As locations across the world jostle to become the world’s next Silicon Valley, London has shown the most improvement in fostering its start-up ecosystem while continuing to attract high levels of foreign direct investment into the sector.
Startup Genome’s Global Startup Ecosystem Report 2020 showed little movement from previous years among its top seven cities, except for London, which moved up to a tied second place with New York. Unsurprisingly, Silicon Valley has ranked first since the research firm’s inaugural 2012 survey. London’s rise from eighth place in 2012 is largely due to the city’s access to capital and investment as well as its success in attracting global talent, according to the report.
The big seven
The world’s top seven locations command a combined ecosystem value of $1.5trn, 1.7 times that of all other global start-up hubs combined, leading governments and city authorities to continue to focus significant resources on fostering their start-up ecosystems.
London also finished top of the Tech Cities of the Future 2020/21 ranking for European countries, carried out by fDi Intelligence and TNW, leading the way in categories such as capital, talent, infrastructure and start-up environment. The software, IT and communication services sectors made up about 50% of London’s total inward investment between 2015 and 2019, according to research from greenfield investment monitor fDi Markets. Again, access to capital was cited as an important driver for the city’s start-up growth, with the average first significant round of venture capital fundraising reaching more than $11m, according to media company TNW.
Making money count
London’s access to capital compared with other locations will become an increasingly important advantage, as four out of every ten global start-ups have cash reserves of three months or less, according to Startup Genome. A further 34% of start-ups can only cover operating costs for an average of six months or less, a situation which will become increasingly challenging as investment into such companies falls due to the global pandemic.
In the months following the global lockdowns, only 28% of start-ups have seen uninterrupted funding and more than 74% have had to lay off full-time staff, according to Martina Larkin, head of Startup Genome’s regional strategies for Europe and Eurasia and an executive committee member of the World Economic Forum. She says public sector support, in close alignment with private investment, will be critical to restoring the vitality of start-up ecosystems around the globe, as seen by the hefty stimulus packages already announced by some governments. In May, the UK’s chancellor of the exchequer, Rishi Sunak, announced the creation of the government’s Future Fund, a £250m loan scheme for start-ups facing financial difficulties due to the coronavirus outbreak.
Venture capital appetite remains strong despite the pandemic, according to Yoram Wijngaarde, chief executive officer of start-up research firm Dealroom.co.
“European governments responded quickly with start-up support packages and London’s first generation of tech giants were born during the last recession. The next generation are being founded right now,” he says, adding that the city has so far created 50 tech unicorns (firms valued at more than $1bn), one-quarter of Europe’s total.
Join Our Newsletter
Want more FDI insights?
Sign up to Investment Monitor's weekly newsletter, Eye on FDI, to receive a round-up of the most important stories.