Starting a company in Abdijan (a yearly destination of mine) is a far cry from doing so in Barcelona (my home city) or San Francisco. It sounds obvious…and it is!
I’ve identified four major reasons for this:
Talent is unevenly distributed geographically. There are clusters of entrepreneurship and innovation that are more attractive than others. Educational institutions and average salaries are strong incentives to attract talent.
How strong is the entrepreneurial financing ecosystem in your area? One thing difficult to achieve is matching the sources of financing available in the marketplace with the needs of startups. You need a consecutive chain of “financing agents” that can assume the different risks related to the growth phases of new ventures.
Let’s take Spain, for example.: It is not that difficult to start a new company in Barcelona or Madrid. As an entrepreneur you will find startup money thanks to FFF, subventions and Business Angel’s network (that will probably cover the initial risks of product development and early sales). However, when it comes to securing growth financing, you will face extreme difficulties. On one hand, there are very few VC’s dedicated to early growth, and on the other, not that many BA’s able to assume those kinds of amount of money / risk ratios. The growth financing equity gap is a massive obstacle for comprehensive entrepreneurial ecosystem building.
Even at a country level, this is striking:
How big and how dense is the ecosystem? Quite simply put, you need a crowded market place to generate competition between entrepreneurs and financing vehicles. This generates the right level of innovation. If you want investors to assume a certain level of risk with innovative and disruptive projects (and not just focus on copy-cats), you need a minimum number of competing investors willing to invest in startups.
The harder it is to register a company (see www.thegedi.org), the less innovative and entrepreneurial your ecosystem will be. According to the World Bank report, there are three key factors to take into account:
- How much does it cost (percentage of the average salary)?
- How many administrative steps does it take?
- And how much time does it take?
If you can register a company for one monetary unit in two clicks in five minutes you are in a better position than let’s say a country where you will have to invest six months of your average salary, hire a lawyer, meet the notary and sign 10 different papers (the real case in certain countries!).
In Spain, around 95.5 percent of tech is found in Madrid or Barcelona and the remainder dispersed around the rest of the country.
And throughout Europe, we find the same pattern (see TechCrunch).
Nevertheless, this shouldn’t deter you from starting a company from a remote location. Although you may have to move part of the functions to a more populated area, especially for business development and funding. Either that or spend your life in planes, trains, automobiles and the likes.
Posts of the series: