“Drawn by the region’s strength in Fintech, more and more global financial companies are heading to Silicon Valley. The area has also produced a number of Life Sciences success stories, including Acerta Pharma and Vir Biotechnology.”
The recently published Global Startup Ecosystem Report 2020 ranks the top global startup ecosystems by metrics including performance, funding, connectedness, talent, and knowledge to highlight the winning startup cities worldwide.
In a league of their own, this year’s top five global startup ecosystems have a combined value of $1.5 trillion, 1.7 times the remaining top ecosystems. Silicon Valley maintains the #1 ranking, a position it has held since 2012, when rankings were first released. Meanwhile, New York remains at #2, although now tied with London. And finally, Beijing is at #4, and Boston is at #5. Tel-Aviv and Los Angeles rounded out the top seven.
The 2020 analysis includes almost 300 ecosystems, up from 60 in 2018 and 150 in 2019. It ranks the top 40 global startup ecosystems and 100 emerging startup ecosystems.
Here are the details.
Silicon Valley and San Francisco Bay Area
“Despite rising real estate prices and increased scrutiny, Silicon Valley remains a vibrant place for startups. The external forces acting on Silicon Valley are changing how companies develop products and manage teams,” said Robert Siegel, partner at XSeed Capital and Lecturer in Management, Stanford Graduate School of Business.
Seven of the world’s top 10 Artificial Intelligence investors, including Google, Facebook, and Apple, are based in Silicon Valley. Microsoft invested $1 billion in Open AI In 2019, Databricks raised over $650 million in two financing rounds in 2019, and Snowflake Computing, a data warehousing platform, raised $478M in a Series G round in March 2020. In addition, drawn by the region’s strength in Fintech, more and more global financial companies are heading to Silicon Valley. JP Morgan announced plans to open a Fintech innovation hub there in 2020. In 2018, Stripe, a Fintech unicorn, raised $245 million, followed by $100 million in January 2019 and then $250 million in fall 2019.
The area has also produced a number of Life Sciences success stories, including Acerta Pharma and Vir Biotechnology. It is home to more than 1,400 Life Sciences companies employing over 82,000 people. In 2018, one startup, Grail, raised $300 million in Series C funding, and Allogene went public at a valuation of $2.2 billion.
“Times of crisis reveal the resilience of our innovators, and in New York’s case, our startups have continued to adapt while finding ways to serve the public. Even with COVID’s economic effects, there’s optimism in the NYC startup culture, ensured by our entrepreneurs’ ambition and underwritten by our investors’ confidence,” said Julie Samuels, Executive Director of Tech: NYC.
New York City is known for the highest number of AI and machine learning positions in one metro area. Recent five-year growth in AI and Big Data VC funding is higher in NYC than even in the Bay Area and Boston. One startup, CTRL Labs, specializing in allowing humans to control computers by transmitting signals from the brain through a wristband, was acquired by Facebook for an amount between $500 million and $1 billion in 2019.
Cybersecurity is a billion-dollar industry in NYC, with 100+ companies and 6,000+ employees as of 2017. Cyber NYC is a public-private initiative that includes startup accelerators, boot camps, and the Global Cyber Center – a home for ecosystem building that connects NYC’s most substantial economic players to state-of-the-art cybersecurity solutions.
Additionally, NYC has nine academic medical centers, 50+ hospitals, and 100+ research foundations. The city’s institutions receive circa $2 billion in NIH R&D grant funding and have helped startups raise over $1 billion in venture capital. The city is even home to Life Sciences companies like Kallyope, which received a $112 million Series C in 2020. Also, Schrodinger’s successful IPO earlier in 2020 was valued at $819 million.
“London has an established position at the cutting edge of tech. Previously in Fintech, but now also AI and Healthtech. It’s critical we leverage this advantage — attract the best talent and build a supportive ecosystem,” said Suranga Chandratillake, partner at Balderton Capital.
By 2021, the U.K.’s Edtech sector is expected to reach $4.4 billion, and current U.K. education exports total $22.8 billion annually. Today, London has over 500 Edtech companies and was ranked #1 in Europe for early-stage funding in Edtech in 2017. In fact, Cloud Guru, a cloud computing training platform, raised $33 million in 2019. Memrise, a language learning platform, raised $15.5 million in 2018.
The second-largest financial center in the world, London, produced two Fintech unicorns in 2019 and has a financial sector employing more than one million people. In 2018, the Financial Conduct Authority launched a global Fintech regulatory sandbox after a successful domestic sandbox that loosened financial regulations.
With the full impact of Brexit impending on London, one wonders how London’s tech center will continue to attract the best and brightest entrepreneurs and investors, or whether a competing European hub will emerge in Paris, Dublin or Berlin, among other candidates.
“Beijing’s greatest innovation asset lies in its preeminent education resources. Among Beijing’s yearly 200,000 college graduates, many enter the startup scene one way or another, making this city a leading innovation highland as of today,” said Jordan Zhu, senior manager at Innoway in the Global Incubation Department.
Today, Beijing is home to 1,070 AI companies, 26 percent of China’s total. Beijing-based AI unicorn Bytedance is valued at $95 billion — the world’s largest privately backed startup. And Zhongguancun, Beijing’s tech hub, is home to 10 AI labs. China is even building a $2.1 billion AI technology park in Beijing’s suburban Mentougou district.
In 2017, Beijing’s financial sector accounted for 17 percent of the city’s economic activity, and The Beijing Fintech Demonstration Zone was announced in 2018. Tiger Brokers, an online brokerage, raised $80 million in 2018, reaching unicorn status.
In mid-2018, venture capital funding of startups in China became the subject of some controversy, and after reaching a high of almost $35B of funds raised in Q2, plummeted to less than $5B in Q4 of 2019. The pandemic brings new challenges and opportunities, and we believe Beijing will continue to be an important startup ecosystem in the coming decade.
“Boston is home to a buzzing startup ecosystem across many sectors—cleantech, biotech, and robotics. We strongly believe that our regional community thrives because of all the stakeholders that are committed to supporting local, early-stage companies,” said Dr. Emily Reichert, CEO at Greentown Labs.
With access to world-class talent from MIT and Harvard, Boston-based robotics companies employ more than 4,700 people. The city is also bringing more access to technology in classrooms through makerspaces and 3D printing facilities—like Desktop Metal, a developer of metal 3D printers that raised $160 million in a Series E round in 2019.
On the Life Sciences side, Boston has more than 1,100 companies, seven teaching hospitals, and five of the top six NIH-funded independent hospitals in the U.S. MLSC runs a $1 billion Life Sciences Initiative, providing research grants, accelerator loans, tax incentives, and more. in 2018, Moderna launched the largest biotech IPO in the world with a valuation of $7.5 billion. Moderna is now valued at $22.79 billion (as of July 9, 2020).
Emerging Market Trends
While each of these ecosystems has distinct competitive advantages, one can connect some dots to identify emerging trends across the tech and life sciences verticals around the world. Every startup has to find a way to build tools for their own flexible and distributed workforce and for their customers’ workforces. Entrepreneurs need to accelerate monetization and exert maximum control over the funds flows and direct them. Fintech-as-a-Service adoption is ushering a boom of applications. Moving back to the physical world, the pandemic has sharpened the focus on vaccine platforms and the future of food. Mental health and products that improve the lives of children, the elderly and our environmental health are receiving attention. Finally, we have seen that investors have lost their appetite for autonomous vehicles businesses that require massive amounts of capital, and mobility applications have become a nearer term focus.
Trends in Legal Documentation in the Early Stage
In early stage financing, Silicon Valley (including San Francisco), has been the center of innovation in methods, processes and legal documentation, giving birth to the SAFE, the KISS, the capped convertible note and the “series seed preferred” instruments. In the pandemic, companies are having to find ways to extend their runway, amend their existing convertible notes to postpone the maturity date, and bring in more revenue—earlier—from customers. In today’s environment, entrepreneurs need to consider whether valuation is better discussed now than later. Now the second largest venture market in the United States, New York-based startups use convertible notes as their primary mode of early stage financing, and while the SAFE is increasing in popularity, it has not yet become ubiquitous with investors as it has on the west coast.
As we look forward, we expect New York-based startups to continue to play a leading role in the development of fintech and blockchain business models to enable financial transactions. In global markets, we expect national, regional and local governments to continue to be an important driver of technology innovation and funding, particularly in China, with a combination of non-dilutive funding, industrial policies, incentives, tax rebates, credits and loans, which will be combined with traditional debt and equity instruments, to help drive a faster recovery from the pandemic.