Countries from France to China, India to Germany, Estonia to Vietnam, at some point in their national discourse, harbored the aspiration of building their own Silicon Valley, i.e., a thriving startup hub, where technologies are created, venture capitals are invested, and billions are made along the way.
Despite the sky-high cost of living, a declining number of patents and a reduced number of new company formations, the San Francisco Bay Area, popularly known as the Silicon Valley, remains the leading and most sought-after geography for startups. Silicon Valley’s $140 billion of venture capital investment in tech startups alone since 2012 makes it top the chart of tech hubs, as Beijing with its $72 billion and New York with its $36billion come next in line.
Many expect a larger number of Asian cities to emerge as the leaders of the global startup scene in the future. But so far the dominance of the American and European technology hubs like San Francisco, London, and New York continues. Even China, with all its central planning, availability of high-end technology and abundant capital, continuously rank lower in the total number of deals and capital invested up against Silicon Valley.
So what makes the setting within a country perfect for a thriving startup scene, attractive enough for global venture capitalists to flock with their open wallets? As you will see, social and political issues matter ultimately as much as the availability of tech talent and risk-seeking capital for startup scene to thrive. Below is a short list of the must-haves necessary for a country to have a startup scene primed to flourish:
Intellectual property rights come as number one concern for startups. Startups are all about new ideas, research, designs, and executions. None of this matters if ideas are stolen and copy-cat products flood the market without consequences. Therefore, to jump-start a robust startup culture, a country needs to provide strong safeguards for intellectual property rights.
Fair issuance of new patents and fair resolution of patent-related disputes is a must within the legal system. The next extension of this is to integrate well with the international patent regimes so that investors feel comfortable about retaining their ownership of intellectual products and ideas.
Protection of ideas only come after ideas are allowed to flourish in the first place, which requires an open and free-thinking culture within an aspiring startup hub. This is not possible in societies or regimes where free-speech is endangered. There are several “top ten” lists of tech hubs and startup hubs found on the web. Almost all of those are dominated by cities in countries that are liberal democracies.
Strong ownership laws come next, not just for the intellectual property but for operating entities and for physical assets. Imagine Mark Zuckerberg, the 20-year tech guru growing up in an illiberal society as the owner of a company worth billions of dollars in the future. Seeing his prospects, it would have been only natural in an illiberal society for some ruling party elite or securities personnel to take a forceful ownership stake in Mark Zuckerberg’s venture, now known as Facebook, and ruin all its future through that process. The story would have been the same for a 20-year-old Bill Gates had he grown up in a corrupt society. The moral of these stories is that in order for a thriving startup culture, strong protection of ownership rights must be present for anyone with a well-executed idea — let that person be young or old, male or female, politically weak or strong, local or foreign.
A mature investment climate is needed to sustain the injection of venture capital, i.e., the lifeblood of startups. Mature investment climate means where investors have many investment opportunities of varying risk profiles, and they only invest a portion of their investments in high-risk, high-return startup businesses. Capital markets need to be efficient for such capital, allowing free-flow of funds in and out of the startup geography with minimum fees. Markets need to be robustly monitored and kept manipulation free so that no one can defraud widows and orphans forcing them to form picket lines losing all their investments in a failed startup venture.
A sustainable startup scene needs an endless supply of talent. And talent does not mean just mathematicians, engineers, and programmers, it must also include artists, musicians, and writers. A thriving startup hub needs a free-flowing ecosystem of research and development, hundreds of labs and the ability to test a million lab-rats. It is not a surprise that all the major startup hubs of the world are next to universities with global thought leadership, e.g., Silicon Valley has Stanford and Berkley and London has its Cambridge and Oxford.
A startup hub must promote a culture that embraces change, promote newer trends, and welcome the future trendsetters who still seem “weird”. Knowing these requirements, cities like Portland, Oregon, and Austin, Texas, both trying to unseat Silicon Valley, California from its preeminent status as a startup hub, started formal advertisements that read, “Keep Austin Weird” and “Keep Portland Crazy”.
A startup hub must embrace multiculturism, and integrate itself with the international scene both culturally and linguistically. Absent successful absorption and integration with the internationally dominant culture, a startup hub will be reduced to producing only translated, copycat products, and fail to produce anything with a chance of achieving true international recognition.
In sum, technological know-how or even technological superiority alone can never produce a Silicon Valley. A Silicon Valley has lot more underneath the technology scene that meets the eye, since governance, society, and culture play crucial roles that most novices don’t appreciate. The best example that illustrates this phenomenon is the America and the Soviet Union of the 1960s. These two countries were in parity with each other in terms of technology during the 60s. For example, America and the Soviets both sent men to space at the same time, both had early advances in computer technology. Yet only America could unleash the ultimate potentials of all these technologies and allowed companies like IBM, Microsoft, Apple, Google or Space-X to ultimately emerge and thrive. Russia, the former Soviet Union, on the other hand, currently have few universally recognized enterprise.
The Russian state-approved “startup” scene of the 60s and 70s languished, only because somewhere down the road, mostly due to political and societal reasons, Russia’s best of the money and the best of the brain stopped chasing the Soviet dream, while many simply departed only to be successful elsewhere. That is one mistake that every aspiring startup hub must not let happen.