What's the Best Country for Startups?
Synthesizing Insights From the Data
👋 Hi, I’m Andre and welcome to my newsletter Data-driven VC which is all about becoming a better investor with data & AI. Every Tuesday, I publish “Insights” to digest the most relevant startup research & reports, and every Thursday, I publish “Essays” that cover hands-on insights about data-driven innovation & AI in VC. Follow along to understand how startup investing becomes more data-driven, why it matters, and what it means for you.
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Inspired by our last INSIGHTS episode which included a section on entrepreneur migration and “brain drain”, we decided to double click on the top countries to launch and run a startup today.
Entrepreneurship is vital to wealth and progress, often transforming scientific research into practical technology that benefits millions (or billions) and generates significant economic value.
Today’s episode explores the factors influencing country rankings, including talent, mindset/culture, community, funding, and maturity (in line with my deep-dive from 2021 on “Why the Golden Age for European Tech Is NOW”). Understanding these elements is crucial for fostering entrepreneurial activities and driving future economic growth.
A Simple Framework to Understand Startup Ecosystems
The best way to get our arms around intertwined complexities like startup ecosystems is to simplify with frameworks. For this specific case, we lean on a framework established by Cukier & Kon (2018). It was initially created as part of a literature review, case studies, and data analysis to provide good coverage of the ecosystem and a quantitative approach to measure its biggest promoters and detractors. For a more detailed breakdown, check out the paper’s methodology section.
Their study finds (in line with others linked below) that the 5 most important factors that determine a startup ecosystem's quality are the following:
Talent: Quality of human capital, educational resources, percentage of alumni founding startups, and patents (Stephan & Uhlaner, 2010; Stel et al., 2007).
Mindset/Culture: Cultural support, inclusiveness, appreciation of entrepreneurship in the broader society, and weight of the regulatory burden (Henrekson & Sanandaji, 2014).
Community: Connectivity, networking events, mentorship programs, engagement levels Torres & Augusto, 2019; Çelikkol et al., 2019).
Funding: Total investment amounts, quality of support programmes (incubators, accelerators) availability of exit strategies (Walker et al., 2013; Paladan, 2015).
Maturity: Number of startups, investment deals, successful exits, quality of support infrastructure, evolutionary stage of the ecosystem, and large incumbent companies that can become customers of startups (Cukier & Kon 2018).
Let’s fill the framework with actual data!
Status Quo: Let the Data Talk :)
#1 Talent
One proxy to get a feeling for a country’s STEM talent is the number of patents produced. Looking at absolute numbers, China is the clear leader with almost 800k patents granted in 2022, followed by the US with 323k, and Japan with 201k (Statista, 2024). Normalizing by population changes the picutre. US is almost 2x China, and Japan is almost 3x China.
Combining this with the number of STEM graduates per country per year (also compared on a per-capita basis), Japan comes out even stronger. The US and China had about 0.3% of their population graduate with STEM degrees in 2023 vs. Japan only 0.16%. It seems that Japan manages to produce an astounding number of patents with a much smaller population than the two other nations in the top 3.
