Tech Hubs Go Viral
This most atypical of Texan cities is one of the more mature emerging tech hubs. Google, Amazon and Apple all have a significant presence here, while neighboring Round Rock is home to PC giant Dell. What’s more, Austin takes the number one spot on the Kauffman Index for US start-up activity, as the city with the highest rate of new entrepreneurs in the US. Austin also plays host to SXSW (South by Southwest), which unites film, music and interactive media festivals and conferences, and was famously the place where Twitter was effectively launched in 2007. Perhaps more than anything else, SXSW has put Austin on the map globally.
“Austin has a great cultural scene, a great music scene and a great food scene,” says Barbary Brunner, CEO of Austin Technology Council. “It’s known as the biggest little town in the US, and is a socially and politically progressive city in a conservative state. We’re like a blueberry in tomato soup.”
The lower cost of living is also attractive compared to San Francisco or New York, and, unlike California and New York, Texas is a famously low-regulation state for businesses. However, there are factors holding the city back.
It has investors such as ATX Seed Ventures and the Mercury Fund, but fares poorly with funding compared to many competitors. A recent study at the Austin-based St. Edwards University reported that Central Texas had only 144 funding sources, compared to 785 in Silicon Valley, 739 in New York and 371 in the Midwest. “While we have a healthy and growing capital investment network in Austin, it’s not as over-developed as other metros,” said David Altounian, Assistant Professor of Entrepreneurship, who led the study.
Brunner says that Austin’s challenge is developing entrepreneurs so that that they can take companies ‘out of market’. There are some businesses which have resonance outside Austin – the analytics company TrendKite, Reaction Housing, which makes shelters for victims of disasters, and Resignation Media which produces the male-oriented website theCHIVE – but these are exceptions not the rule. The city’s next step, says Barbery, “Is going from being number one for start-ups to being number one for mid-sized companies.” Hugh Forrest, the director of SXSW’s Interactive Festival, takes a similar view. He recently said, “What we need is more breakout, high-profile start-ups to come out of this scene.”
GDP per capita (PPP): US$57,300
Ease of doing Business Rank: 8 (New Zealand = 1)
City Cost of Living Rank: N/A (Houston = 31; Singapore = 1)
In late 2015, Warsaw received what many saw as official recognition of its status as a tech hub. In the city’s Praga district, Google opened its Campus Warsaw. The search giant said it had chosen Warsaw (other campuses include London, Tel Aviv and Seoul) because Poland has world-class software engineers and programmers, and a vibrant start-up community. Kasia Bochenska, Ecosystem Development Manager at TechHub Warsaw, which is a partner of Google’s says, “There’s lots of tech talent in Warsaw and the salaries are very competitive compared to other EU countries.” To take one example, the median salary for a .NET developer is US$37,890 in London and US$24,111 in Warsaw, according to the comparison site Payscale.
Poland, which has the fastest-growing economy in Europe, has a number of start-up successes under its belt already. One is the social learning network Brainly which has over 60 million users across dozens of countries. Another is the doctor-rating site DocPlanner, which raised US$20 million in its latest funding round last year. There’s also the social media marketing tool Brand24.
It’s not just start-ups that view the Polish capital as a good bet either. The UK-based investment service company Hargreaves Lansdown recently announced that it would be opening a hub in Warsaw. It cites many of the same reasons as Google, along with ‘the large numbers of English-speaking IT professionals.’ Indeed, as with many emerging hubs, English is so widely spoken as to be the official business language.
Notable VC funds include Protos VC, Innovation Nest, IQ Partners and Black Pearls. “At TechHub,” says Bochenska, “we’re regularly contacted by VCs and people with money to invest – I feel it’s fairly easy. But there’s also a lot of public money and EU money.” The city also has several accelerators.
The country’s other great strength compared to many of its neighbors is its size. It’s the biggest market in Eastern Europe with 38.5 million people. Poland even has a second tech hub in Krakow, a stunningly beautiful university city, where Brainly is based. Warsaw may be less beautiful but this means it’s easy to redevelop. “You see new things being built everywhere,” says Bochenska. As for the future, she says, “I hope to see Polish start-ups which are really global. We still haven’t had a Polish unicorn.”
GDP per capita (PPP): US$27,700
Ease of doing Business Rank: 24
Cost of Living Rank: 95
London. Lisbon. San Francisco. Not the most obvious trio, but there it is at the bottom of code-checking company Codacy’s website. Nor is Codacy the only tech company located in the Portuguese capital. Lisbon is home to an increasing number of tech start-ups.
Ridhi Kantelal is the founder of Noxidity, a company which predicts the corrosion of industrial machines using smart sensors and Internet-of-Things technologies. She’s Portuguese but has lived in the UK and Dubai, and studied at Oxford University. After working in the UK, she founded her company in Lisbon after being impressed by the tech talent she saw there. “There’s a lot of engineers and a general feeling that people are very open to working in start-ups,” says Ridhi.
Lisbon received a huge boost last year when it was chosen to host the 2016 Web Summit, the biggest conference of its kind in Europe, with over 60,000 attendees. “Lisbon is a great city with a thriving start-up community,” wrote the event’s co-founder Paddy Cosgrave. Libson will host Web Summit again this year.
At the time, Manuel Caldeira Cabral, Portugal’s economy minister, told Britain’s Guardian newspaper that, “We’re attracting [start-ups] for a lot of reasons; because we have a financing system, a very competitive fiscal setting for start-ups.”
Last year, the Portuguese government offered to co-finance start-ups and venture capitalists pledged over US$550 million (Alpac Capital is a notable player). Earlier this year, the government also announced a ‘Start-up Visa’ for Indian entrepreneurs eager to launch in Lisbon. But more is needed, says Kantelal, especially from non-state investors. “With a lot of the VCs here, their funding ultimately comes from the EU,” he says.
Portugal’s capital has many lifestyle draws too. The living costs are much lower than established tech hubs like London. There’s the wonderful climate (it’s almost twice as sunny as London) and the proximity to the Atlantic surf beaches. These aren’t trivial things. The reason east London first became a tech hub was because it was where young entrepreneurs could afford to live and work. Most of Lisbon is still like that. And while Portuguese can be a diffcult language to learn, business is largely conducted in English.
Perhaps inevitably comparisons are being drawn with San Francisco. Both are hilly, relatively compact, and on west-coast bays facing thousands of miles of ocean. Lisbon may not have the legacy of Xerox PARC or Silicon Valley, but its relative proximity to Europe’s industrial and financial hubs shouldn’t be underestimated.
GDP per capita (PPP): US$28,500
Country Ease of doing Business Rank: 25
City Cost of Living Rank: 84
Santiago, the Chilean capital, might sound like a rather isolated place for a tech hub. As Start-Up Chile’s Catalina Bräuchle says, “For many years we felt like an island. We were hemmed in by the Pacific Ocean on one side, and the Andes on the other.” Before 2010, she says, “You’d never hear someone talk about entrepreneurship.”
However in 2010, Start-Up Chile, which is backed by the Chilean government, began giving young entrepreneurs US$40,000 and a year’s visa to pursue their ideas in Chile. Since then over 1,300 entrepreneurs have come to Chile.
In return, they’re required to give something back to local society (mentoring local businesses, talks, running hackathons etc.) The thinking is that this will expose the local economy to new ideas and ways of doing things. Before long the phrase ‘Chilecon Valley’ was being used, not least by The Economist. “Ten years ago the mindset was that you got a job in a big company, but now universities have started to incorporate entrepreneurship into their syllabuses,” says Bräuchle. Santiago has also sprouted a number of co-working spaces. And VCs based in the Chilean capital now include Chile Global Angels, Austral Capital and Magma Partners. Bräuchle says investment comes mainly from the US and South America, but also from Asia.
Chile is quite different to the rest of Latin America. It’s the only South American member of the OECD and has long been known as a fairly well-regulated, transparent and politically stable place. It’s the second least corrupt country in South America (Uruguay is the first) and, according to Transparency International’s Corruption Perceptions Index, ranks 24th in the world, one below France. However, some are concerned that Chile’s start-ups may not turn into the tech stars of the future. Alberto Rodriguez, the World Bank’s country director for Chile, Bolivia, Ecuador, Peru and Venezuela told the Wall Street Journal that Start-Up Chile was “helping a lot of companies to start, but the evidence of their growth is limited.”
Still, Santiago remains a city to watch, not least as an example of what genuinely imaginative and original government programmes can do to nurture a start-up scene. Bräuchle says that, looking forward, she’s expecting to see more business-to-business and scientific start-ups because the country has a small consumer base and an enormous mining sector. However, she adds, “It’s also a very good place to test ideas, and a gateway to Latin America.”
GDP per capita (PPP): US$27,700
Ease of doing Business Rank: 24
City Cost of Living Rank: 91
As published in WERTE No. 5, Deutsche Bank Wealth Management's client magazine