Editor’s note: This is an op-ed contributed by Boyd Cohen, an entrepreneur, professor and researcher with a Ph.D. in Entrepreneurship from the University of Colorado. He is also the author of a brand new book entitled “The Emergence of the Urban Entrepreneur: How the Growth of Cities and the Sharing Economy Are Driving a New Breed of Innovators”.
This is a guest article, my first for Tech.eu, which provides a brief introduction to my new book, which was published on May 31st and explores a controversial topic I raise in the last chapter: I believe the EU is on the verge of overtaking the U.S. as the better place for entrepreneurs to reside.
Let me start with a quick personal background and the basic framework that guides the book and leads me to this conclusion.
I have had the great fortune to live in some amazing cities in the Western world in the past two decades. Prior to my Ph.D., I lived in numerous cities in the U.S. and finished my Master’s degree in Copenhagen. Since obtaining my Ph.D. in entrepreneurship at the University of Colorado in Boulder (the subject of Brad Feld’s recent book, Startup Communities), I have lived, researched and participated in local entrepreneurial ecosystems in Madrid, Spain; Victoria, Canada; Vancouver, Canada; Buenos Aires; Santiago, Chile; and now Barcelona.
In my book, I introduce the Urbanpreneur Spiral, which highlights three converging forces of urbanization, collaboration and democratization that are driving entrepreneurship in cities.
In short, the world is urbanizing, bringing many challenges and innovation opportunities to cities; collaborative business models and the sharing economy are taking off in cities; and democratization of innovation and technology are putting the tools of innovation and entrepreneurship in the hands of more citizens than ever before.
The Changing Urban Geography of Entrepreneurship
I believe the trends behind the Spiral are contributing to the changing geography of innovation, leading to my unlikely conclusion that Europe could be on the verge of replacing North America as the startup hub of the world.
I will admit that, being from the U.S., I “grew up” buying the prevailing paradigm that the U.S. has always been and will always be the center of the universe for innovation and entrepreneurship. Given the issues around terrorism, potential Brexit, refugee crisis, the recent Greek tragedy and whatnot, it is easy to overlook the European Union as a viable region, let alone a leading hub for innovation and entrepreneurship.
But if you look under the surface, and at some interesting data points, you come to realize that things are a changing in the world of entrepreneurship which could have profound impacts on the U.S. dominance of the entrepreneurship domain.
Cities are King in the Future of Entrepreneurship
Richard Florida, the famed urbanist and the father of the Creative Class hypothesis (who also wrote the foreward to my book), has long demonstrated that entrepreneurs are mobile and attracted to cities with high quality of life, access to culture and night life, access to good talent, and in line with Jane Jacobs’ pioneering work, diverse, both culturally and economically.
Recent research suggests that nearly 1/3 of all EU entrepreneurs were born in another country suggesting that entrepreneur mobility is for real in Europe.
European cities, as well known, do very well on most of these measures. In fact, according to Mercer’s annual quality of life rankings, EU cities dominate this measure, holding 7 of the first 10 spots in their 2015 ranking, while the first U.S. city on the list, San Francisco, comes in at 28th.
Speaking of San Francisco, Richard Florida has recently demonstrated that San Francisco startups now receive more venture capital than Silicon Valley startups, and that this trend is consistent throughout the U.S.. Startup communities in this and the coming decades are urbanizing, just like the broader urbanization trends within the global population.
Entrepreneurs and creative types are increasingly preferring to live and work in urban areas which offer the rich cultural, dining and interaction opportunities that are completely devoid in suburban tech parks and places like Silicon Valley.
Venture Capital is Dead. Well, not dead, but…
Around the globe, we have glorified venture capital as the primary metric for a startup or a region’s disruptive potential. But if you combine the collaborative and democratized forces introduced by the Spiral, you start to realize that venture capital is arguably not as important as it once was.
I do believe that the U.S. will continue to lead in venture capital investment in the future. I just don’t believe that is the most important metric for understanding urban entrepreneurial ecosystems. Fab Labs for makers, coworking spaces for indie urbanpreneurs, open source and software as a service tools, the cloud and many more soft and hard tools have emerged in recent years to democratize innovation.
In my book, I cite a successful entrepreneur in the U.S. who states that in the 1990’s a startup team needed $2.5 million (USD) to bring a tech product to market, in the early 2000’s open source software and other tools brought that down to $250,000 (USD) and now in this decade it may only cost $250 to bring a lean startup to market by tapping into all of the democratized tools of innovation.
We could dispute the actual dollar amount required, but the point is that most startups these days can get by with much less than they used to. Furthermore, the role of costly patents seems to be declining in most startups (while even massive companies like Toyota and Tesla have opened up their patents to support ecosystem growth). Then you add in the growing use of crowdlending, crowdfunding and angel networks and you see the writing is on the wall that startups in the future may be way less dependent on venture capital than those from previous decades.
So, the dominance the U.S. has today, and will likely have in the future, in venture capital is less important than it used to be. Even a former Google exec was recently quoted here in Tech.eu that EU startups need not glamorize access to US venture capital.
During a recent interview with the founder of a smart cities startup in Barcelona, this point was even further reinforced. In 2011 he traveled to Silicon Valley with the goal of exploring the potential to move his company there and raise VC funding.
He was struck by three realizations: 1) going the VC route would force his company, Urbiotica, into an unhealthy acceleration of their tech and business development; 2) he preferred to live in Barcelona than Silicon Valley. Having been to the Valley numerous times and living in Barcelona myself, I agree with him. 3) Silicon Valley is too expensive to live and hiring local talent is very expensive given he is able to find plenty of good talent in Barcelona to grow his venture.
U.S. No longer Dominates all Emerging Tech Spaces
Let’s start with smart cities. I have been researching and consulting in the smart cities arena for 5 years now. In fact, for several years I conducted rankings of smart cities around the globe (here is an example). I can say unequivocally that Europe is the global epicenter of the smart cities movement.
Despite the fact that many of the multionationals who have led the smart cities tech agenda are based in the U.S. (e.g. IBM, Cisco), European cities have embraced smart way more than their North American counterparts. Cities like Copenhagen, Vienna, Amsterdam, Paris and my Barcelona (which hosts the largest annual conference on smart cities) have dozens if not hundreds of projects in their smart cities portfolios.
Not only can smarter cities become more attractive to creative entrepreneurs, they can also serve as a stimulus to new entrepreneurial opportunities to address transport, open government, green and smart buildings, smart grids, IoT, big data and smart/shared mobility.
You could pass off Europe’s lead in smart cities as an anomaly but there are other spaces where Europe is ahead. Blockchain is one of those areas.
The transparent ledger system supporting cryptocurrencies is poised to become a major disruptor across many, if not most industries, not just banking. Yet, this disruptive technology is getting more traction in the EU startup community than in the U.S.
I personally know of two incubators/accelerators based in Europe exclusively focused on blockchain technology. This includes Block Chain Space based in Barcelona and Outlier Ventures in the UK (transparency admission: I serve on the board of Outlier Ventures).
I don’t know why Europe is ahead in this critical space, but it is.
More commons-oriented sharing
The U.S. is clearly dominant when it comes to venture capital-backed “platform deathstars” as my colleague Neal Gorenflo from Shareable calls the Ubers and Airbnb’s of the world. But as we all know, these behemoths have run into big regulatory problems in European cities and nations.
Europe seems to be doing much better in the cultivation of a broader sharing paradigm (as McLaren and Agyeman refer to it) which aims to put sharing into a broader context of responsible capitalism and urban commons.
A leading SaaS for such sharing startups, ShareTribe, is based in Finland. One of the leading P2P free sharing exchange sites, Peerby, was founded in Amsterdam. The leading global, hyperlocal, mobile P2P used-goods classifieds company, Wallapop, was founded in Barcelona.
All generations of bike-sharing have first emerged and scaled in European cities. Carpooling 1.0, and carsharing first emerged in European cities, and Paris was the first to launch a city-wide full electric vehicle car-share fleet.
The P2P Foundation, founded by Michel Bauwens in Amsterdam in 2005, is a leading global voice in commons-oriented sharing (here is a broader discussion on the range of sharing economy business models).
European Cities Leading in Emerging Soft Infrastructure for Entrepreneurship
Coworking spaces and Fab Labs are growing in importance in the collaborative, democratized entrepreneurial ecosystems in urban areas. Ironically, both may have been founded in the U.S. but both seem to be gaining more steam in Europe than in North America.
Depending on the source, I find different data regarding whether Europe or North America leads in the current number of co-working spaces. It seems at the moment that there are a similar amount in the U.S. and Europe.
However, I did a search of the number of co-working spaces in Barcelona where I live, and the number of co-working spaces in a city of the same population in the U.S. (Philadelphia). The difference is striking. We have more than 300 spaces here in Barcelona and I can only find a 1-2 dozen co-working spaces in Philadelphia.
Fab Labs, which are maker spaces complete with 3D printers, laser cutters and many other tools available to communities, were founded by the Massachusetts Institute of Technology (MIT) in the US, but there are only 115 Fab Labs in the US while there are nearly 300 in Europe.
Not only does Europe lead in Fab Labs (a U.S. creation), but also a new concept has emerged, started in Barcelona which calls for Fab Cities. Instead of one or two Fab Labs in a city, Fab Cities encourage Fab Labs in every neighbourhood, allowing makers to also hack the city and create new resources for their communities.
I realize my argument is controversial and differs from many Tech.eu readers suspect.
The prevailing wisdom is that Europe is way behind the U.S. in innovation and entrepreneurship, in government support for entrepreneurship or lack thereof, in culture for entrepreneurship and of course in startup capital.
While some of these perceptions are still true today, and in some cases may remain true (venture capital), trends driving entrepreneurship into urban areas (the Urbanpreneur Spiral), Europe’s historical and continuing advantage in cities with high quality of life, Europe’s emergence as a global leader in innovation, and the democratization of entrepreneurship suggest that Europe is well positioned to compete and maybe even lead the next wave of entrepreneurial revolution.
Featured image credit: CHOATphotographer / Shutterstock