Visualizing startup hubs around the world and looking at why they work

Visualizing startup hubs around the world and looking at why they work

October 25, 2016

Location still matters for startups. If you are in fashion you should probably be in Paris or New York. If you're in film you most likely need to be in Los Angeles. And if you're in tech, you should still probably be in Silicon Valley (based on the data below).

San Francisco, and the greater bay area, is still the dominant hub for tech startups. Other hubs around the world are growing rapidly, and even surpassing SV in some categories, but Silicon Valley still reigns supreme by almost every metric.

We set out to see where today's top companies in tech are located, and what types of companies each hub attracts.

Why Hubs Work

Hubs work because of one thing: people. It is that critical mass of like-minded people that matter. As Paul Graham says, the default for startups is death. To Graham, it is the combination of the right factors that the right people bring that make hubs such as Silicon Valley work:

  1. Environment: In the bay area it is the norm to start a company. Entrepreneurs are actively encouraged to try out new ideas. In other places in the US and around the world this isn't so true. Someone leaving their job to build a startup is seen as an outlier. You can see this thinking in other non-tech hubs as well. In Hollywood, it is the norm to be an actor. No one considers it an odd career path. If you're an actor in Des Moines, it's a proxy for being unemployed.

  2. Chance: Marc Andreessen once almost hit a crazy man crossing the street in Palo Alto. That crazy man was Steve Jobs. In hubs you bump into liked-minded people in the street, in bars, in restaurants, and at one of hundreds of meetup events. There are so many you might just hit them in your car. Hubs allow you to make your own luck by giving you the chance to meet the people that can encourage, inspire, and help you.

  3. Numbers: This is the critical mass. Having a high number of people all interested in tech means that you can meet the right co-founders, find the best investors, and hire the most talented engineers. Having all these people in one place means everyone is focused on one goal—great tech.

Yes, this means more competition in those hubs, but it also means network effects. When businesses cluster they have a number of positive effects:

  • Increased productivity as the top developers for that technology will converge on those hubs.
  • Increased innovation as the main thinkers in that sector will constantly be collaborating, communicating, and competing to produce better and better products.
  • Increased stimulation as more and more companies will spin off and start in these hubs.

Silicon Valley may be the main hub, but it's not the only hub any longer. Within the US, New York and Boston have fierce tech scenes, and Los Angeles, Austin, and Denver are also thriving. Around the world there is Silicon Wadi (Israel), Silicon Beach (Australia), and Silicon Roundabout (UK) all blooming.

The top 20 hubs around the world

For this analysis we are concentrating on the top 20 startup hub list from the 2015 Global Startup Ecosystem Rankings Report by the Startup Genome:

startup Genome chart

As expected, Silicon Valley comes out on top. Rounding out the top 5 are three more US cities—New York, Los Angeles, and Boston—and then Tel Aviv in Israel.

10 of the top 20 are North American cities (7 American, 3 Canadian), five are European, 3 Asian, and then one each from South America and Australia.

We've also added in a few other cities that we see as interesting future startup hubs: Shanghai-Beijing, Delhi, Denver-Boulder, Dublin, Hong Kong, Mumbai, Stockholm. Let's see if any of these places have the ability to become a niche hub, incubating particular types of companies in the next 5-10 years.

A Bit About Our Data

To categorize each company we are using super tags. Super tags are a high-level set of tags that allow you to categorize companies on a broad level.

The super tags for a company are returned when you query the Enrichment API:

Among other data in this request, you would find this information:

  "tags": [
    "Information Technology & Services",

Some of those are regular tags for more granular segmentation of your data. But Mobile, SAAS, and B2B are all super tags, allowing for comprehensive analysis of different sectors. Possible super tags are:

  • B2C: companies that sell to consumers (e.g. Zappos)
  • B2B: companies that sell to other businesses (e.g. Amplitude)
  • SAAS: companies that sell subscription hosted software (e.g. Segment)
  • Mobile: iOS/Android app sites, or companies with a major focus on mobile apps (e.g. Uber)
  • E-Commerce: companies with online stores (e.g. Amazon)
  • Marketplace: companies that are predominately marketplaces (e.g. Ebay)
  • Enterprise: companies that sell to enterprises (e.g. Oracle)

Each company can have multiple tags. For instance, a B2B company could also be an Enterprise company. A B2C company could also be a SaaS company. Even B2B and B2C are not mutually exclusive. A company such as Dropbox could have both consumer and business versions of their product.

Once we've broken down the data by tag, we can dive deeper into each hub to see the make-up of companies in each city. All the data presented here comes from funded companies in those cities.

Does Hub Size Matter?

Let's start with the basics. Here is a breakdown of the size of these hubs in terms of companies, ranked by their Startup Genome ranking:

startup hub size

Silicon Valley and New York dominate. The numbers one and two in the Startup Genome ranking are also the top two in terms of total companies in that hub. New York has over 1,600 companies, and Silicon Valley over 2,600.

The next largest are London and Bangalore. This is unsurprising given the sizes of those cities. Both London and Bangalore have populations of over 8 million people, so you would expect a lot of companies to be started in these cities.

It is the other cities in the top five which are more intriguing in this graph, particularly, Boston and Tel Aviv. These are two of the top startup hubs in the world, but have drastically lower numbers of companies. The answer comes when you look at the populations of these cities.

Boston and Tel Aviv have fewer than one million people combined. Because of these low populations, Boston and Tel Aviv are punching above their weight in terms of companies per capita. Here are the number of companies per 1,000 people in each of these hubs:

per 1000 employees

Silicon Valley is still way ahead, with almost one funded company per thousand people in the Bay Area. But now Boston and Tel Aviv aren't too far behind, with about 0.6 companies per thousand people in the city. New York falls farther down the rankings due to its massive population, and London and Bangalore no longer look so impressive.

When the data is sliced like this, you can also see that Seattle, Austin, and Denver-Boulder have more companies per person than you might expect if you follow the trend of the smaller hubs.

These hubs might not have the gross numbers of major cities, but they may have that critical mass of like-minded people. That is what Silicon Valley has above all others. It is also what is spurring along the smaller US cities of Boston, Seattle, Austin, and Denver-Boulder.

These cities also have something else going for them, identified by Sam Altman:

In most cities, there’s one field that dominates the conversation – finance in New York, politics in DC, movies in LA and start-ups in San Francisco. If start-ups are second fiddle, it will be challenging to replicate the environment of Silicon Valley.

In those cities, there are no pre-existing dominant industries. As Altman says, they can be “an area where many ambitious people care most about start-ups and technology.”

Tech is taking over places like Austin and Denver, and Boston, with its academic heritage, has always been a place of innovation.

At the other end of the scale are Sao Paulo and Moscow. Less than 1% of all the tagged companies in our dataset were in these cities. Yet each city is approaching a population of 12 million. This seems to contradict the idea that hubs are a numbers game—the more people you have the better you're going to be.

These cities show the other complexities of startup hubs, and why nowhere in the world is overtaking Silicon Valley anytime soon. Regulatory processes, other dominant industries, and economic environment all contribute to building a hub.

For instance, Brazil is 116th in the Ease of Doing Business rankings, just below Lesotho. It can take three months to get a business up and running, as opposed to less than a week in the US. These issues are what Stripe Atlas is designed to help with.

On the plus side, both Sao Paulo and Moscow have moved up in the Startup Genome rankings. As these cities get their startup engines firing, the possibilities are truly astonishing.

What Company Categories Dominate in Each Hub?

When we flip this data around to concentrate on the tags rather than the hubs, we get a better idea of what types of companies are being funded:

Alt Text

B2B companies make up the largest proportion, with just over 26% of companies serving the needs of other companies. B2C companies account for 20% of the data, and SaaS companies 18%. At the other end of the scale are mobile companies. Just 3.37% of companies are tagged as predominantly mobile companies.

This may seem surprisingly few, given the amount of mobile apps available. But there are two caveats to remember here:

  1. Many companies might have a mobile version of their product, but are predominantly web-based.
  2. This dataset comprises funded companies only, so app companies might be less represented.

Why TelAviv isn't a good hub for marketplaces

Let's start with the top five startup hubs:

tel aviv may not be the best for marketplaces

For four out of these top five hubs, B2B companies make up the largest percentage of companies. Only L.A. is an outlier, with B2C companies more prominent in Los Angeles. Snapchat, Tinder, Whisper, and Dollar Shave Club all come from SoCal.

Mobile companies are proportionally non-existent in Silicon Valley, Boston, and Tel Aviv. They are better represented in New York and Los Angeles but still lag behind other categories of company. Tel Aviv definitely isn't a marketplace hub either, though a good place for enterprise companies.

Why might Tel Aviv not be a good hub for marketplaces? The fact that Stockholm also doesn't have many marketplace companies could provide an answer: marketplaces require markets.

These places don't have big markets. Marketplaces really require large populations to work. When marketplace companies in Tel Aviv or Stockholm start out, they may not have the internal markets available to achieve the high levels of growth to win. The marketplace sector is one of the fiercest going, as it is definitely the “bigger you are, the stronger you are.” They may not have the initial momentum to get out of their local market and expand to take on marketplace companies from larger markets.

Companies in Austin, London, or Mumbai have far larger markets to service. We can see this phenomenon more clearly when we use a heatmap to plot out the locations of marketplace companies, particularly in India:

marketplace heatmap

The real marketplace hub is in India. If you have a marketplace company in Bangalore, not only do you have a 1 billion person market, you are surrounded by people who live, breathe, and build marketplaces.

North America has the enterprise hubs

Let's look at the breakdown of company types in the rest of the top 20:

Enterprise Hubs

The companies that round out the top 10 follow the same pattern as the top 5. B2B companies are the most represented, followed by B2C companies and SaaS. London and Berlin also have a higher ratio of B2C companies than most in the top 20.
Still no love for funded mobile companies in these hubs.

enterprise 2

Once we get out of the top 10, the breakdown starts to look a little different. E-commerce companies are more dominant in Paris, Sao Paulo, and Moscow. Sao Paulo and Bangalore follow Los Angeles as being hubs for B2C companies above B2B.

ecommerce sydney

The final five that round out the top 20 go back to being dominated by B2B/SaaS. In fact, with the exception of a few outliers, B2B/SaaS dominates in pretty much every top startup hub around the world.

Whereas Tel Aviv isn't so good for marketplaces, it does seem good for enterprise companies. Along with Austin, Denver-Boulder, and Vancouver, it stands out at the head of the pack:

percentage enterprise

Seven out of the top ten hubs for enterprise companies are in North America. This could be because this is where the majority of large corporations are headquartered. If you're looking to start a company that services these large organizations, then the best people and ideas are going to be in these cities.

India is all about mobile and marketplaces

Finally, let's check out the other interesting hubs:


Delhi and Mumbai are the standouts here. Whereas all the others follow the B2B-dominant mold, both these cities have more B2C companies than B2B. They also both have a significant proportion of mobile and marketplace companies.

When we map out and categorize these types of companies in the hubs around the world we can start to see a few patterns:

big world mappy

The most striking pattern is that the bluer dots, denoting B2B, B2C, and SaaS are more dominant in North America, whereas the redder dots of e-commerce and marketplaces are in Asia.

If we zoom in, we can see this more clearly. First, the bay area:

startup Genome chart

Mostly green, particularly in Palo Alto and San Jose. There are red dots in the city proper though. Contrast that to Mumbai:

startup Genome chart

More red and pink than green and blue, suggesting a dominance of marketplace companies and e-commerce companies in this hub. Again, these types of companies thrive on large populations, just what India has to offer.

The same goes for the mobile sector:

startup Genome chart

In Indian startup hubs, particularly Delhi, mobile startups are a higher proportion of all companies than elsewhere in the world.

Over 10 percent of companies in Dehli are mobile companies. Compare that to less than one percent in Tel Aviv and Toronto. The three Indian cities we analyzed all make up the top three, suggesting that mobile companies are a more dominant sector in this country than anywhere else in the world.

Mobile is huge in the developing world. India is now the second largest smartphone market, ahead of the US. And market penetration is still below 30%. Mobile developers in India have a gigantic consumer base and still plenty of room for growth.

Localization Matters

If you're sitting in a WeWork in SoMa, this isn't a clarion call to up sticks and relocate to Delhi. Silicon Valley is still the dominant startup hub for all sectors except mobile, where it comes third to New York and Bangalore. In most sectors it is the number one hub by some distance.

But it should show that even in the hyper-globalized world of tech, where anyone in the world can use your product, where you base your company still matters. As tech diversifies into a myriad of different industries, tech hubs are starting to specialize. SV is still the king, but it might not be long before new founders are prioritizing LA for their B2C companies, Delhi for their mobile companies, and Austin for their enterprise companies when deciding which hub is going to be their home.

If you are in one of these top hubs then you have access to all the people, ideas, and investment that startup hubs generate. If you are in one of the top hubs for your type of company, the support you get and the opportunities you have could be even greater.

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