2 KPIs for measuring startup eco-systems

 

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It often seems like the whole world is trying to produce the next Silicon Valley, or at the very least, a globally recognised startup city / accelerator / community, that is in everyone’s ‘Top 10 List’ for startup locations. Every day more and more journalists and bloggers are writing about the ‘Next Silicon Valley’ or why X is the best place to start your FinTech startup etc….

So how should we keep score? Or put another way, how can we really measure and compare how strong or successful a startup eco-system / accelerator really is? Most articles seem to cite the number of companies / accelerators created and how much money was raised. However, for me, there are 2 more important ‘metrics’ (a.k.a. KPI’s) that I think should be considered to really measure the potential of a startup ecosystem. These are Exits and Immigrants.

Exits create huge downstream momentum and are the most obvious measure of an ecosystems health. These liquidity events help recycle precious capital AND talent. Positive exits can turn founders/employees into angel investors, who are the best early mentors to the next generation of founders. Exits also signals to outside investors and acquirers that this ecosystem might deserve more attention (and their cheque books). Finally, exits attract more talent to the ecosystem and encourage more people to enter the startup world as they see how their peers have performed.

This leads into my second KPI – Immigrants – which I believe is a good leading indicator to the future/continued success of an ecosystem. Talent, in either the individual or collective form (i.e. a company like Google), moving to or joining a startup ecosystem is a very strong signal. Immigrants are a large part of the driving energy in most tech ecosystems and this is best reflected in Silicon Valley, when between 1995 and 2005 over 50 percent of the venture-backed technology companies in Silicon Valley were founded by immigrants. [Learn more about how Immigration has helped Ireland foster new startups in this post about Profitero]. If an ecosystem can succeed in attracting quality ‘outside’ talent then I believe the exits will accelerate and compound.

So should we ‘test’ this theory and investigate the data around this? The exit data should be available from the likes of Crunchbase. LinkedIn probably has the data on immigration (but maybe harder to get). I could be totally wrong, but anecdotally this ‘Exits and Immigrants Index’ makes a tonne of sense to me. Let me know if you want to get involved in the ‘proof’ [i.e. hard work] of getting the data to ‘test’ this formula and see how various ecosystems perform :)

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7 thoughts on “2 KPIs for measuring startup eco-systems

  1. I wholeheartedly agree. Since I moved to the Netherlands I have seen that the immigrants tend to drive sustainable initiatives to build community and connect assets to drive the cyclical nature of a startup ecosystem. I have also seen a commonality in the Dutch tech and mainline media where they will focus on Dutch entrepreneurs and teams to promote as the leading light in business and community. This is more than likely the same case for most ecosystems.

    But it is good to be recognised and shine a light on people actively driving more assets into an ecosystem.

    1. Eco-systems should be highlighting their immigrants more. The people who chose to move there are a much stronger signal for the desirability / vibrancy of a location in my view. Locals are obviously vital, but they are there by default

      1. Once again totally agree but who would be doing this highlighting since its the immigrants who usually see the need and drive focus around these initiatives so it feels a little self serving. Speaking as a committed member of the Dutch tech scene sometimes you need a ‘stubborn’ attitude and plow forward because you feel it’s good for the larger startup engine.

  2. I think perhaps there’s an additional element – that of ‘startup activity level. ‘ The assumption being that the higher this is, the more chance of success, and the more people there would be who ‘get’ startups, to form another project team in the future.

    It maybe that the number of registered projects on startup genome / tech britain, could be a reasonable indicator of ‘startup activity level’ ? I’m thinking a lot of projects don’t get to incorporation level, so we can’t look at number of incorporated companies. Equally, even fewer companies outside the traditional hubs raise investment, so using that as a measure would not identify those regions that are on the rise as a startup hub location.

    1. As Paul Graham says most great startups begin as side projects so I agree company registrations does not show true startup volumes. However activity alone does not always equal results or a sustainable ecosystem.

      1. Yeah, I agree. Activity alone wont equal or necessarily lead to success, or a sustainable ecosystem. But I believe there is likely a positive correlation between sustained activity in a concentrated geographic area, and longer term sustainability.

        I’m not sure at the moment if the time offset could be measured in years or decades mind! You’d hope for some positive indicators within 5 years though, but sustainability certainly couldn’t be measured within a given years activity.

        I guess long-term sustainability could be measured in a combination of, investments received (£/$) and exits (£/$) as well as profits of non-exiting companies (£/$).

        Could be a whole bunch of indicators besides number of companies on startup genome in a geographic area to indicate ‘startup activity’, but imagine they’d be quite tricky to ascertain.

        Cheers for the post Connor.

      2. Thanks Ian. And your right about the length of time. Brad Feld estimates it takes at least 20 years for an ecosystem to really work.

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