Metropolitan Areas, Entrepreneurial Communities and the Diffusion of Venture Capital Investments: Some Descriptive Statistics

Pages: 11 (3454 words) Published: August 22, 2013
METROPOLITAN AREAS, ENTREPRENEURIAL COMMUNITIES AND THE DIFFUSION OF VENTURE CAPITAL INVESTMENTS: SOME DESCRIPTIVE STATISTICS

1. Introduction

The development of metropolitan areas is likely to depend, among other things, on the development of their entrepreneurial communities. However, our understanding of entrepreneurial communities worldwide is limited.

In the following chapter, we begin to fill this gap by providing data on the development of entrepreneurial communities around the globe. Moreover, we provide data on the diffusion of venture capital in the United States and Europe. We conclude the chapter with some recommendations for European policymakers.

2. Entrepreneurial Communities in the World

The popular press is full of stories about startups and their founders who transformed small companies into international giants (i.e., the so-called gazelles). Examples of these companies include: Google, Apple, Facebook and Twitter. What do many of these companies have in common? They were founded in Silicon Valley.

Although Silicon Valley has become the preeminent leader of entrepreneurial communities across the world, metropolitan areas such as Boston, London, Tel Aviv and New York City are also considered hotspots. They are defined as such because their communities have produced the vast majority of funded and internationally recognized startups. Nevertheless, other communities have emerged as important hubs for startups. While we do not know all the reasons why the startup movement has happened, two notable trends which we discuss in this chapter are apparent: (1) there has been a global explosion of entrepreneurship and (2) metropolitan areas and countries are trying desperately to be leaders through their startup ecosystems.

Despite our limited knowledge on the emergence of entrepreneurial communities, important factors, such as globalization, education, as well as economic and political interest have created the global desire to gain more information on this phenomenon. Last year, Startup Genome and Telefónica Digital collaborated to evaluate the state of entrepreneurial communities worldwide. The aim of this effort was to understand where, outside of the proven grounds of Silicon Valley, entrepreneurship takes hold. The results of this study can be found in the “Startup Ecosystem Report 2012”.

Startup Ecosystem Report 2012 presents an index that is based on data from more than 50,000 startups. Startup Genome developed a tool called Startup Compass to collect the data. It is an automated analyst in the cloud that helps businesses make better decisions via benchmarks and actionable recommendations. The study is built on a convenience sample that is likely to be heavily skewed towards early stage startups. However, it also includes a number of later stage companies.

The overall ranking, presented in Table 1, is based on 8 weighted component indexes. The eight weighted components are defined as follows:

1. Startup Output Index, which represents the total activity of entrepreneurship in the region, controlling for population size and the maturity of startups in the region; 2. Funding index, which measures how active and how comprehensive the risk capital is in a startup ecosystem; 3. Company performance Index, which measures the total performance and performance potential of startups in a given startup ecosystem, taking into account variables such as revenue, job growth, and potential growth of companies in the startup ecosystem; 4. Talent Index, which basically measures how talented the founders are in a given startup ecosystem, taking into account age, education, startup experience, industry domain expertise, ability to mitigate risk and previous startup success rate; 5. Support Index, which measures the quality of the startup ecosystem’s support network, including the prevalence of mentorship, service providers and types of funding sources; 6. Mindset...
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