Startup Geography, Demography, and Pathways to Prosperity

Photo by Joshua Earle on Unsplash

While 2020 has been tumultuous for most and devastating for many, we’re still left with so much uncertainty about what’s to come. Nine months since the first lockdowns, has the startup world been forever flipped on its head? Has everyone fled to the wilderness, leaving behind post-bubble wastelands in New York and Silicon Valley? Is the entire venture capital funding market on the verge of collapse?

Well, no. Yet the ground certainly feels like it’s shifting, creating new opportunities that will require more creativity, more resiliency, and, hopefully, more access.

For more than a few years I’ve been fascinated by the geographic diffusion and economic distribution of venture-backed (IC)technology startups. And for that I can thank Carlota Perez and her many, much higher profile acolytes (h/t Fred and Jerry).

As this unique year draws to a close, with many working remotely and many more unable to work at all, these topics feel especially relevant and urgent. Here’s an attempt to read the tea leaves for what might come next.


When Aileen Lee popularized the term ‘unicorn’ in 2013, companies fitting that description existed in only 4 places on earth. In subsequent years, not only has the size of that herd swelled but it has also galloped across the planet. The flock can now be spotted, in fact, in 84 distinct places around the world:

Source: Startup Genome

An admittedly crude metric, more granular data from Richard Florida and Ian Hathaway make the same point. Their Global Startup City dashboard paints a vibrant picture of global innovation.

Center for American Entrepreneurship,

While places like New York and LA have deservedly become standard bearers for emergent startup ecosystems, much of the expansion has come from outside the US. The league table of top 20 cities contributing to the growth in venture capital investment in the last 5 years includes 6 cities in the USA, 4 in EMEA, and a full 10 in APAC:

Once primarily focused on their own back yard, blue chip Silicon Valley firms like Sequoia & Sapphire see this opportunity and are opening new offices internationally, not just in massive single markets like China or India but across the globe (including, notably, in fragmented Europe).

The Startup Genome’s Global Startup Ecosystem Report offers a great resource for anyone interested in further reading.


However, access to entrepreneurial know-how and capital depends not just on geography but also on social & demographic patterns. Put another way, who are the protagonists (including in the above cover photo) of the narratives we construct concerning entrepreneurship? Who is afforded the privilege and space to undertake inspirational, odds-defying, world-changing risk?

These stories are still far too often synonymous with cliche: ‘tech bro’ culture, hotel bar ‘cougar nights,’ too clever by half Sorkin-style dialogue. In a word, clubbiness.

Other voices are far better equipped to highlight and address the various, insipid ways in which this clubbiness has metastasized. Change has been too slow and underlying data too hard to access. Yet capital flows may still prove illustrative.

Venture capital as an asset class is undergoing a long overdue maturation, much like private equity before it. The “Barbarians at the Gate” corporate raider era is coming to an end. Institutional LPs are changing their allocation processes, with new ESG metrics integrated into their decisions. This is also becoming true with family offices, as well as at the GP and operating company levels.

ESG Policy in Place by VC Firm Size (AUM). Source: EIF

Perhaps more importantly (or the root cause for the above behavior changes), startup & VC activity has become part of the broader cultural zeitgeist. Too much wealth has been created, with significant side effects, for people not to take notice.

Again using PE as a parallel, think back to those Mitt Romney Bain Capital ads or, even better, their spoofs. Popular culture is starting to pay attention to the tech startup & venture world in much the same way. Just watch one of the seemingly weekly congressional hearings or, slightly more entertaining, The Social Dilemma.

It will take time for more reliable data to become available, and for new behavioral norms to truly take hold, but initial signs indicate that a fulcrum moment for the industry is taking place.

Pathways to Prosperity

These geographic and demographic trends are, of course, largely the same. It is the story of a parlor game, once reserved for insiders, becoming available to more people, in more industries, from more backgrounds, all around the world.

Moreover, traditional epicenters, especially those in the US, are getting beat at their own game. Places revered for upstarts, disruptors, and iconoclasts now feel sclerotic, hierarchical, and status-obsessed.

Social mobility in Stanley Kubrick’s ‘Barry Lyndon

The Bay Area can no longer be characterized by tech utopians and counter-culture renegades living in their own weird and wonderful world. The misfits may have generated staggering amounts of wealth but now we have to contend with real world responsibility for those creations, including their significant (mostly unintended) adverse societal effects.

More broadly, the ‘American Dream’ is more alive elsewhere than it is in the US. That dream depends on a number of prerequisites: the rule of law; a stable, transparent, and accountable political system; reliable public infrastructure & social safety net; enforceable contracts; healthy & rational capital markets. All of these elements have become weaker in the US in recent years while becoming more commonplace elsewhere.

Intergenerational earnings elasticity (higher = more mobility). Source: OECD

The best indicator of this condition— intergenerational earnings elasticity — measures the degree to which the average individual’s income depends on the income of their parents. The higher the elasticity quotient, the more social mobility. Among OECD countries, the Nordics, Canada, and Japan are relatively mobile. The US, along with France, Italy, and Great Britain, occupy the bottom of the table.

Entrepreneurship, as a primary means to move up the socioeconomic ladder, should clearly counteract lack of mobility. So it seems almost unfathomable that the US, home to a culture of innovation and to sophisticated early stage risk capital, should lag so drastically.

In order to better understand, the relevant questions will sound familiar. Who is afforded the privilege of entrepreneurship? What is the distribution of its economic value creation and capture? Essentially, the answer to both questions is “the 1%.”

The prevailing ways we talk about and fund startups, based not only on clubbiness but also on winner-take-all assumptions and a rudimentary understanding of network science, lead to skewed, asymmetric outcomes. A system built for extreme outliers ignores the median by design.

However, there is much reason to believe that out of the chaos of 2020, such long-held assumptions and practices are being tested. Long-standing foundations are creaking mightily, with more people now paying attention to their fault lines and weaknesses.

Anecdotal developments remain encouraging on the inclusion front: Paypal investing $50mm in Black and Latinx-led funds; an increasing number of new female-focused funds and female-led startups; Steve Case’s Rise of the Rest fund; Lightship Capital making investments not only in underrepresented founders but also in overlooked, post-industrial cities in the Midwest and ‘Rust Belt.’

However, from a systemic perspective, greater collaboration is needed to foster more resilient and accessible startup ecosystems. For the industry to mature, it must embrace a more engaged and responsible stakeholder role in society at large.

Private equity may not necessarily provide the perfect role model but, certainly, large tech infrastructure projects might pursue the public-private partnership model seen frequently with physical infrastructure initiatives. Projects like the MaRS Discovery District in Toronto or Newlab at the Brooklyn Navy Yard offer a glimpse into what the next era of startup creation might resemble.

In fact, the 2020 Global Startup Ecosystem Report highlights ‘the continued urgency for public-private collaboration’ as its key takeaway. After all, this would represent a return to the roots of Silicon Valley. Government research, in collaboration with private universities and enterprise, tackling big societal issues with ambitious new technological solutions.

In 2021, we can use a similar playbook in a wider set of industries, led by entrepreneurs from more diverse backgrounds, to create more broad-based and sustainable prosperity, all around the world.

Photo by Kalle Kortelainen on Unsplash




internet, w lives in seed investing, venture studios, product, bd, growth equity

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Patrick Montague

Patrick Montague

internet, w lives in seed investing, venture studios, product, bd, growth equity

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