What makes a start-up hotspot & Where do most start-ups survive?
Based in London, we at Impact Fundry are in the VC & Angel Investing centre of Europe. As shown from the data below the UK has the highest proportion with start-ups HQed in London representing the most across the continent.
In London we have the highest proportion of European Unicorns & are a hotspot for talent across the continent to launch, raise & scale start-ups.
But why do start-ups flock to these areas? is it close access to VC & Investors? Top Universities? A buzzing networking culture?
It is definitely a mix of these factors, but the factor to focus on in terms of validating start-up success can be simply to survive & in this we will be focusing on the sea instead of the waves.
To answer this question it is clear that even within a UK context, London still falls short compared to the UK average of start-ups surviving over a 5Y timeline. This data from business comparison highlights that in addition to a huge volume of start-ups being created within London they are not as successful at surviving within 5Y.
Now whilst the data is miniscule from a difference of 6% of start-ups this shows that an additional 15% of start-ups survive in the South West compared to London.
Now why would a city like Bristol or Brighton promote & cause businesses to survive in these sectors is an interesting question.
This patently does not say that access to VC/Investor money is be & end all in start-up generation within London as there is a dramatic drop off within the eco-systems showing barely any investment firms within these spaces.
A key question may be focused on the role in which VC money/Investments don’t have much effect on the growth of start-ups in these spaces. VC money is largely only effective within industries with extremely low marginal costs, i.e. SAAS, Fintech, Foodtech etc.
What this may signal is that the key survivability of businesses in these areas are revenue driven & bootstrapped.
Whilst the availability of significant funding, alongside many founders within London may cause an incredible rate of start-up founders who launch, raise & fail very quickly, never reaching profitability. This is backed up by London also having the highest start-up birth-rate of any region at 15%.
Given the availability of capital in this regard it may signal that like with VC money only a few investments need reach true maturing to 2 or 3x their investments.
The answer as to why London tends to birth & fail a lot may be due to the ability of its founders to navigate the initial few months of operation, receiving the guidance, support from its communities rather than slightly smaller eco-systems.
The nature of these smaller entrepreneurship hubs may suggest that whilst these communities are smaller, but do help to ensure survivability through the closeness of their networks. However, the availability of success & experience of mentors within London highlights that lots of ideas are always taking that first step, highlighting an incredible entrepeneurial & risk taking attitude located within the capital.
As a former student of the University of Bristol, there has been an incredible software development & Aerospace Engineering in the past alongside the development of Cloud Computing under HP in the region. Now whether this is a long standing trend, an offshoot of two excellent Universities in the region or maybe just something in the water remains to be seen.
However, this is difficult, as in the cities of Oxford & Cambridge neither make the top 30 in terms of survivable businesses, with towns that had access to neither able to make the list. The difficulty in assessing what makes a top start-up incubator & provides the conditions for them to survive & thrive may require a lot more insight.
The main takeaways from this research is that start-up hotspots develop through their culture & proximity to capital but that doesn’t make them successful, within London the simple point is buying enough tickets to the raffle.
However, it also highlight that the world of VC may not be truly applicable to many businesses & that a new system of investment could be effective at helping to elevate the UK regions & tackle inequality across the regions. It also suggests that the way we view start-ups in London is not helping them reach maturity.
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