3 features of tech cities where startups thrive
Technology has been powering the global economy for the past two decades. Tech companies have accounted for the creation of $100 Trillion of wealth during this period. Beneath this success lies a deeply unfair system where success is only concentrated in a handful of elite cities globally. Silicon Valley is the king of the hill; Singapore is at number 12, while Sydney is at 17 according to the latest Startup Genome in 2017.
Cities which can attract and retain technology companies enjoy benefits such as higher development, better employment opportunities and reputation. These forms a virtuous cycle which feeds on itself. If you are a startup founder who is scouring the earth for a new city to thrive in, the Startup Genome provides the following three main featuresof tech cities for your consideration.
A city provides an ecosystem for tech companies to flourish. At the beginning of any successful ecosystem, the primary objective should be to activate and connect key players such as local entrepreneurs, investors, and talent. Cities such as Beijing and Shanghai executed these strategies well when they wanted to challenge Silicon Valley for the top tech city.
After cities had passed the stage of local connectivity, they will have to connect themselves globally to highly connected cities. As the chart below shows, Silicon Valley is at the heart of all global connectivity which cements its position as the top tech city in the world. Singapore comes in at number 12 globally, and the connection is considerably less dense.
The thicker the connection, the easier it is for ideas, capital and talent to flow between cities. Top tier talents, investors, and corporations would then find it worthwhile to relocate themselves there to take advantage of available opportunities.
On a more relatable note, the success of Facebook is a result of its deep connections to a network of individuals around the world. As a result, companies and organizations flock to Facebook to appeal to individuals which further strengthens its web of networks.
Tech companies are also able to take advantage of the connectivity to grow themselves. For instance, TUTOROO is an online marketplace for language teachers based in Singapore. Besides the Singapore presence, they have expanded to global cities such as Hong Kong, Taipei, Perth and other leading Australian cities to disrupt the language market there.
TUTOROO understands that the global movement of talent has created new sources of supply of language teachers when spouses move along with their partners in search of new opportunities. These native speakers are then tapped to provide their services for $30 to $60 an hour on a weekly basis for people who are keen to acquire a new language to expand overseas.
On a phone call with TUTOROO founder Nicolas Vanhove, he insists that tutors connect with each other and facilitates such connections with regular community events. As the saying goes, ‘No man is an island' and this need to connect applies both to companies and cities. Connectivity is the foundation to success.
2. Resource Attraction & Immigration Constraints
Founders and talents such as engineers and other support staff are necessary for any tech company to flourish. However, these resources cannot exist by themselves. Tech companies need funding support and mentors to guide their expansion plans going forward.
After an ecosystem has connected themselves globally and their tech companies have expanded, they need to pull in the resources and integrate themselves into the global economy. In Silicon Valley, over half of the founders are immigrants. They can get the visas and other immigration documents needed to establish their business there. A city that welcomes the best talents, who are located around the globe, would flourish.
Singapore is a good example of it. Tradeworks is a globally connected automated algo trading company for forex and other financial instruments. This fintech company was started in Denmark in 2013 by Mikael Breinholst. Tradeworks was able to send their co-founder and Head of Business Development, Thomas Nyegaard, to Singapore to seek investors and partners in 2015 without much difficulty.
From Singapore, Tradeworks managed to partner with Indonesia's biggest brokerage, Monex, to provide their automated trading software to the community of traders there. They have plans to expand their footprint globally, and they are only getting started after raising US$1.29 million. This case is a prime example of how a global tech city can help a tech company to expand and integrate with other markets.
3. Population Size – The 1 Million Threshold
The ultimate resource is simply the human being. Any city that aims to be a global tech city cannot have a population of less than 1 million according to the Startup Genome study. It is a well-known fact that startups are prone to failure despite supporting factors such as mentorships and government financing support.
In Silicon Valley, the study found that every million of people produces around 2,000 start-ups and only 2 will end up as a unicorn success. Without at least two unicorn success, the tech city wouldn't have sufficient substance to integrate themselves with global cities. Silicon Valley has a population of 7.6 million, Ottawa and Tel Aviv has a population of 1 million each; which is the bare minimum.
Otherwise, there wouldn't be a good reason for other investors, founders, and engineer to relocate themselves to their city. Tel Aviv is in the top 20 list while Ottawa isn't. So the more people a city has, the more chances it has to be a global tech city. Demographics is destiny, and this axiom applies here as well.
Race to the top
The competition to be the top 20 tech city is intense. There are 55 cities in contention, and they are coveting these fruits of success. Silicon Valley and New York are the only two cities that manage to maintain their top rankings. Eight other cities slipped in their rankings as three other cities made the lists.
Los Angeles and Chicago are the two largest losers this year while Singapore and Seattle have a moderate decline. Such moves are common, and we are likely to see more of such reshufflings of importance in the future.
Connectivity, resources attraction and population size are the three most important factors for cities to make it to the top tier of tech cities. These factors take at least two decades to form along with other secondary factors. Consistently notable exits are a signal to outsiders that the city has the right mix of conditions for tech companies to flourish. It would be a tough journey, but the rewards would be worth the challenge.