Startup Heatmap Europe

Based on a survey/study conducted by the European Startup Initiative.

There has been a lot of debate on the question of where Europe’s hottest startup hubs are evolving, and cities like London (at least before brexit), Berlin and Stockholm have been standing out as the most innovative seedbeds for startups.

This perception can be definitive to the competition as it influences the choices of where to locate for both startups and investors. As a player in the European startup field we were really interested to dig our nails into this small study made by the European Startup Initiative. Their study allows people to compare more established startup hubs within their actual reach with trending startup places that seem to be determined to leave their mark on the startup map of Europe. This survey is based on startup founders’ impressions and is important in determining how the market is being shaped and how it will develop in the future.

The location of a startup’s headquarters can make a difference in the startups growth curve, at least in the first few years. Every country has its’ difficulties and bureaucracies in founding and building a new company. The mobility of startup founders can be a good indication of where European startups actually want to start their journey into becoming a big player in their field. According to ESI’s study about 23% of startup founders that participated in the survey founded their business in a country that’s no their origin.

This study also divided startups into two categories in order to conclude whether the field of the startup makes a difference when it comes to the willingness to relocate when launching a new business. High-tech startups that require more engineering, like big data, hardware, IoT and Biotech are more likely to move to a different country. High-tech companies are more inclined to move to countries where they can find the best resources and talent, and are less restricted by the markets since they supply to specific B2B markets all over the world. The other category, Internet Startups, that base their business on eCommerce, mobile applications and SaaS solutions, are more likely to stay put. Internet companies don’t really care where they’re located since the internet helps these businesses to overcome geographical boundaries. It might also be beneficial for some internet startups to stay within their own ecosystem where they’re familiar with the market.

Since European startup founders are more likely to move to another country than a regular citizen, Europe’s startup hubs have a lot of competition when it comes to attracting talent. According to the study, Western and Northern Europe where the stronger economies are, attract more foreign talent that the Southern and Eastern European regions. The sub-region of Europe which benefits from the migration flow of startups the most are the Baltics (Estonia, Latvia and Lithuania), with a 14% growth in their startup population. UK, Ireland, Benelux countries and Central European countries follow with more than 10% growth rates due to migration. The Nordic countries, like Finland, Sweden, Norway and Denmark aren’t attracting as much foreign founders, their common immigration rate is 5% of the entire amount of immigrating startup founders. The Netherlands stands out as the “winning” country on this scale, with a growth rate of 31%. Italy and the Mediterranean countries export the most founders and lose about 29% of their startup entrepreneurs on the European scale.

Regional Champions:

Berlin is ranked as number one within the startup founders from Western Europe and is the most prominent European startup city within that region. Finland on the other hand got ranked 10th within the Northern European countries, Stockholm third, Tallin 5th, Copenhagen 8th and Riga 9th. The result vary a lot according to the region interviewed. Northern countries see the said countries in the top 10, where as The Western European countries see Munich, Hamburg, Vienna and Paris as top contenders. Within the Southern region Lisbon and Barcelona are seen to have developed a strong international appeal.

” We can conclude that the massive movement of founders across Europe has already created a fierce competition for entrepreneurial talent among regions and startup hubs. While a simplistic view of startup Europe’s topography might suggest that each region has one champion reigning as the regional hub, we actually see several strong contenders in almost every region. Moreover, the competition does not only take place within regions, since country or sub-regional borders do not stop founders from moving anymore. In fact, 85% of mobility takes place across regions. That is why startup hubs need to compete not only with regional competitors, but also with competitors all over Europe who might have a similar profile. “

Why do startup founders move?

The decisive factors for an entrepreneur to choose to relocate can either have do with the quality of the ecosystem or to the accessibility of capital. According to the ESI’s study, the most important factors for relocating have to do with the quality of the startup ecosystem, like access to support, partners and customers. The least important factors according to this survey were access to capital and a low burnrate, only half of the respondents found these factors relevant. The reasons behind these findings could have something to do with entrepreneurs not seeing the access to capital as crucially linkedto location, and rather find it fairly easy to acquire across borders. Qualities such as access to support, partners and customers are not as easily moved across borders and this could be one of the reasons why entrepreneurs seem to be more willing to grow their business in the environment where they expect to have easy access to these factors. It was also found in this study that startups in the internet field value the burn rate higher as a key factor to relocating than high-tech startups. The fact that internet startups need a lower burn rate to be in a position to scale their workforce fast, could explain this difference in the relocating factors. In contrast to this the high-tech companies value the access to capital more and find it very relevant. For high-tech startups capital seems to be the most important factor, because they can’t bootstrap in a way that internet startups can, and therefor are more willing to relocate to a place that offers better access to capital.

It’s apparent that good access to talent and the ecosystem are decisive factors for startup entrepreneurs in their relocating decisions. Surprisingly the access to capital is ranked the lowest among the four factors (access to talent, access to capital, burn rate, quality of the startup ecosystem), indicating that founders are not following money but vice versa – investments will follow the startups.

*expectation based on the coverage in tech magazines

*expectation based on the coverage in tech magazines

Each city’s relative strengths and weaknesses were calculated in the study by the percentage of endorsements for each hub from special interest groups and from two different types of startups the high-tech ones and the internet ones.

In this graph you can see all the attributes rated for each city according to the survey. For example, Tallinn is more popular within the the internet startup field and with founders who value a lower burn rate. Helsinki on the other hand is equally popular among the internet and high tech startups and founders who value a good startup ecosystem and easy access to capital. On the other hand it seems to be neutral when it comes to attracting talent and to the rate of burning through your means. Stockholm attracts talent and is popular among the high tech startup field, not so much among the internet startups. Warsaw is recognized for a slower burn rate rising three ranks within its group. Malta has an edge when it comes to access to capital and attracting talent, while Hamburg suffers from a poorer reputation when it comes to a higher burning rate and a fairly low access to capital. Amsterdam doesn’t stand out from its group with neutral scores on every attribute. London ranks really well when it comes to easy access to capital, but could be expected to rank lower due to brexit.

“When investing on the stock market it is little use to know which the most valuable company in the world is – you rather want to know which company will be rapidly increasing its value in the future. It is quite similar for startup hubs, if you consider the benefits of early birds against latecomers: Early birds will benefit from ample resources and an overload of attention, while the others will have to fight for access in an over-crowded space. “

The currently uprising startup hubs according to the study are: Copenhagen, Dublin, Manchester, Milan, Munich, Stockholm and Vienna. They are the potential rising stars of the European startup ecosystem and are mentioned quite frequently in the major tech blogs. All of these hotspot startup hubs are attracting more talent than the other cities and majority of them have an attractive startup ecosystem. All of them except for Milan, are also valued for easy access to capital, but rank fairly badly when it comes to the burn rate.

On the study’s overall ranking Dublin, Munich and Stockholm take the lead. Dublin’s top competitor seems to be Lisbon, with its popularity in southern Europe and among the internet startups, where Dublin got its best scores from. Munich has a great profile as a high-tech hub with strong access to capital and for attracting talent, it also has an appeal to the Central Eastern European countries. Munich is a serious competitor to cities like Stockholm and Zurich due to its regional appeal and its high-tech profile. Stockholm is the regional champion among the Nordic countries and got 48% of all the votes. Stockholm has a strong profile in terms of access to talent and capital. It seems to be more attractive to high-tech startups than internet startups and is considered to have a fairly high burning rate.

Copenhagen wasn’t able to rise above 32% endorsement rate for access to capital and 35% access to talent, however it stands out from Vienna with a strong international appeal and an edge within the internet startup field. Manchester and Milan seem to have a poorer international appeal and Milan’s results seem to resonate with the migration outflow seen in Italy.

Many of the uprising hotspots of the European startup scene have managed to build a strong brand for their ecosystems and are constantly building a stronger international appeal. It should ne in the government’s and policy makers’ interest to be aware of the facts that affect the allocation of startup ecosystems and startups and what positive effects it could have on the economy. Countries and the EU should make it as effortless as possible to start a company and really focusing on growing a sustainable and innovative ecosystem around startups and attract them in order to create wellbeing.

 Government policies

Startup activity usually thrives in a more economically free environment that entails freedom to enter markets and freely compete in the markets. Aspects like the rule of law, government size, regulatory efficiency and market openness can be used to asses the economic environment of a country. These attributes affect on the migration flows of startups as well as the development of the entrepreneurial ecosystems. ESI’s study shows the different ranges of migration flows of countries combined to the attributes regarding economic freedom. Lithuania, Finland, Hungary, France, Greece and Russia for instance, got results indicating a net deficit in startup migration. Sweden, Austria, Switzerland, Denmark, Spain and the UK got positive results ranging on the surplus side of net movement. Understandably taxation and the level of governmental intervention affects the levels of economic freedom and the attractiveness of that country to startup founders and the positive development of the startup ecosystem. These results also suggests that government policies can help the growth and uprising of new startup hubs and attract a lot of entrepreneurial talent and there for governments should take startups very seriously.

These observations are important indicators in the European competition of the best places to start up, based on how they are perceived by startup founders. ESI’s findings show that there is definitely room for specialization and that also smaller hubs can achieve a strong position in the startup map. This became most evident when looking at the rankings of the high-tech and access to capital groups. The top choices for startups to locate aren’t necessarily just London and Berlin, but startups rather look out for the match between their particular needs and the qualities of a location when considering relocating.