• A thriving startup scene is coveted by major cities around the world
  • Building a strong startup scene requires a systematic approach from each city
  • Policymakers must take a tailored approach to attract the startups they seek

A vibrant startup scene is a coveted asset for major cities around the world. A concentration of new ventures has the power to drive significant economic growth, increase competitiveness and job creation, attract well-educated young people, and enrich a city’s cultural life and texture.

For most cities, however, being home to abundant startups is easier said than done. While some urban centres have an array of natural advantages that attract entrepreneurial activity, others must make a conscious and concerted effort. The key for policymakers looking to build a thriving startup scene is to understand the unique advantages and drawbacks of their city from the perspective of entrepreneurs, venture capitalists and tech talent – and then to actively leverage the city’s strengths while taking targeted steps to address weaknesses.

Small beginning, big impact

The benefits of developing a thriving startup ecosystem are abundantly clear to urban policymakers. From an economic perspective, new tech ventures have a disproportionately positive impact on their city’s economy: they display a strong multiplier effect when it comes to job creation, creating more net new jobs than established firms, while the prevalence of “innovation-driven enterprises” in a city is a strong predictor of its future economic growth.

From a sociocultural perspective, startups have a range of almost universally beneficial flow-on effects in a city – from fuelling urban renewal and rejuvenation (e.g., the Brooklyn Navy Yard’s new life as a hub for high-tech businesses) to encouraging a more nimble and innovative approach within the city government itself.

Startups also have a reciprocal and beneficial relationship with the cities in which they operate – simultaneously capitalising on and reinforcing the city’s strengths. We can see this clearly when we look at those cities lucky enough to have the innate advantages that lure startups with seemingly little effort.

For example, large US cities like New York, San Francisco and Boston are among the top startup cities in the world. They boast strong educational institutions, densely populated urban centres, intellectually and culturally pluralistic societies, deep capital bases, and a deep-seated culture of entrepreneurial exceptionalism. These factors make them fertile ground for new ventures, which reciprocate by making their own contribution to their chosen location.

Similarly, the unique confluence of factors that makes Israel’s urban centres such strong hubs for innovation and new ventures has been well documented. The rise of local and global tech ventures in “Silicon Wadi” – a cluster of tech-heavy coastal cities including Tel Aviv and Haifa – has created a virtuous cycle of innovation and development.

Secrets of cities’ success

It is rare to find a city blessed with all the requisite attributes that attract entrepreneurs, tech talent and venture capitalists. Rather, for most major cities, building a strong startup scene requires a systematic approach adapted to the city’s unique attributes.

First, policymakers should seek to identify their city’s strengths and challenges from the perspective of the potential players in a startup ecosystem. This involves engaging directly with these stakeholders and taking inventory of the attributes that they look for in a city – from a reasonable cost of living and the availability of capital to a pipeline of graduates with programming skills and the presence of startup workspaces. For example, city policymakers in Sydney had contact with over 3,000 individuals in a three-month period – including entrepreneurs, employees, professionals, investors and educators – as an input to its 10-Year Tech Startups Action Plan.

Against this backdrop, policymakers should design a startup strategy that builds on the city’s strengths while efficiently addressing its biggest challenges. So, city governments should harness their strengths, including a low cost of living (e.g., by incentivising shared workspace developments in affordable inner-city neighbourhoods) and high-quality universities (e.g., by co-funding startup incubators on city campuses).

And at the same time, these administrations should directly address the obstacles to startup success in a way that will deliver the greatest possible ROI to the city and its citizens. For example, correcting a lack of venture capital may require focused tax incentives or direct government investment – as has happened in Brazil and Chile – whereas attracting talented programmers may require sponsoring scholarship programmes or negotiating changes to visa programmes, as has happened in Ottawa.

Which cities are doing this well?

A range of cities around the world have demonstrated the effectiveness of a tailored approach, rejecting generic, “table-stakes” measures like tax incentives or “business-friendly policies” in favour of more nuanced efforts at change. While every city’s challenges are unique, there are several examples from which policymakers can draw inspiration.

Singapore had no shortage of intellectual or financial capital when it turned its mind to developing a startup scene. What the city-state lacked was technical talent, meaningful venture capital funding, and a large enough local market to help local ventures to scale up. It built startup hubs like Block 71 to attract and nurture talent, invested in university scholarship and partnership programmes to bring intellectual capital from around the world, wooed high-profile funders like Eduardo Saverin to bring buzz to the local tech scene, and matched venture capitalists’ investments in early-stage local startups. As a result, it has seen startup funding grow fivefold – and has become a world-class destination for entrepreneurs and tech investors.

Stockholm also had a number of natural advantages in its favour – including national investment in broadband technology, a well-educated population and strong social welfare policies, which support citizens in taking creative and considered risks. At the same time, its small local market and high cost of living presented roadblocks to a winning startup ecosystem. By investing in the world’s largest open fibre broadband network (funded in part by corporate taxes from established local businesses) and by supporting the development of incubators and accelerators – many of them operating in English to attract expat entrepreneurs alongside locals – Stockholm emerged as one of the most prolific startup cities in the world, punching well above its weight on the global stage.

There are many other examples out there – from Brisbane’s recent multimillion dollar investment in training, entrepreneur-in-residence programmes, and incubators to Berlin’s forthright efforts to recruit tech talent and capital directly from other European capitals’ burgeoning startup scenes. Ultimately, this shows that worldbeating companies can and do grow anywhere – and policymakers must take a tailored approach to ensure that their own city provides fertile ground.

 

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