Cities are becoming the new ecosystems for innovation. Recent studies on venture capital (VC) investment in the United States reveal that innovation is moving from suburbs to downtown areas. Today, San Francisco hosts more VC investment than Silicon Valley and New York – a city where the innovation startup scene was merely anecdotic 10 years ago – has become the third-largest technology startup ecosystem in the United States, with more than US$2.4 billion VC investment in 2011.
This trend is not unique to the United States. Start-ups are surging in other major cities around the world, including London, Berlin, Madrid, Moscow, Istanbul, Tel Aviv, Cape Town, Mumbai, Buenos Aires and Rio de Janeiro, to name a few.
New technology trends have reduced the cost of technology innovation. Cloud computing, open software and hardware, social networks and global payment platforms have made it easier to create a startup with fewer physical resources and personnel. If in the 1990s, an entrepreneur needed US$2 million and months of work to develop a minimum viable prototype, today she would need less than US$50,000 and six weeks of work (in some cases, these costs can be as low as US$3,000). This trend is allowing entrepreneurs to take advantage of cities’ agglomeration effects: entrepreneurs “want to live where the action is,” where other young people, social activities and peers and entrepreneurs are. They look for conventional startup support, such as mentor networks or role models, but also for nightlife, meet-ups, social activities and other potential for “collisions” – a combination best provided by cities.