Specialization of startup hubs: Which second-tier hubs perform better than we might expect?

Specialization of startup hubs: Which second-tier hubs perform better than we might expect?

Written by Victoron

When we look at overall preferences, 38% of the 320 founders in the sample chose a smaller hub over a bigger one. What unique qualities do these smaller hubs have to offer, and why might a founder choose a smaller hub?

In the 2017 version of the Startup Heatmap Europe, London and Berlin again found themselves on top of the most attractive startup destinations in Europe. But they were not the only hubs considered by the startup founders in our survey. Importantly, for many startup hubs around Europe, it is not always true that the best performing hubs are the biggest. We find that founders sometimes prefer smaller hubs.

When asked, “If you could begin all over again, where would you like to start up?” 38% of founders interviewed do not mention the top 5 hubs at all.

Specialization in terms of features

Startup Heatmap Europe assesses each hub using four different variables: access to talent, access to capital, entrepreneurial ecosystem culture and ease of doing business. The ratings are based on the opinions of those founders who are attracted to this hub and therefore should tend in theory a bit to the positive side. We consider hubs with outstanding results as the ones that received at least 80% of votes of 8 stars (out of 10) or above in a category.

Looking first at the initial two qualities, talent, and capital, we find, that Tel Aviv more than exceeds both of these founders’ needs. Tel Aviv is also the only hub reaching at least 80% for access to capital. This can represent the bottleneck for not choosing these hubs, as the access to financial resources is very important to 58% of founders when choosing a location. We also find founders have positive associations of the quality of the local labor market in many hubs beyond Tel Aviv, including Munich, Prague, Helsinki, Stockholm, and Madrid.

Next, to the access to capital and talent, the quality of the ecosystem and ease and cost of doing business are decisive factors for founders to choose a startup location. Considering the ease of doing business, startups’ perceptions do not reward many municipalities. In fact, only Tallinn is perceived as truly favoring the ease of establishing and running of a new business.

Looking at our next variable, the quality and culture of the entrepreneurial ecosystem, our founder sample rates Tel Aviv, Vienna and Helsinki very highly. These municipalities offer well-connected ecosystems brimming with strong connections among industry stakeholders, allowing founders to access to resources including accelerators, incubators, and high-quality mentors.

Looking at both pairs of comparisons we find that few hubs are excellent in all dimensions, however, specialization can pay off and smaller hubs can meet founders’ needs very well. Based on the type of variable used to measure the satisfaction of the founders, some cities emerge because of their excellent results:

The most praised hubs per category:

Industry specialization

Importantly, startup companies have individual needs that may also influence their choice of location. Here we consider how preferences might change according to the business sector. We distinguish between High-Tech (Hardware, IoT, VR, Big Data, FinTech, Health, and BioTech) and Internet (eCommerce, mobile applications, SaaS solutions). We might expect that preferences between High Tech and Internet startups preferences may differ according to how well each hub matches founders’ needs.

The ranking below shows the preferred destinations of founders. Founders were asked to identify the municipalities where they would choose to move if they could begin again. Their preferences below are ordered based on the number of mentions for each city. We find there is almost no change in the first 5 hubs, further confirming pull of these cities at the top of the preference order. In this ranking Paris overtakes Barcelona. In the lower half of the ranking, we see considerable changes in the preference formation. Notably, the High-Tech sector experiences large shifts in attractiveness: Dublin drops 2 positions, and Lisbon and Milan leave the ranking entirely. Munich ascends to 7th place, and Brussels and Lausanne emerge, climbing the ranking and reaching the top 10.

An alternative way to show these results is the graph below, which organizes the municipalities based on their rankings in the High-Tech and Internet sectors. We see that some cities are equally strong in both sectors, these are the cities that cluster along the line pictured. Alternatively, other cities differentiate themselves by specializing in just one of the two sectors, as captured in the cloud orientations to the right and left of the line From the graph we see that founders find Lausanne, Brussels, Helsinki and Zurich to be wealthy and exceptionally high-quality High-Tech.

In conclusion, we find that even smaller hubs can offer outstanding opportunities for startups. While considerations of talent availability, funding, ease of business and the quality of the entrepreneurial ecosystem are very important for startups, founders value these features differently. Depending on these individual preferences, hubs can uniquely offer a perfect fit, according to their strengths.

In addition, we find there is room for cities to specialize when considering how they can attract certain types of high growth businesses. Industry sectors and specializations have different needs of their startup cities. Municipalities should continue to work towards understanding how startup preferences change according to the type of business. Those hubs which are already specializing in certain fields should continue in that direction as there is an acknowledgment of their strengths in the startup community.

—Originally published on startus.cc by Elena Scolaro

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