help various stakeholders answer the following kinds of questions:
a) For Entrepreneurs:
“Where should I start my new company?”
“When I’m ready, where should I open up my startup’s second office?”
b) For Investors:
“How can I find new startup investment opportunities around the world instead of simply settling for solely investing in my local startup ecosystem due to familiarity?”
“Given the lack of information out there about emerging startup ecosystems, how do I evaluate which ones I should focus on for finding new opportunities?”
c) For Policy Makers:
“What initiatives should I prioritize in my startup ecosystem to maximize growth?”
“How should I measure the progress of these initiatives?”
d) For All Stakeholders:
“What is the best way to strengthen the overall vibrancy and entrepreneurial spirit in my ecosystem?”
One important caveat to note: Our index does not currently include startup ecosystems from China, Taiwan, Japan, and South Korea. It has been challenging to get survey participants and complete data. We hope to have these ecosystems included in our index later this year. While we have not completed our analysis yet, we particularly expect: Beijing to rank in the top 5 and Shanghai to rank in the top 15. The following ecosystems all scored highly and were contenders for a spot among the top 20: Atlanta, Delhi, Denver-Boulder, Dublin, Hong Kong, Mumbai, Stockholm, and Waterloo.
1. Ecosystem Interconnectedness and Internationalization of Startup Teams:
a) Global average for investments in a startup from outside of its home ecosystem
- 37% of all funding rounds in the top 20 ecosystems have at least one investor from another ecosystem (in North America this is 41%)
- 27% of all funding rounds have at least one investor from abroad (North America 20%, Europe 38%, Asia-Pacific 29%)
b) Globally distributed startup teams
In the top 20 ecosystems, the number of offices that are 2nd offices from startups outside the ecosystem or headquarters of startups that were founded elsewhere and moved to the ecosystem, rose by 8.4x from 2012 to 2014.
c) International Teams:
The number of foreign employees within a startup is 29% on average for the top 20 ecosystems (Silicon Valley 45%)
2. Exit Values:
Total exit growth across the top 20 ecosystems rose 81% annually from 2013 to 2014 (40% IPOs/60% Acquisitions). Looking at the relative growth rates of exit value (based on a 2013-2014 2-year moving average), we see Silicon Valley growing at a 47% rate over the last two years, whereas many other ecosystems further down the index are growing at a much faster pace. London has quadrupled in the same timeframe, and Berlin has grown by a factor of 20 (due primarily to the two big IPOs of Rocket Internet and Zalando).
Full Exit Growth Table: (2013-2014 2-year moving average)
|New York City||1.4x|
Europe vs. U.S.: Exit value grew much faster in the top European ecosystems than the top ecosystems in the U.S.: 4.1x Europe versus 1.5x U.S. (2012-2014), yet in 2014 the volume of exits was still on average 82% higher in American startup ecosystems than in European ecosystems.
Analysis: Over the coming years we expect Silicon Valley to stay in the lead, even while other ecosystems temporarily grow at a faster pace, with the expectation of ultimate convergence towards an equilibrium that looks a fairly conventional 80/20 power law; i.e. Silicon Valley capturing 30-50% of the total exit pie, the next three startup ecosystems capturing an additional 30-50% of the pie and the following top 16 startup ecosystems capturing the remaining 20% of the total exit pie.
3. VC Investment Trends in Startup Ecosystems:
Total venture capital investment across the top 20 ecosystems rose 95% from 2013 to 2014.
a) VC Growth:
The ecosystems with the most growth in VC investments were Bangalore (4x), Boston (3.7x), Amsterdam (2x), and Seattle (2x). Meanwhile, Silicon Valley almost doubled up with 93% growth from 2013 to 2014, with indications from Crunchbase that almost all of the increase in Silicon Valley funding was in late stage Series B and Series C+ capital rather than early stage capital, which was relatively stagnant.
b) Seed Stage Capital Growth:
The startup ecosystems with the fastest annual growth in the number of seed rounds over the last two years were Bangalore (53%), Sydney 33%), and Austin (30%).
4. Ecosystem Ranking Changes since 2012 : Winners and Losers
The startup ecosystems which made the biggest leaps are New York, Austin, Bangalore, Singapore, Berlin and Chicago. New York City made a significant leap among the established players, moving from position #5 to #2 to take the silver medal. Austin, Texas, meanwhile leapt all the way into #14th place, whereas three years ago they
didn’t even crack the top 20. Bangalore moved from #19 to #15, Singapore from #17 to #10, Berlin from #15 to #9, and Chicago from #10 to #7.
The startup ecosystems which made the biggest falls are Vancouver, Toronto, Sydney, and Seattle. Vancouver slipped out of the top 10 from position #9 to #18, Toronto slid from #8 down to #17, Sydney dropped from #12 to #16, and Seattle fell from #4 to #8. Again, all of these ecosystems did grow in the past three years, but not as fast as other environments, which puts them at risk of eventually being left behind.
Three ecosystems fell out of the top 20 completely since 2012: Santiago, Melbourne, and Waterloo. Santiago experienced fast “catch up” growth for several years but is now just a bit above average with a growth index of 2.6 (average = 2.4). The growth of Melbourne likely took a hit due to its close proximity to the larger startup ecosystem of Sydney. Smaller ecosystems with close proximity to larger ecosystems often have a hard time continuing to grow due to new and existing talent and capital migrating to the larger nearby ecosystem.
Regarding Waterloo, our methodological change of removing Startup Output per capita as a performance metric is the main reason for its lower ranking. It has a Growth index of 2.45, which, while only slightly above average, is significantly higher than most of the lower ranked ecosystems in the top 20.
5. Gender Equality amongst Startup Founders
The lack of gender equality is common across all startup ecosystems. No ecosystem comes close to an equal share of male and female founders, although psychologists and sociologists continue to debate whether 50/50 is the target to strive for [see this article on gender differences by Florida State Psychology professor Roy Baumeister]. Overall, the trend for female entrepreneurs is significantly up—the number of female founders in the global startup ecosystem has grown by 80% over the last three years. In 2012, 10% of startups had a female founder, as compared to the 18% global average among the top 20 in 2015. Chicago, with 30% female founders, has the greatest percentage of women entrepreneurs out of the top 20 startup ecosystems.
IV. How it differs from the 2012 study and why
Having access to a larger volume of data combined with the development of a mathematical model with a high degree of fit drove a few changes in this year’s ranking methodology. The most significant change was the removal of the metric “Startup Density” (number of startups per capita, a measure of density) from the Performance Index. This changes the scoring formula away from density to overall value and size of the ecosystem.
In interviews with many stakeholders (investors, entrepreneurs and others) we concluded that there is an interest for larger ecosystems supported by the availability of more resources. The question was how to compare the performance of different ecosystems. Is an ecosystem with $10 billion in value and 1,000 startups in a city with a metropolitan population of 5 million (Startup Density of 0.2 startup per thousand people) better than one with $15 billion in value and 1,500 startups in a city of 10 million people (0.15 startup per thousand people)? Our intuition, validated by interviews, modeling and correlation between different factors, showed that both higher absolute value and higher number of startups are better, so we scored them separately. Startup Density was neither correlated with other performance variables nor drove the decisions of entrepreneurs and investors. Therefore we chose to focus the Performance Index on the value and size of the ecosystem. We are conducting more research to allow for more nuanced relationship in future versions.
This change is one reason why Tel Aviv—despite its continuous and well above-average growth rate—and the Waterloo Region in Canada—with its very small population (slightly above half a million)—are ranked lower in our 2015 ranking than in our 2012 one.
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 Baumeister, R. (2007)
The Global Startup Ecosystem Ranking 2015 was a collaborative effort involving:
- Insights from over 200 interviews with entrepreneurs and local experts from 25 countries
- Data from 11,000 surveys completed by startups, investors and other stakeholders in the last five months
- Partnerships with: CrunchBase, Global Entrepreneurship Network, Dealroom, Orb Intelligence, Deloitte Australia and 60 local partners (including incubators, accelerators, VCs, policy makers, and universities)