Top Cities for Tech Startups
PitchMe started with the intention of going international and operating in multiple locations. We had no doubt about where to register our legal entity, as our team was located in London, and we were a part of the London startup scene. However, we joined an accelerator in New York and moved there for 4 months. This allowed us to consider whether another location would be better for launching our startup.
Operating in the New York startup ecosystems, we constantly compared London to New York. After the Demo Day of the accelerator program, we had a choice to make – stay in New York or go back to London. Spoiler alert: we ended up returning to London and months later are still happy with the decision we made.
If you are considering registering a startup, your business location strategy is one of the first things you will think about. You have probably thought about both New York and London as places for you to register. To help you decide which location is the best fit for your startup, we’ve put together a list of pros and cons for both London and New York, based on our first-hand experience. Let’s delve into New York vs London startup scene and draw conclusions!
What are the top cities for tech startups in the world?
San Francisco, US
San Francisco has long been described as a city of innovation and entrepreneurship, thanks to its investment opportunities, research and development centers, and its proximity to Silicon Valley, the world’s largest and most renowned technological hub. Since the 1950s, the US government’s significant investments in basic and applied research in the Bay Area have enabled the development of science and technology, as well as the development of innovation and entrepreneurship.
According to AI Multiple, in San Francisco, where the total population is 865k, there are 198 startups/100k and 258 high-tech companies/100k population according to our database. it is the most innovative city based on the popularity of high-tech companies headquartered there.
New York, US
New York is the 2nd most innovative city based on the popularity of high-tech companies based there, according to our database. There are 1.9k emerging tech companies and 1.3k emerging tech startups headquartered in New York.
According to the 2020 Global Startup Ecosystem Report (GSER) by Startup Genome, New York City has
- a technology sector value of $147 million.
- the highest number of AI and Machine learning positions in a single metro area
- 73 Fortune companies based in the city and more than 100 incubators and accelerators.
Chicago is on a record pace for startups achieving valuation of at least $1 billion this year. ShipBob, the latest startup to achieve unicorn status, announced Tuesday that it raised a $200M Series E round that values the company over a billion. The other eight companies in this impressive group are G2, ActiveCampaign, Enfusion, Project44, Bringg, Relativity, Cameo and Amount. This record pace of companies achieving unicorn status is just another proof point that the Windy City’s startup ecosystem is quickly emerging as one the top startup ecosystems in the country, states Forbes.
Texas’s state capital has become one of the most sought after cities to work in, both for startup founders and their employees. Austin’s cost of living is very low compared to other major American cities.
Austin has access to an educated workforce, as the University of Texas’s flagship institution is located in the city. It’s also home to a thriving arts and music scene, which means that many Austinites are both highly educated and highly creative.
When it comes to taxation, it’s the best of both worlds for startups and their employees. There’s no state income tax for individuals, and no corporate tax for businesses. No wonder Austin is such a popular spot to launch innovative new companies!
The British capital is the top ecosystem in Europe. As a global hub for tech and finance, London gains the golden medal, like it has since 2017. In 2019 the city saw annual investments of 8.4 billion Euro, a number that is unmatched in Europe and has been increasing since 2017.
Despite the still uncertain effects of Brexit, which may benefit other European startup hubs, London remains highly attractive among startup founders and a central pillar of the European interconnected startup ecosystem.
The German capital is an international tech hub, attracting startups that specialize in industries like Consumer & Platforms, High Tech & IoT, SaaS & Enterprise Software, and Health & BioTech. Its Trust Score is at 99%, although in 2016 it scored 100%. In 2019 Berlin has attracted 4 billion euro in investment.
Founders like Barcelona´s value for money, helpful ecosystem, and access to talent. With a Trust Score of 98%, the Catalan city ranks 3rd among the best startup cities in Europe. It has a strong international appeal, with nearly two thirds of founders coming from abroad.
Annual investments amount to 0.7 billion Euro (3-year average), with 2018 seeing the highest number at 0.9 billion Euro.
Lisbon has positioned itself as one of the rising startup cities in Europe. The capital of Portugal has a Heatmap Trust Score of 96%. However, with annual investments of only 150 million Euro (3-year average), the city´s popularity has yet to be matched by capital flows.
The main buzz in town is Infrastructure, AI & Data, and Female Entrepreneurship. Startup founders appreciate the helpful ecosystem and the high value for money in the city. Lisbon is home of the Web Summit, one of the largest global tech conferences, and top accelerators Beta-i and BGI – Building Global Innovators.
There are 20 high-tech companies/100k population in Paris. France has been supporting tech startups over the last decade. For example, the French tech visa makes it easy to set up a company in France as an immigrant entrepreneur.
Paris is by far the largest French city in terms of both population and economic impact. STATION F which claims to be the world’s biggest startup campus, includes many French businesses, business schools, and 30 different incubation/acceleration programs run by big tech like Facebook, Ubisoft, and Microsoft was founded in 2017 in Paris.
As a result of these initiatives, the VC investments in Paris have been growing with a CAGR of 34%.
There are 15 high-tech companies/100k population in Toronto. According to rankings from CBRE that we presented above, Toronto remained Canada’s top Tech Talent market in the rankings. The government has shown its support and interest by providing more funding for startups.
New York vs London startup scene – culture
When thinking about the best cities for startups, it’s crucial to mention that both London and New York have a high volume of early-stage funding for startups and a number of active local investors. Other success factors that have defined these cities as top ecosystems are their global reach, local reach, and IP commercialisation.
- Has a supportive culture of founders and entrepreneurs receiving significant help from experts and investors
- Access to top-tier talent and knowledgeable graduates
- Home to 4 of the top 40 World Best Universities
- Impressive level of creation of tangible IP in the form of patents, research and favourable policy environments
- The Financial Times estimates about 40,000 tech startups that have made of London their home
- A culturally diverse workforce and an impressive 30% of women driving the tech scene, a percentage that beats the ever-so-popular Silicon Valley
- Top global innovation hub
- Over 9,000 startups and a diverse tech workforce
- Has a supportive culture of founders and entrepreneurs receiving significant help from experts and investors
- Access to top-tier talent and knowledgeable graduates
- A prime location for founders from a multitude of industries
London and New York are two of the best cities for startups, but each has its own pros and cons. When thinking about your business location strategy, you have to consider what’s right for your unique business, and which ecosystem is more beneficial to you.
These two global leaders have displayed significant progress that makes them the perfect homes for numerous startups. So what are the main differences between London and New York?
Factor 1. Costs of getting your startup off the ground
The first stage of getting your startup off the ground can seem scary. You have to commit your time and money to your idea. Registering your business is the first real commitment you will make and the ease of doing this varies massively between London vs New York.
One of the key reasons the London startup scene is thriving is because starting a business in the UK is simple. You have to pay a government fee of £12 and will receive your registration certificate within 24 hours. The process is easy and requires zero legal fees or financial investment beyond the initial £12.
In the United States, you have to plan ahead and need a more substantial initial investment as the tax prepayment alone ranges between $800 to $1,000. You also have to add a government fee of between $50 to $200 to your costs, along with an attorney that will cost you anything from $500 to $700. After spending all that money, you can end up waiting between one day up to three months before you can get anything started.
Factor 2. Financing Your Startup
At some point, you will need to consider how to raise funds for your startup. New York vs London startup scenes are both big cities that can provide huge investments for those looking to raise capital, which has contributed to the expanding startup culture in both locations.
London offers a vibrant early-stage funding environment, providing up to £150,000 of investments back in income tax relief to investors.
London is considered one of the world’s financial centres, providing startups with multiple opportunities to get the funding they need. Between venture capital funds, angel investors, banks, crowdfunding platforms, and other emerging businesses, you have plenty of choices to try and get things moving. The range of opportunities on offer for new companies is unmatched in any other part of Europe. It is no surprise then, that the UK’s capital managed to rank third in the main global startup ecosystems.
In the UK, startups can not only gain funding from VC and angel investors, they also benefit from schemes such as SEIS and EIS. The Seed Enterprise Investment Scheme (SEIS) is a project that encourages individuals to invest in small and early-stage startups by giving them tax benefits. The scheme originated as a way to boost economic growth in the UK, through the promotion of new businesses, and has now become one of the most successful schemes to ever be backed by the government.
Enterprise Investment Scheme (EIS) is another scheme that encourages companies to raise money. It works by offering tax relief to those investors who decide to buy shares in a new company. Thanks to EIS, a startup can raise up to £5 million each year, and up to £12 million in a company’s lifetime (including any amount received by VC).
Outside of these schemes, UK-based startups can seek funding from grant-making trusts. There are around 8,000 of these trusts in the UK. Finding one that is related to your business can add significant financial help to your funding. As of now, these grant-making trusts are r giving a total of £3 billion in grants every year, with an individual grant size amounting to £10,000.
Once the company has received the initial funding and has begun to operate, London continues to provide support, space, and resources to help you thrive. Encouragement and continuous help is often offered by the numerous accelerators and incubators available in the city. To date, according to Nesta, they support more than 3,500 businesses every year.
New York boasts an impressive number of active angel investors and a multitude of venture capital firms. They are all ready and waiting to invest in promising new businesses. Alley Watch reported that this May alone up to $64.21 million was invested across early-stage rounds in the big apple, with 20.68% of that amount going to local startups.
Home to Wall Street, New York houses the world’s major financial institutions. Money flows in the city, and it can make finding funds for your startup simple compared to other locations worldwide. There are around 258,000 active investors in New York, allowing you to approach multiple investors for the best chance of securing funding.
Factor 3: Accelerators and Incubators
When it comes to accelerators and incubators for your London and NYC startup scene, London is hard to beat. The index of the ‘probability of success’ shows that 80% of startups established in the US fail, opposing 60% in the UK. In London, startups find help and support that goes beyond financing and allows you to face challenges with expertise and experience behind you. Money is the key to getting your startup off the ground but making the correct business decisions is what will keep you going.
London provides more schemes and helps backed by the government to not only get started but also help you continue operating without being dragged down by huge tax payments.
London might be hard to beat when it comes to accelerators and incubators but that doesn’t mean New York has nothing to offer.
According to State Controller, there are around 7,500 tech startups in New York that are supported by over $38.4 billion of investments. The prospering network of startups in New York is underpinned by its many great incubators and accelerators.
New York has incubators that offer everything from funding to connections and collaborative work environments. And its incubators beat London in one key way that might sway you to pick this location – size of investments. Investors in the U.S can be more generous than those in Europe. Our experience of fundraising found that it was harder to obtain cash from the European investors. However, they have a more ‘hands-on’ approach, more often following their investments during the next round. Meaning that while you can easily find support at the beginning in the U.S, you may end up facing the challenges of starting a business alone.
Factor 4. Costs of day-to-day operations
Both best cities for startups present a diverse workforce with people coming from all over the world to work on innovative projects and contribute to the thriving startup scene. Such a blend of cultures supports continuous learning and increases productivity. However, each city is unique, with its own startup scene and when it comes to cost and work culture, you start to really notice the difference between these two business locations.
In the UK, standard office hours are Monday to Friday from 9am until 5pm. Employees are made to feel valued in London. Those that get their positions due to talent are reminded of their importance to the company they work in, creating a productive work environment.
When it comes to building connections abroad, London is the ideal place to work with international clients. The GMT time zone makes it easy to find a time to schedule meetings and calls while the cost and length of flights to reach this capital is significantly cheaper when compared to New York.
Additionally, London offers excellent salaries to talented employees without negatively impacting startups’ budgets. Developers work at a rate of $52k per year on average.
When comparing London vs New York City startups, it’s important to mention that New York is a city that revolves around inclusion, appreciating the unique characteristics of every employee and allowing everyone to have a chance to be heard.
A study from ILO shows that Americans work longer hours than any other industrialised country. This equates to around 260 additional hours a year compared to the UK. A 24/7 work culture helps startups get off the ground quickly but at the same time can negatively impact productivity in the long run. Employees that work too hard will burn out, and this can cost you top talent.
Approaching clients abroad from New York is more complicated than in London. The EST time zone presents more limits when it comes to planning calls and meetings with people from other parts of the world. Reaching New York is also more time-consuming and costly.
One of the largest downsides of the New York startup culture is starting salaries. In New York, an entrepreneur looking to hire experienced software engineers or marketers would have to spend on average $97k per year. As the startup scene gets more competitive, new companies have to be ready to offer big figures to top professionals if they want to entice them to work for them.
New York and London are two of the best cities for startups. However, they have very different ecosystems. London is better if your initial level of cash is on the low side, whereas New York is expensive from the moment you start your business.
Both locations have thriving startup cultures, with innovators, incubators, funding and mentors that can help your business to prosper. When choosing the right location for you, you need to think about what works for your startup. How much cash do you have to get you off the ground? Where is your audience based? Do you need a large first round of investment? Are you looking for hands-on investors?
To sum up, PitchMe is happy to call London its home while still considering expansion to the States in the near future. Check out our entry to discover free tools every startup should use to grow in 2022!
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