June 21, 2022

Today's Digital Economy Is the Economy, Says Annual Report on the Global Startup Ecosystem

The entrepreneurial universe was a much smaller place when Startup Genome published its first Global Startup Ecosystem Report (GSER) in 2012. As stated in its latest version of its annual report on the global startup ecosystem, "Six of the top 10 hubs were in the United States, and just one Asian city — Bangalore — broke the top-20 ranking. Four ecosystems accounted for the year's whopping nine unicorns (a term that would not even be coined until 2013). Almost two-thirds of early-stage funding was concentrated in North America."

Ten years later since the publication of its initial report, Startup Genome, a policy advisory and research organization for public and private organizations committed to accelerating the success of their startup ecosystem, says with "$1.65 trillion in funding, 1,227 unicorns, a global pandemic, and massive revolutions in everything from AI and social media to autonomous vehicles and precision medicine later, and the situation is very different. Today, the digital economy is the economy — or at least the economy's future."

Below are the report's key findings:
  • The same five ecosystems remain at the top of the ranking as in 2020 and 2021, but Beijing has dropped one place, with Boston taking its former place at #4. Silicon Valley is #1, followed by New York City and London tied at #2, Boston at #4, and Beijing at #5.
  • Seoul entered the global top 10 ecosystems for the first time, up six places from #16 in 2021 and #20 in 2020.
  • Several Indian ecosystems have risen in the rankings, most notably Delhi, which is 11 places higher than in 2021, entering the top 30 for the first time at #26. Bangalore has moved up one place from last year, to #22.
  • Overall, China's ecosystems have declined in the rankings, a reflection of the relative decline in early-stage funding in comparison to other ecosystems.
  • Helsinki has risen more than 20 places from last year, joining the runners-up category at joint #35.
  • A record 540 companies achieved unicorn status in 2021, up from 150 in 2020.
  • In 2021, Brazil saw 237% growth in the dollar amount of Series B+ rounds compared to 2020. The nation's total exit amount for 2021 was $49 billion, a huge leap from $1 billion in 2020.
  • Asia experienced a 312% increase in the dollar amount of exits over $50 million from 2020 to 2021.
  • In 2021, the dollar amount of exits in London grew 413% from 2020. The ecosystem's Series B+ rounds increased 162% in terms of dollar amount from 2020, and it saw 55% more $50 million+ exits in 2021 versus 2020.

With respect to the top 100 emerging ecosystems, the Startup Genome explains that these "ecosystems are startup communities at earlier stages of growth, and our ranking methodology is adapted to reflect this, to showcase the strengths in these ecosystems that have high potential to be global top performers in the coming years." Key findings from the top 100 emerging ecosystems include:
  • Oslo is in the top 20 Emerging Ecosystems (#19), a huge leap of over 20 places from last year, and a reflection of two unicorns — industrial IoT platform Cognite and online grocery Oda — helping to increase its Market Reach.
  • Minneapolis has moved up 18 places from last year, to #4. Six exits over $50 million and one $1 billion+ exit helped to improve its Performance score.
  • Manchester-Liverpool has moved up eight places from 2021, to #6. A $1 billion+ exit and Matillion — an integration platform for cloud data warehouses — becoming a unicorn add $7.8 billion to its Ecosystem Value.
  • India's recent success is reflected in both Chennai (tied #31–40) and Pune (tied #51–60) moving up in the rankings. The Chennai ecosystem saw a $1 billion exit in business software startup Freshworks, which moved to Silicon Valley after founding in India.
  • Mumbai's has moved out of the Emerging Ecosystems ranking and into the global overall rankings (tied #36). Three exits over $1 billion (including Nykka's $7 billion valuation at IPO) and six unicorns contributed to the move.
  • Pittsburgh moved up 10 spots from last year to #13, aided by Duolingo's $3.6 billion exit.
  • Prague has moved up more than 40 spots, to tied #41-50, thanks to three exits over $50 million and one over $1 billion. These big exits are helping to increase its ranking in Performance and Market Reach.

"The top 100 Emerging Ecosystems are collectively worth over $1 trillion in Ecosystem Value," the report notes, "which is a 96% increase from last year. Europe and North America still boast the majority of emerging ecosystems, and Latin America, MENA, and Africa have held steady in the number of ecosystems in the top 100 from last year, with five, four, and three respectively." What is more, "Asia has 17 entries in the Emerging Ecosystems ranking versus 18 last year. Oceania has the same two entries in the top 100 as last year: New Zealand and Brisbane."

The report also provides an important analysis on the global startup sub-sector, which include the following key findings:
  • Since the GSER 2021, there has been an overall increase in the growth of exits and a general slowing in the growth of Series A rounds. The increase in the growth of exits has helped investors hold dry powder (marketable securities that are highly liquid and considered cash-like), as revealed in the record high VC investment amounts.
  • Cybersecurity has received growing attention, as a side effect of the acceleration in digital transformation. Exit growth in this sub-sector has increased by 14% since the GSER 2021.
  • All sub-sectors have accelerated in growth overall, with the largest growth in artificial intelligence (AI) & big data (BD), Blockchain, Fintech, and Advanced Manufacturing.
  • AI & BD is becoming an overarching vertical that is increasingly overlapping with other industries both in terms of the amount of investment and count. In 2014, the overlap in the investment amount was outperforming the count, showing fewer investments in AI and tech. In 2020, the trend is the opposite, indicating competition among global AI startups to attract funds.
  • Cleantech is the only sub-sector that has seen a considerable increase in count at both Series A (by 35%) and exit (by 12%, both 2016-2017 vs. 2020-2021), indicating increased innovation and investor focus on this topic.
  • Advanced Manufacturing has grown by 70% in early-stage funding (2016-2017 vs. 2020-2021), driven by supply chain needs and a focus on improving efficiency and productivity through automation, monitoring, and failure prediction.

Having been involved with startups for close to 30 years, I concur with JF Gauthier, Startup Genome's founder and chief executive, that "The world of tech startups is changing. More importantly, tech startups are changing the world." The coronavirus pandemic accelerated the development of the digital economy. And as previously stated, today's digital economy is the economy.

What aspects of the report did find of particular interest or relevance?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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