The Geography of Innovation

America’s singular dominance of start-up and venture capital activity is being challenged by the rapid ascent of cities elsewhere. While the United States remains the clear global leader, the rest of the world is gaining ground at an accelerating rate. In a report published in October 2018, Richard Florida and Ian Hathaway study how the geography of start-ups and Innovation is changing.

While the U.S. continues to generate the largest amount of start-up and venture capital activity, its share of the global total has fallen significantly, from more than 95% in the mid 1990’s to a little more than half today. Among nations, China has gained the most ground, attracting nearly a quarter of global venture capital investment in recent years.

The recent expansion of global venture capital investments has been driven by cities—many of them outside the United States. The San Francisco Bay Area, remains the world’s dominant location for start-up activity, with roughly a fifth of global venture capital investment. But a growing list of global cities are rapidly gaining ground.

Just 24 cities account for three-quarters of global venture capital investment, despite housing just four percent of the world’s population. The top six cities alone attract more than half of all global venture capital investment, despite housing just one percent of the global population.

The authors further distinguish four tiers of established global start-up hubs:

  1. Superstar Global Startup Hubs: The first tier consists of six cities or metro areas—four in the U.S. and two elsewhere. The San Francisco Bay Area is the undisputed leader, while New York, London, Beijing, Los Angeles, and Boston round out the list.
  2. Elite Global Startup Hubs: The second tier consists of 13 cities, including Austin, Chicago, San Diego, and Seattle in the U.S.; Bangalore, Delhi, and Mumbai in India; Berlin, Paris, and Stockholm in Europe; Shanghai and Singapore in Asia; and Tel Aviv in Israel.
  3. Advanced Global Startup Hubs: The third tier consists of 20 cities, including eight U.S. hubs, seven Asia-Pacific hubs, four European hubs, and one in Canada.
  4. Distinguished Global Startup Hubs: The fourth tier of consists of 23 cities, including nine in the U.S., six in Europe, four in Asia-Pacific, two in Canada, and one each in the Middle East and South America.

One of the biggest changes to the global venture capital landscape is the rise of large-scale, later-stage investments—so-called “mega deals”— of $500 million or more. These deals have grown significantly in recent years and tend to be concentrated in Chinese cities.

Barcelona is the only city in Spain which appears among the top 50 (in Tier 3), with 286 deals in the period 2015-2017, a 0.6% of global total. The next couple of tables summarise the Shape of Spanish Geography of Innovation.

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