What is driving the global startup economy?

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Stephan Kuester, Head of Ecosystem Strategy at Startup Genome, on the growth in DeepTech investment, the rise of ‘tier two cities’, and why the UK needs to focus on access to talent.

At Startup Genome we are constantly analysing global startup activity and considering the ‘where’ and ‘why’. Across the world we see a move to DeepTech solutions based on cutting edge discoveries in science and engineering.

A focus on DeepTech

AI, analytics and big data are now applied in most sectors and aspects of life – all the way from advanced manufacturing robotics (AMR), to health, AgriTech and educational systems. This need for new and powerful DeepTech innovation is the biggest driver in all of the world’s sophisticated startup ecosystems. And Covid is likely to increase demand even more. Investment is clearly mirroring this trend, which is encouraging because DeepTech requires longer investment cycles and more patient capital.

The right location to grow

On a macro level an interesting trend emerged from our analysis of global startup hub performance. Unsurprisingly, we discovered that those hubs that have a highly sophisticated university R&D nucleus in their area have an advantage and can be successful. But that research strength needs to be combined with a very active and substantial startup segment to create what we call ambidexterity. This is when creation of IP knowledge and patents intersects with very agile entrepreneurship, in order to take these great intellectual and research findings into commercial or societal application.

You see some outstanding startup clusters that drive tech and are very investable from a creation perspective but are lacking the commercial sense. These ecosystems are relying on the old-world strategy of activating innovation through existing large international corporations. These regions are falling behind economically. Areas such as London and Vancouver are on the up because of their ambidexterity.

2021 hotspots

South East Asia is continuing to develop at pace. Not only China, which is a beast in its own right but one of the most difficult regions to scaleup in successfully. We are bullish on other areas in the region such as South Korea, Malaysia, Indonesia, and Vietnam. The dynamics we are seeing there, including the political drive and the developing tech ecosystems are creating a strong environment which is attracting tech companies and tech talent. Outside of the East, I also expect a resurgence of the US market post-Covid.

Specialist cities

Over the last few years, we have seen the emergence of what are referred to as ‘Tier Two cities’. They are not the best environment for all startups or scaleups, but for certain subsectors they produce incredible results.

There’s Odense, a city of around 100,000 in Denmark, for example. It is home to one of the world’s leading robotics ecosystems and market leaders in collaborative robotics. If you’re an AMR scaleup, and want to tap into leading R&D capability, it’s a very good place to have an office. It's very sector specific.

Or look at Frankfurt. Most of Europe does FinTech but Frankfurt has focused very cleverly and successfully around FinTech and the existing traditional banking landscape. Startup ecosystems are moving towards more targeted subsectors to create the best opportunities ­ ­– rather than there being three or four big cities where you absolutely have to be.

A global search for talent

Access to talent for the tech ecosystem has been an issue in the UK for the last 10 years. If you ask founders, finding people with the necessary technical and hypergrowth skills has always been a constraint. In the new post-Brexit political environment – and since Covid –people may be more reluctant to relocate and this could increase the problem.

The UK has a booming economy in the startup and scaleup environment but needs to fill critical jobs. We have seen in the past how adaptive founders are at getting their programming talent in other parts of the world, not just in Europe. I'm optimistic UK startups will meet this challenge but it should be taken seriously – and adopting a more global mindset may be part of the solution.

Don’t follow the herd

If you are a founder thinking about expanding globally, my advice is to do intense market research and diligence. Try not to be too simplistic. Think outside of the US, China and Singapore. They are great environments but incredibly competitive and expensive. Consider the whole world to identify the best market for your subsector.

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