A start-up ecosystem denotes the network of research and service organizations, incubators and accelerators, advisors and mentors, entrepreneurs, various stage start-ups, funding providers, ideas, and research that work in tandem to provide a space for start-ups to grow. Spatially, ecosystems are regional, usually within a 60-mile radius of a given central point.
Environmental factors determine the power of start-up ecosystems all over the world—which is not to undermine the ability of an ecosystem to tap into the global environment or to attract global interest to achieve success. One major benchmark for the power of an ecosystem is the ability to produce start-ups capable of global impact and growth, with a unicorn (a start-up with a valuation above $1 billion) considered the ideal. Let us look closer at the various aspects as used by Startup Genome and the Global Entrepreneurship Network (GEN) (based on research from 2016 to 2019) to rank the world’s tech start-up ecosystems. Startup Genome and GEN conducted the most comprehensive research on these ecosystems with its most recent report in 2020, which includes 150 tech ecosystems in the world.
Startup Genome and GEN weigh this factor at 30 per cent in comparison to the other factors in assessing the overall worth of a tech ecosystem. The factor of performance scrutinizes three sub-areas: ecosystem value, exits, and start-up success.
Ecosystem value is derived from exits combined with start-up valuation over a two-and-a-half-year time period (early 2017 to mid-2019). Here, “exits” refer to the sales of start-ups. Start-up valuations are contingent on the estimates of the selling price of a start-up, calculated in multiples of a start-up’s estimated revenue in the year of sale.
Exits are the exit price tags of $50 million plus and $1 billion plus within the two-and-a-half-year period, as well as the growth in number of exits from 2016 to 2019.
Start-up success is measured by three metrics. The ratio of Series C to Series A start-ups examines the growth statistics of start-ups, with a higher number of Series C start-ups against Series A start-ups denoting better growth figures. “Series” refers to the stage of a start-up according to successive funding rounds; Series A start-ups are looking for their first serious influx of cash and Series C start-ups are already successful and looking to grow even more. The metric average age of start-ups at the time of their exits and IPOs looks at the average time it takes for start-ups to exit or go for an IPO, with shorter timespans being more favourable. The ratio of Series B to Series A start-ups looks at the number of Series A start-ups that have made the jump to become Series B to achieve early-stage growth.
This factor, weighted at 25 per cent in the overall ranking, is built on the access for start-ups to funding in a given ecosystem and the quality and activity of investors in the ecosystem.
The availability of funding to start-ups is configured on the value in dollars of available early-stage funding and the growth in that funding from the previous years.
Investor quality and activity calculates the sum of venture capitalists (VCs) and corporate venture capitalists (CVCs) available at the start of a given year as well as the number of sizeable VCs and CVCs with assets under management (AUM) worth more than $100 million, where AUM represents the total market value of the investments handled for clients. The quality of the investors is also predicated on their experience in executing faster exits and their length of existence. The number of recently founded investors or those operating for fewer than five years is also considered, along with the number for those who have been active in recent years.
Market reach, which weighed in at 15 per cent in the overall ranking, assesses the capacity for an early-stage start-up to acquire customers to scale and extend at a global level. This factor analyzes three sub-areas: leading companies at the global level in the ecosystem, size of domestic markets, and the friendliness of government policy in creating commercialized, tangible intellectual property (IP).
Leading companies at the global level is defined by three ratios: the aggregate of unicorns and billion-dollar exits to the country’s gross domestic product (GDP); billion-dollar exits to the country’s GDP independently; and the exits of over $50 million to Series A funding rounds. Size of domestic markets is seen in relation to the country’s GDP and the scores for policy impact on commercialized IP are calculated in comparison to global averages.
With a weight of five per cent in the overall ecosystem ranking, connectedness is based on two aspects: the number of local, technology meetups and the infrastructure supporting research and development activities, particularly in life sciences.
To determine the number of meetups in the ecosystem, a record of tech-related meetups on meetups.com is made along with ratio calculations for the meetups in relation to the population. Since Startup Genome added life sciences (health-related start-ups in medtech, biotech and pharma domains) and deep tech as sectors of analysis in 2020, it also looks at the number of research institutions, accelerators and incubators devoted to life sciences. The impact of the latter aspect is just 10 per cent in connectedness as a factor.
Talent & Experience
Worth 20 per cent of the calculation, talent considers the available talent pool as defined by those having a minimum of two years of experience working in start-ups, the number of well-ranked software developers on GitHub, fluency in English, human resource with experience in exits, and a measure of team quality based on scaling experience. Cost also factors in with lower average software engineer salaries signalling a better ecosystem. The ranking also accounts for the availability of STEM students and graduates, particularly those in life sciences, and the quality of education in life sciences.
With five per cent weight, the factor of knowledge is built on calculations for the number and quality of patents in the ecosystem and the quality of research in the life sciences as found in publications in a country.
Silicon Valley, New York, London, Beijing, and Boston are the top five ecosystems in the world ranking cumulatively the highest when all of the above factors are considered. If you happen to be in a start-up in any of these countries, consider yourself lucky.
However, technology start-ups are easy to initiate anywhere in the world given a good internet connection, access to a good team of software developers and the right sort of network. If your aim is to scale and benefit from the world-class opportunities available in these ecosystems, keeping your team in your home country while having an office in a high-ranked ecosystem can be your path to success in the long term.
Arslan Ahmed | Staff Writer