Location, Location, Location

There is an old saying in real estate that the three most important factors are location, location, location. Given the hype around startup hubs, one might think that the same holds true for company and investment prospects.

Lots of places around the world have been trying to position themselves as the next Silicon Valley (while at the same time, people have criticized the echo chamber nature of the Valley). Even with favorable trends, Europe certainly still has some homework to do: Among the top 20 cities of the world as measured by venture capital investments in the $5-200m range, 5 are in Asia compared to currently only 2 in Europe (London and Paris; no, not Berlin, and not Vienna yet either), the recent study Rise of the Startup City: The Changing Geography of the Venture Capital Financed Innovation found. However, Europe does continue to get more and more attention as a location for startup hotspots, as evidenced in a recent Forbes article.

While the hype is often superficial, there are sound economic and policy reasons for supporting specifically the kind of companies that are also attractive to early-stage investors like business angels and venture capitalists. Companies geared towards high growth are responsible for disproportionately high contributions to important economic indicators. The Octopus High Growth Small Business Report examined the situation in the United Kingdom and concluded that high growth small businesses (defined as £1-20m turnover and >20% average annual turnover growth), while accounting for only 3.4% of gross value added in absolute terms, contribute 36.2% to the growth of national gross value added, and a whopping 68% to employment growth.

No wonder then that countries like Austria are not content with qualitative indications like the tremendously successful annual Pioneers Festival (which regularly sells out its 2,500 available tickets to participants from all over the world), but also start to look at quantitative measure in earnest.

Now where does all this leave us with respect to the overarching question of how to deal with the location factor? Everybody seems to agree that among all kinds of economic growth, the growth of startup ecosystems is particularly desirable. But maybe we should look beyond the pure numbers and the “we (try to) get the largest slice of the pie” mentality by remembering some old wisdom of early-stage investors: That making a larger pie together can benefit everybody much more than fighting over how to slice the existing pie ever could. This also applies to locations for startups and investors. We should promote more and better knowledge transfer not just within startup ecosystems, but also across borders. Let’s all talk. Let’s all win.