Flexibility is crucial if cities want to become start-up capitals

Small companies need to influence policy decisions
Dusk over downtown LA © AFP

Listen to this article

00:00
00:00

Every metropolis now wants to be a start-up city, full of young people with great ideas and — more importantly — jobs and tax receipts. Cities are going to great lengths to woo entrepreneurs. Los Angeles, for example, invented the position of city entrepreneur in residence in 2014, hiring two serial entrepreneurs to act as liaison between the bureaucracy of City Hall and the creative chaos of start-ups.

Krisztina “Z” Holly, one of these inaugural two, found the job to be a mixture of small and large actions. On the one hand she might help a fast-expanding tech company with several offices connect with the city’s utilities to consolidate invoicing. On the other, she is creating a movement — Make It In LA — to bring together and support manufacturing-related entrepreneurs.

Krisztina 'Z' Holly © Joichi Ito

“It comes down to policy, publicity and partnerships,” Ms Holly says. “There is an opportunity to spur innovation through urban planning. For example, creating places where people connect and innovate makes a big difference.” She cites LA Prep, a development where early stage food entrepreneurs can lease high-quality production areas. It was set up in collaboration with the city, the county and the private sector with a view to creating a food technology cluster.

LA is still overshadowed by Silicon Valley, but it is consistently near the top of start-up rankings. In Europe, these tend to be dominated by London, with places such as Stockholm, Berlin and Helsinki grouped near the top.

Last year’s European Digital City Index, put together by Nesta, the UK-based innovation charity, repeated this running order. So far, so boring.

But Nesta’s ranking also showed a clear split between eastern and western Europe in how start-up friendly they were. Despite many eastern European cities having great internet infrastructure and large numbers of graduates with science, mathematics and engineering degrees, they are not drawing digital entrepreneurs in.

While cities such as Bucharest, Riga and Vilnius are ranked highly for digital infrastructure in Europe, they were 30th, 32nd and 29th respectively in terms of start-up appeal. Looking at the reasons behind the divide provides insight on what is essential for start-ups. Poor access to funding and lack of an entrepreneurial culture were part of the problem in many eastern European cities, according to Siddharth Bannerjee, a Nesta researcher who focuses on Europe’s digital future.

Here at the FT, we asked readers in our Facebook group for technology entrepreneurs, Tech Meets Money, why they felt eastern Europe lagged behind. Emi Gal, a Romanian entrepreneur, agrees that funding is a key issue. “Start-ups need investors, and Romania has quite a few. I do, however, think that we have a lot more to do on this front.”

Mr Gal, now based in New York, says he would like to see policies such as the UK’s enterprise investment scheme, which provides tax relief for those who invest in small, unlisted companies, introduced to Romania.

“I think the key challenge we are facing is the lack of international experience and skills like leadership, marketing, sales, which would enable us to be successful on the international level,” says Pawel Tomczuk, founder of a Polish communications business.

“For example in Poland we had our own Skype [Gadu-Gadu], which had several million users before Skype, but no one had experience and vision which would take it global.”

One of the Nesta ranking’s surprises for many was that for expanding technology businesses or “scale-ups” Brussels — despite its associations with bureaucracy — ranked above Berlin, which is seen as being more open to new ideas.

The Belgian capital benefits from the proximity of organisations such as the Fraunhofer Institute, which investigates the uses of applied science. It has also agreed policy changes that make life easier for tech start-ups, such as lifting the country’s ban on night-time work for ecommerce companies. This had made shipping much slower than in neighbouring countries.

The trick, says Ms Holly, is for cities to stay flexible and listen to the needs of smaller businesses, not just big ones. “Usually it is the big companies that have the ear of government. [Having an entrepreneur in residence] lends a voice to the smaller companies that don’t normally get to influence policy.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.