SHM2019: Startup City Brands & Highways

Startups and places are strongly connected. Startups can re-vitalize cities, like in the prominent case of Berlin, or kill a future unicorn and drive the founders away. It is therefore important to explore the relation startups have to location and explore what it is that we call an “ecosystem”.

The Undeniable Importance of Location

Since the early days of the globalization we debate the obsolescence of location and the idea that thanks to the internet and hypermobility people and business could become place-independent. This hypothesis has been proven wrong. In fact the emergence of global cities and therefore the growing importance of places for people and businesses has been an unstoppable mega trend.

And the startup world has been no exception. In Europe, we see an emerging pattern of just a few cities, who capture the majority of venture capital investments on the continent. This closely resembles the picture in the US, where over 50% of all VC funding is invested in only 3 regions.

Comparing the investment levels of 54 European startup hubs since 2016, using data from Dealroom, we find the Top 4 hubs (London, Paris, Berlin, Stockholm) have grown by 49% to 9.71 bn € while the rest of European hubs stagnated around 12-13 bn €.

In 2018, only 5 other cities had investments above 500mn €, which is two less than 2016. The average sum of investments for the next biggest 50 cities outside the top 4 remained at 260mn € per city.

While the top-level investment statistics are often driven by later-stage rounds, it is interesting to see that also Europe’s Top Seed Investors largely concentrate their portfolio in just two regions: Western Europe with Germany, France, Switzerland and Austria and UK and Ireland.

This means startups in certain locations are much more likely to be successful in raising venture capital than those being in other regions. Against the continuous suggestions of many commentators this trend is also not going to change – as the time series above show. Investments should however not be the last word on startup places. Who for example says that the location where a startup raises funds is also the place their team is located? What if a startup is in fact a transnational project from day one?

A one-dimensional perspective will always be skewed and will miss the complex structures of entrepreneurial activity in Europe, which unfolds more in a mushroom type of pattern than a monolithic world of competing capitals.

“Output” focused metrics like investment levels, number of employees, etc. tend to cut off what we don’t understand and package the world into understandable pieces, which allow for strong arguments but also grave misperceptions. Innovative metrics are needed to measure the actual health of ecosystems, quantifiable indicators of “flows” and networks that allow for strategic action. We propose a set of indicators like the perception of cities, accelerators and conferences, mobility of founders, the opening of 2nd offices as well as shared narratives across borders to unveil transnational networks of founder activity.

Based on the monitoring of startup ecosystems over the past years, we suggest to change the focus and understand the spatial dimension of startup ecosystems:

  • The European startup scene is not monolithic with one big hub in the center, but has several centers which have overlapping spheres of influence.
  • Startup cities are symbiotic. The question is who connects with whom and which roles the various places are serving
  • Understanding the perception and brand of startup places can inform strategies of growth for ecosystem builders.
  • For founders it is paramount to understand how they can benefit from transnational networks, so we must make transparent how you can grow with a multinational setup.

Compare Investments per City

The table below provides investment data for 54 European hubs from 2013 to 2018 (Dealroom). The first two columns show the Starting Level, defined as the average of 2013-2015, and the End Level, with the average of 2016-2018. The comparison across 3 years allows to soften the effect of large singular rounds and makes the numbers more comparable over time.