The Economist - UK (2022-04-16)

54 Business TheEconomistApril16th

andother sophisticated software aimed

chieflyatcorporatecustomersratherthan

consumers.ButwhereasIsraeliandBritish

startupsoften lookacrosstheirborders,

Beijing’sarefocusedalmostentirelyonthe

domesticmarket.

Younger innovation hubs, including

Bengaluru,SãoPauloandSingapore,looka

bitmorealikeinthattheirfocusisregional

ratherthanglobal.Insteadofbreakingnew

groundtheyoftenadaptexistingbusiness

modelstolocalmarketconditions.Asdis­

posableincomesriseinnewregions,con­

sumersbecomewillingtopayforsimilar

“technificationofservices”,saysPengOng

ofMonk’sHillVentures,a Singaporeanvc

firm.AnandDanielofAccel,a SiliconVal­

leyvcfirm,callsthisthe“xofy” playbook.

AndsoFlipkart(e­commerce)istheAma­

zonofIndia;Nubank(fintech)istheRevo­

lutofBrazil;Grab(ride­hailing)istheUber

ofSouth­EastAsia.Thishelpsexplainwhy

70%ofSouth­EastAsianunicornsand80%

ofLatinAmericanonesareeitherinfin­

techorconsumerinternet(see charton

nextpage).Still,hyper­localisationmeans

eachhubisdistinct.

Theboomintechclustershasbeenfu­

elledbyseveralstructuraldevelopments.

Theworldwidespreadofhigh­speedinter­

netandsmartphoneshasallowedstartups

toservecustomersjustabouteverywhere

fromjustaboutanywhere.“Rapidtechnol­

ogy adoption has made the market so

muchdeeper,”saysAbheekAnandofSe­

quoiaIndia,theIndianarmofa SiliconVal­

leyvcstalwart.Cloudcomputingandfree­

ly available developer tools have made

startingafirmmucheasier.Atthesame

time,asgrowthratesinmaturemarkets

haveslowedandcompetitionforinvest­

mentshas risen,venture capitalists are

lookingelsewherefortheirnextbigbet.

The pandemicappetite for allthings

digitalhasfuelledthesetrends.Some60m

South­EastAsians,nearlya tenthofthere­

gion’spopulation,becamenewnetizensin

thepasttwoyearsalone,accordingtoBain,

a consultancy.Thenumberofcompanies

in IndiaandSouth­East Asiagenerating

$100mofannualrevenuehasjumpedbyan

order ofmagnitudein recentyears,ob­

servesMrAnand.

If thedemocratisation of technology

andglobalvcwerethewholestory,how­

ever,startupswouldbespringingupevery­

where. They aren’t. The Economist has

looked atstartupfundingandvaluation

dataforthetencountrieswiththemost

billion­dollarstartups.Wehavefoundthat

nearly40%oftheseunicornsherdedinthe

country’stopstartupcity.Between 2011 and

2021 the top city’s share of nationalvc

fundingrosefromlessthan50%tonearly

70%forLondon,from24%to60%forBer­

linandfrom15%to34%forBengaluru.

Wheretostartup?

Thatsuggeststhatclusteringremainsno

less powerful aforce than when Alfred

Marshallcoinedthenotionof“agglomera­

tioneconomies”inthelate19thcentury.

Oncea citygainsa foothold,additionalac­

tivityispulledinbecauseofincreasingre­

turnstoscale.Itiseasiertodobusiness

and recruit when suppliers and talent

poolsarenearby.Ideasflowmoreeasily

whenemployeesfromrivalfirmsfrequent

thesamepubs(ormicrobreweries).Even

wideadoptionofhybridworkisunlikelyto

changethat;peoplewillstillwanttomeet

inpersonanditiseasiertodothiswhen

thepersonsarenearby.

Adeeptalentpoolisthemostobvious

ingredientofa successfulcluster.Famous­

ly,SiliconValleybenefitsfromproximity

tobraintrustssuchasStanfordortheUni­

versityofCalifornia,Berkeley.TelAvivhas

bothuniversitiesandrecruitersfromthe

IsraeliIntelligenceCorps,whichlikeelite

universitiesenliststhebestandbrightest.

Participationinsucheliteunitsisanim­

mediate signal for a venture capitalist

lookingfora startupfoundertoback,ora

startup seekingto hireyoung tec o­

gists.Bengaluruhasnearly 70 engin g

colleges.Morethan55%ofIndiansonLin­

kedIn,a professionalsocialnetwork,boast

technicalskills,suchasthoseneededfor

programming.OnlyGermansaretechni­

callysavvier; forAmericansandBritons

theshareisaround42%.“Whereelsecan

you quickly hire a few thousand engi­

neers?”marvelsShaileshLakhani,acol­

leagueofMrAnand’satSequoiaIndia.

Talent aloneisnotenough,however.

Tokyo had thebrainsto produce global

techgiantssuchasSony(inelectronics)

and, more recently, Rakuten (ine­com­

merce).YettheJapanesecapitalhasstrug­

gledtonurturea vibrantstartupscene.One

possible reason isthe continued domi­

nanceofJapanIncbykeiretsu(conglomer­

ates).Anotheristhecountry’sinsularity.In

onesurveyfrom 2019 thecountryranked

53rdintheworldinEnglishproficiency;

lessthan8%ofJapanesespeakitfluently.

Foreignerstendtohavea hardtimegaining

statusinTokyo’sbusinesscircles.Outside

venturecapitalistshavebeenshunned.

Thathintsatthesecondcriticalfactor:

opennesstopeopleandideas.Migrantsare

adisproportionatelyenterprisingbunch.

Around60%ofAmerica’smost valuable

tech companies were started by immi­

grants ortheir children.European hubs

suchasBerlin,LondonandParis,eachof

whichishometotenormoreunicorns,

havelargeimmigrantpopulations.China

lacksforeignfoundersbutitsstartuphubs

likeShanghaiandShenzhendrawplentyof

“seaturtles”,returneeswhohavestudied

orworkedabroad.

Itishardtodeterminetowhatextent

connectedness spursstartup activity, as

opposedtotheotherwayaround.Butthe

twogohandinhand,andalmostcertainly

feed off each other. René Belderbos of

MaastrichtUniversityhasexaminedhow

ofteninventorsina cityco­authorpatents

with inventors abroad, and how this

*One per country †Startups valued at $1bn or more

Top 12 cities* by number of unicorns†, 2011-21

Capital cities

Sources:CBInsights;Crunchbase

Singapore

San Francisco

Tel Aviv

Amsterdam

Stockholm

Bengaluru

São Paulo

London

Berlin Beijing

Seoul

Paris

2011 2021

1

50

Venture-capital

funding, $bn

Stockholm

Amsterdam

Seoul

SãoPaulo

Tel Aviv

Singapore

Berlin

Paris

Bengaluru

London

Beijing

San Francisco

1501209060300

2011 201 2021