September 08 ,2014 | by Thiago Kiwi

Why are tech startups moving to the megacities?

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Silicon Valley might be the global hub of the tech world, but more and more new firms are looking to big cities elsewhere.

When you think of technology hotspots, the chances are that Silicon Valley springs to mind. It’s been the world leader for decades and still sees more investment than virtually anywhere else in the tech world. But the next generation of tech startups don’t seem as interested in isolation as the Apples and Facebooks – instead of famously remote locations, they’re looking more often towards big cities elsewhere.

In a recent blog for The Guardian, Alex Wood explained that more and more young tech firms are avoiding Silicon Valley in favour of the world’s megacities. Whereas once the isolation was preferred, since it allowed firms to focus on innovation and thrive, a growing number of tech firms want to grow in well-connected, highly populated cities such as London, New York and Hong Kong.

Ultimately, this shift comes down to an evolution in the way that tech companies operate – and even how the tech industry is seen.

To begin with, there is a massive talent shortage in the tech industry across many developed economies, and it makes sense that companies want to be based where they are more likely to find the skills they need to thrive. There’s also the advantage of being able to set up in areas that already have all the infrastructure you need.

In an interview with Tech City News during London Tech Week, Bloomberg founder Michael Bloomberg explained that these factors will make sure that London and New York earn the status of top tech locations.

“To be a tech city you need the infrastructure, you need the environment to attract people and you need a diversity of people,” he explained. “London and New York have that. Silicon Valley does not.”

Infrastructure can be bought, but megacities often have one thing that a new, remote location does not: heritage. London and New York have histories of incubating new and exciting industries, but they’re also home to many significant clients and suppliers.

Startups that support a specific sector need to be based close to that industry – financial tech firms will flock to financial centres like London and New York. The fact that this is also where many of the venture capital firms, angel investors and incubators so popular with startups are based is also quite attractive.

Silicon Valley is still the dominant force in the tech industry, but as the sector grows it is losing some of its appeal for new companies. Opportunities are rife for megacities to become digital cities.

 

Top image by londonmatt on Flickr – some rights reserved.

Thiago Kiwi

Thiago is the LSBF Blog Editor who manages news and features content on the site, and writes about business, finance, technology, education and careers.

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