Tel Aviv, L.A. Right Behind Silicon Valley in Startup Genome Rankings

11/20/12Follow @wroush

Brace for some surprising news. As a place to build a startup, Tel Aviv, Israel, outranks every other major startup hub in the world except Silicon Valley.

That’s according to a report set to be released today by Startup Genome, a San Francisco-based R&D project.

All right, you say; surely the No. 3 spot after Silicon Valley and Tel Aviv must go to Seattle, New York, Boston, or some other classic startup hub. Nope. The third best location for startups is Los Angeles, according to the study.

The creation of entrepreneurs Bjoern Lasse Herrmann, Max Marmer, and Ertan Dogrultan, the Startup Genome project collects statistics from companies around the world in an effort to give startup founders a way to benchmark their own performance against that of similar companies. In today’s report—the latest in a string of studies released by the project since its inception in early 2011—the Startup Genome guys have churned through that data and pegged Toronto, Sydney, Moscow, Melbourne, Bangalore, and Santiago as some of the world’s strongest startup ecosystems.

If the rankings sound a bit eyebrow-raising, they’re probably meant to be. The Startup Genome analysts believe that the top centers of innovation, such as Silicon Valley and Boston, are losing their once-exclusive grip on new startup creation. They say there’s “global explosion of entrepreneurship” bubbling up from a number of alternative hubs.

“We created this report…to put a spotlight on the emerging high tech startup ecosystems that will be responsible for powering a majority of the world’s economic growth in the future,” Hermann said in a statement announcing the study.

The report (which can be downloaded here) was published in cooperation with Telefónica Digital, the new-business wing of the Spanish telecom giant. The division operates a network of startup accelerators in nine countries, aimed at developing “future Silicon Valleys in the countries where Telefónica is present.”

The full results of the ecosystem study were not available before press time, nor were the exact details of the method used to rank cities according to how well they foster entrepreneurs. But the group said the study was based on data contributed to the project’s Startup Compass website by more than 50,000 startups.

Startup hubs were assessed according to 50 variables, such as the output and performance of local startups and the availability of venture funding and infrastructure support, as well as less tangible factors such as “entrepreneurial mindset” and a “trendsetter index” (how quickly companies adopt new technologies and business models).

Here’s the list of the world’s top 20 startup hubs, according to the report:

1. Silicon Valley
2. Tel Aviv
3. Los Angeles
4. Seattle
5. New York City
6. Boston
7. London
8. Toronto
9. Vancouver
10. Chicago
11. Paris
12. Sydney
13. Sao Paulo
14. Moscow
15. Berlin
16. Waterloo (Canada)
17. Singapore
18. Melbourne
19. Bangalore
20. Santiago

And here’s a graphic illustrating how each city ranked in eight subcategories (green is highest, red is lowest; click and then click again for a larger, more legible version).

Startup Genome ecosystem rankings

The next 20 cities on the Startup Genome list (in alphabetical order, not rank order) were Amsterdam, Atlanta, Austin, Barcelona, Buenos Aires, Cape Town, Copenhagen, Dallas, Denver, Dublin, Helsinki, Istanbul, Johannesburg, Madrid, Mexico City, Milan, Montreal, Mumbai, Philadelphia, Portland, Rio De Janeiro, San Diego, Warsaw, Washington, and Zurich.

Now, it’s clear that the spread of the Internet, rising standards of living, improved access to education, the globalization of capital, and other factors are fostering entrepreneurship in many new corners of the world. But the overall rankings probably need to be taken with a grain of salt.

For one thing, they’re based on self-reported data gathered over a period of months from companies that were using the Startup Compass website to see how they measure up against their peers. It’s unclear whether there was any independent check on whether the information they reported was accurate, or whether it may have been subject to regional biases.

Also, based on the limited information shared in advance with journalists, it’s unclear how certain cities were assigned their ranks in the subcategories. For example, Silicon Valley, Boston, and Tel Aviv tied for first place on the Startup Genome’s “Funding Index,” but other datasets show big discrepancies among these cities. (Data from the National Venture Capital Association shows that Silicon Valley startups have collected some $8.2 billion in venture funding since 1995, for instance, while New England companies have collected only $2.4 billion.)

And there’s much more in the report to stir up discussion, which may have been the main goal. A case in point: The report’s assertion that Boston and Seattle are over the hill.

In addition to ranking cities’ entrepreneurial bona fides, the report assigns each city to one of six “ecosystem lifecycle stages” including “1—Seed,” “2—Hype,” “3—Independence,” “4—Integration,” “5—Expansion” (further divided into “5.1—Sustained Expansion” and “5.2—Ossified Expansion”), and “6—Contraction.” In general, the farther a city has progressed in its lifecycle, the higher it ranked in the study. Silicon Valley was the only region judged to be at Stage 5. The report asserts that three of the top-ranked startup hubs—Tel Aviv, Seattle, and Boston—have passed their prime and arrived at stage 6, the contraction stage.

For entrepreneurs in those cities, them’s fightin’ words. We’ll be watching what kinds of reactions the Startup Genome report actually provokes.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • clarisa

    can you tell me what is the source when you mention “the next 20 cities”, because i can not find that information in the study, thanks