The Data Behind Scaleup Success, with Startup Genome

Hey everyone, how's it going? My name is Ehan Isaacs, I'm the head of global growth for the Founder Institute. Super glad that you've taken the time to join us today. We have another exciting presentation for you by Startup Genome. For the folks who've been following Startup Genome, they're a really great company. They produce all these great reports telling you all these great stats about startup ecosystems. We use them a lot internally here at Founder Institute, and I know some of our chapter directors also use it. With that being said, I'm going to bring up our speaker Forrest here in a little while. He's going to go through some really great stats and data, and then we can kind of go from there. Before I do that, I just want to make sure we go over some housekeeping over the next 1 minute or so. So as you can see on the right-hand side, there's a chat Please use that to tell us, just to communicate with the general audience. I think for now, just let us know where you're coming, where you're calling in from. So I see New York, Sean is coming in from OpenBC, we have Elijah from London, we have Calgary, Pretoria, South Africa. I'm based here in Dubai, UAE, and of course is based somewhere in the US, and his colleague Prashant is based, I believe, in India. So we have also somebody from Wisconsin, Cairo, so we have a pretty good international audience today. We had about, say, 350 people sign up for this, so I'm expecting roughly 150 to 175 people to show up live. So it should be a good audience. Okay, San Francisco, Buenos Aires, Mississauga, represent. I spent a lot of time in Mississauga, cool. Toronto, thanks for joining. All right, so as you can see, please use the chat to keep everything engaging. What's gonna happen is we'll kind of use that to just get feedback from you as Forrest is giving the presentation. The next bit is probably really, really important. Underneath the messaging button, there's a Q&A button. Please click that, feed us your questions. That way, what we're going to do is bring up the questions onto the screen, but I need the questions to be like logged over there. So if you have questions for Forrest or his colleagues or anything about the reports, please plug it in there and then we'll bring it up on screen during the Q&A. It's typically about 20 to 30 minutes of content. We do Q&A for about 20 minutes and then we'll break out for 10 minutes of networking. For those who know how, knows how this works, it's a fairly standard format. Elijah, yes, this is being recorded. You will get access to the content within 48 hours. I think last but not least, the only housekeeping item left is at the bottom of your screen, you will see some emojis, thumbs up, hearts, and all that type of stuff. As the speaker is giving their presentation, feel free to use that to give, again, feedback. All right, with that being said, I think we should be good We have 78 people live, I don't wanna keep anybody waiting. Let's bring Forrest up and then during the Q&A we'll have Forrest and Prashant answering questions. While Forrest is coming up, I do wanna run a quick poll as everybody could see. I'm just curious to know, has anybody actually read the Global Startup Report or the Scale-Up Report? Just so we, like we have some, we have an idea. You should see it up in the screen. Okay, okay, we have a lot of nos here. That's fine. That's kind of why Forrest is gonna go over it. Let me see where's—

all right, let's get for—

okay, so we have some people. Okay, 1% thing. Hey, hey Forrest, um, hey there. Okay, awesome, you're there. So, uh, I don't know if this is good news or bad news, but 35 people have not read the reports. So I think, uh, you— the good thing is you can say whatever you want and no one's gonna fact-check. Or alternatively, everyone's here to learn from you as the subject matter expert. I'll let you self-introduce. You—

your—

I'm going to minimize this so people can—

guys—

oh, sorry.

Perfect.

Uh, yeah, I'll kick it over to you. Maybe if you want to give an introduction to yourself and then tell us what we're going to be learning about today, and then go from there. But I'm going to remove myself from stage, and yeah, really looking forward to this.

Great. Uh, can you see my screen all right?

Yep, you're good to go.

Great. All right, um, well, thank you so much, uh, to the— to ION and the Founders Institute for inviting us here today to discuss the launch of Startup Genome's latest report on scale-ups. I'm Forrest Wright. I'm the assessment lead at Startup Genome. Where I work with ecosystems to evaluate and craft startup policy. I'm currently based in Philadelphia in the United States, and I'm joined today by my colleague Parshant Sharma, who's graciously joining us quite late on his end from India. Parshant is our, is our resident data scientist who helps put together the data for all of our work at Startup Genome. And went well above and beyond for this particular report on scale-ups. So I did see the poll that not many people have heard of us at Startup Genome. I can give you a little bit of background here. So a bit about us, if you're unfamiliar, we're a globally leading startup ecosystem advisory firm. We've built up our knowledge over the past 10+ years based on tens of thousands of startup founder surveys. In addition to thousands of interviews we conducted with startup ecosystem leaders covering accelerators, incubators, investors, policymakers, you know it, you know, basically to build up our knowledge base of startup ecosystems. To date, we've worked with over 150 government and private innovation agencies spanning over 50 countries. So our mission at Startup Genome is to increase the success rate of startups in the growth of their ecosystems. And cumulatively, uh, to date, we have the world's most comprehensive, uh, startup ecosystem database covering over 3.5 million companies, um, and nearly 300 startup ecosystems. Insights, um, from which we share in our annual Global Startup Ecosystem Report. I suggest you check that out if you're interested in what I've said so far today. For the poll, it sounds like people were kind of unfamiliar with that report, but we offer that freely as our, as our kind of gift to the global startup ecosystem, where we rank ecosystems, talk about trends and subsectors and funding and all that. And that's freely available on our website. So, but today I'm here to talk about our most recent Scale-Up Report, which came out just a couple weeks ago. This report was produced in conjunction with our partners and contributors, the Global Entrepreneurship Network, DealRoom, and the European Scale-Up Institute. So with all that said, I think it would be helpful at this point, before we go any further, to talk about the definition of a scale-up because, you know, there's going to be some questions on that. Previous attempts to define this term were not specifically applied to startups in the past. I think the highest profile example is from the OECD, which their definition of a scale-up covers all SMEs. You know, they're not talking specifically about startups. So our definition, kind of a redefinition if you will, is a startup which achieves a valuation of $50 or more US dollars. Sorry, an early-stage startup which eventually achieves a valuation of $50 or more US dollars as part of their valuation trajectory. This kind of seems like perhaps maybe a blunt figure, but it's for our purposes kind of the most reliable way of measuring startup success using funding amounts that are kind of generally globally available. Using third-party verified databases. And it's one that can be applied consistently across ecosystems. So now I'll just kind of talk briefly about the report's methodology. So this report is the result of tens of thousands of founder surveys that we've collected over the past 11 years. What we did was isolate the set of startups that took our surveys that were less than 4 years old at the time of that survey from the period of 2015 to 2019. And that gave us a 3-year lag post-2019 to collect that valuation data to determine if that startup became a scale-up. In total, we had a dataset close to around 10,000 startups that provided URLs as part of their survey. And so what we did was we kind of mapped those URLs to funding valuation data to determine of those startups that qualified as part of this dataset, how many became scale-ups. And then crucially, and this is kind of the heart of the report, of course, you know, what variables we could correlate with those startups that became scale-ups versus ones that did not. So, you know, one thing to ask is, you know, why is studying scale-ups important? Well, you're probably familiar from previous research on new firm creation that's shown that the fastest-growing firms generate new jobs. So scale-ups are job creators. And scale-ups also kind of like supercharge the trajectory of an ecosystem. They make substantial contributions to an ecosystem's value, startup ecosystem value, generating new capital availability, producing newly rich executives and employees who seed that next generation of startups. They also make qualitative contributions, um, and by that I mean those founders and employees whose startups become a scale-up, they can serve as, as the advisors and connectors for the local ecosystem, providing invaluable experience and increasing that ecosystem's chance of getting future scale-ups. To lay some initial groundwork here, I want to talk a little bit about the role of startup ecosystems in producing scale-ups. So here we're looking at, at Startup Genome, we categorize startup ecosystems into 4 categories. This is based on our research findings of startup ecosystems. It became very clear that you can kind of define these into 4 discrete kind of buckets. They range from the least mature startup ecosystems, that's at the far left, those are activation-level ecosystems, to the most mature ecosystems, which are integration-phase ecosystems. In these categories, to give you a little background, um, are determined primarily by the number of startups in the ecosystem as well as kind of funding deals and amounts, um, including large exits, of course. Um, so some examples, just to kind of give some, you know, some context to this, um, of an integration phase ecosystem, um, for, you know, to give some context for this report, would be a place like Silicon Valley, London, New York, Those ecosystems consistently rank at the top of our Global Startup Ecosystem Report rankings that we produce every year. So what we found, kind of unsurprisingly, there are higher scale-up rates as you kind of move up the ranks of startup ecosystems. There's kind of like a causality question here. So we're here, we're looking at the startups from these 4 ecosystems. What was the scale-up rate for those startups? And, you know, there's a bit of kind of chicken and the egg question, you know, are these more mature integration-level ecosystems producing more scale-ups because of the cumulative factors? Like experience, capital depth, access to innovation, and those ultimately produce more scale-ups? Or are talented startup founders kind of self-selecting to these— to go to these top ecosystems because of their past performance, kind of reinforcing that trend that we've already seen in the past? I think our research, and we'll expand upon this in the report, the presentation, I think it kind of points to both. You know, these ecosystems at the top level kind of produce more opportunities to become a scale-up, but there's also a bit of kind of self-selection in that. But, you know, say you're a founder, you can only have so much control over your ecosystem. You know, you may decide to move to an integration phase ecosystem right after this presentation, but as our research shows, There is a number of factors that you can influence as a founder that have implications both for you, your startup, as well as the long-term trajectory of your ecosystem, wherever that's based. And there, there are multiple success factors that we cover in the report that produce scale-ups, but in this presentation, I'm going to talk about the 4 major ones that I think will be most applicable to this audience, and those are local connectedness, global connectedness, market reach, and talent. And we'll expand on, on those in the coming slides. So first here, talking about local connectedness, this is a metric that we put together where we kind of attempt to capture all metrics relating to the size, density, and quality of local networks that our survey— surveyed founders participate in. Including those relationships and the quality of those relationships to other founders, experts, and investors within their local ecosystem. So some of our previous research has shown that ecosystems with higher levels of local connectedness grow 2 times as fast as those with low levels of local connectedness. And from this chart, you can see that highly connected locally connected ecosystems here in blue outperform medium and low connectedness level ecosystems in this model of our research. Here are some more findings from the report. We have a high level of our scale-up research here and how it's related to local connectedness. This is from a 10-point scale on local connectedness index, which is a summary variable, um, on a scale of 1 to 10 showing the size and quality of a founder's local connections. Um, and here we see that those high local connectedness startups, um, have a higher scale-up rate than those with lower levels. Kind of digging into the some sort of subfactors, um, on of that previous slide on the local connectedness index. Here we're looking at the number of founders' relationships with other local founders. And from this, we can see that scale-up rates rise, of course, as the number of local founder relationships to other founders increase. This effect, I think, is actually even stronger when we look at the number of relationships founders have to other local investors. I think these findings kind of have implications both at the founder and ecosystem level. So there are things that founders can do to improve their chances of their startup success, such as, of course, like cultivating those relationships with other founders and investors, as we've seen has a high correlation with scale-up success. Or, you know, of course, they could relocate to to an ecosystem that has higher connectedness and kind of plug in and take advantage of that local connectedness to increase their scale of chances. But, you know, alternatively, you can kind of try to kind of plug into these networks by proxy, by developing founder relationships to other highly connected ecosystems. You know, as I think the research is quite clear that there's a higher return on developing those local connections to other stakeholders in your ecosystem. But we also look in our research at the other side of the coin. And I think it's, of course, obviously important to have that local connectedness. What our research also shows is that global connectedness is crucial in developing scale-ups. And so, you know, what we're measuring here by global connectedness, what we're talking about is that degree of connectedness. Again, you know, the number of relationships and the quality of those relationships between startup founders and other executives and founders in top global ecosystems. And the reason why we specify top global ecosystems, which includes places like Silicon Valley, London, and New York, which you see kind of at the heart of our research here. Those places, you know, they have higher innovation rates, capital availability, and of course, crucially, experience from previously successful founders and investors. And so by making connections to those ecosystems, you know, kind of wherever you are globally, you can start to leverage those experiences by proxy. And here I'll mention that as a methodological note, we kind of take national considerations into account when we're doing our research on global connectedness. So for example, like a startup in Austin, it's not going to be— their connections to Silicon Valley is not going to be weighed the same as like a startup from Singapore that has a connection to Silicon Valley because of that domestic connection. So we do take that into account when we're looking at this. So as our research into scale-ups shows here, a higher global connectedness index, and that's again on a scale of 1 to 10, which is, you know, an index of the quality and level of connectedness globally. That a founder has, those startups with high levels of global connectedness have over a 3%— or sorry, 3 times higher rate of scale-ups than those with a lower global connectedness score. I think what this shows kind of at a high level is that higher global connectedness provides founders with access to that global knowledge base that's kind of unique to those top ecosystems. Which can, can help them to go global and expand their market reach by proxy. Um, another factor I wanted to talk about here, um, again, in our, from our report, um, is the impact of, of global market reach. Um, and here's, I think, where, where startups from smaller ecosystems can kind of make up some serious ground on those startups from larger startup ecosystems, and I'm assuming a certain level of ecosystem development. So quickly, a little definition here. Global market reach is our measure, um, it's our measure for showing the intent, action, and results of an early-stage startup to access customers outside their borders. And there are a few ways to measure this. But one here is looking at it if a startup, um, targets the global market first. This means they prioritize, um, finding customers abroad before they target customers in their global— in their global market— or sorry, in their domestic market. Um, so, you know, kind of have to ask, why would a startup do this? Um, and it's not simply a fact of being from a small country, a startup from a small country. Those startups from small countries do tend to look globally first more often than ones from large countries. But when it comes to building a scale-up specifically, it's important to target that global market first, kind of for customers beyond that startup's border, because what they're doing is developing their products and services for a global market, which expands their potential customer base in that process, which in turn increases their startup valuation, of course, getting— increasing their chances of becoming a scale-up, you know, as they expand their global, you know, customer base. That's more customers they can sell to. Investors are going to see that and say, okay, you know, there's will have a higher valuation for this startup. So what we see here specifically in this chart is that the scale-up rate doubles for startups that target the global market first. I mean, as you can see here, we have a note where we, we've noted we removed U.S. startups from this, this subset of data. And because that's in the case of the U.S. Of course, it's a massive market, which means startups are less likely to have to go global to achieve that customer scale. But it's also because in the US there's, you know, as I mentioned previously, several top ecosystems like Silicon Valley, New York, Boston, and that's already within their borders. So startups within the US can kind of leverage those top ecosystems of innovation by being closer to them. They don't have the same need as, you know, I say a startup from Israel to develop that, that globally focused product market fit and still achieve scale. So some other considerations, um, when we're looking at a startup's global market reach, um, is that target customer segment. So here we've seen specifically that B2B— and that's business-to-business— startups that target the global market first, taking the U.S. startups out of it, they have a higher scale-up rate than B2C startups. And the reasoning behind this is, as we've seen kind of in our, in our studies and research and talking to a lot of startup founders, um, is that for many non-US B2B startups, going global really means kind of going to that US market. The US is a massive B2B market with a lot of businesses that are willing to work with competitive startups. Kind of like no matter where they're from, if their product is good and works in the US, you know, they'll probably be willing to hear you out. And I think, you know, specifically when we talk about the mechanics of this a bit, kind of give like, you know, give a little bit more context here. B2B startups that target the US business market first, they're tailoring their B2B products to work in that competitive but highly lucrative US market. That's also a market that leads a large share of global business practices. So kind of essentially, if you can get traction in, in the US B2B market, you're kind of multiplying your customer base considerably, um, because what works in the US market works across a lot of other, um, business contexts globally, um, because the US is, is that leader. So you kind of get that multiplier effect by getting traction in the US market for a global startup, um, as a B2B global startup. And, you know, it's kind of like you see this, you know, say an example like a startup for Israel. It's not uncommon for a B2B startup from Israel to develop a product that works kind of exclusively in the US market first, and then they fit it later to their domestic market after they've succeeded in the US. And this is kind of a common occurrence in those B2B startups. Because of, you know, that, that getting that first foothold in the US B2B market, um, so, so critical, um, for scaling potential. Um, but conversely, this strategy works less well, as we see, for B2C startups— that's, um, business-to-consumer startups— um, because startups in this space, they, they have to kind of talk to their customers more often and tinker and iterate with that market fit more. Kind of based on that customer feedback, which kind of necessitates a closer proximity to those customers and being a little bit more attuned to the specificities of a B2C context. So going global as a B2C startup is, as we see, is a little bit of a less successful strategy for scale-up success because of that customer proximity issue. So what I was saying earlier about startups, you know, could kind of overcome the constraints of their smaller domestic market by deciding on a global strategy, a global customer acquisition strategy. And from our previous research at Startup Genome, we see that non-US startups that employ a global customer acquisition strategy where they go abroad to recruit those first customers have higher revenue trajectories. So what we've seen in the Scale-Up Report kind of confirms previous research that we've done at Startup Genome. So this, you know, that's what startups can do kind of individually, founders can think about, but this has implications at the ecosystem level as well. In one case study that we like to talk about as Startup Genome, it's worth highlighting is the case of Stockholm around 2015. So here's an ecosystem in Stockholm that is much smaller than places like New York, London, Silicon Valley, even Tel Aviv that are usually at the top of our global ecosystem rankings, but they're also producing unicorns and a number of large exits kind of at the same rate, or in some cases even higher than these much larger peer ecosystems. So we did an assessment of Stockholm around this time and found that its levels of global connectedness and out-of-customer— or sorry, out-of-continent customers that startups from Stockholm's Stockholm had cultivated were higher than most of its top peer ecosystems, which helped it overperform relative to its size. So here again, we see that startups from smaller ecosystems can overcome that local constraint of a smaller domestic market if global connections are cultivated, bringing that knowledge home to share with the local ecosystem at the ecosystem level. And then next, I'd like to go through some, some talent-related variables that I think are going to be a particular interest to this group, the Founders Institute. You're probably going to be interested in these founder-specific variables that we looked at. And here we're going to first look at the number of startups— startup, um, sorry, the number of advisors that a startup gives equity to. This is important, as we'll see, because qualified and experienced advisors can provide critical advice and cultivate contacts with investors and potential employees on behalf of that startup that they're advising. And by offering them stock options that vest over time, they're incentivized to aid in that startup's success through the lifecycle of that startup. And, you know, again, having a significant impact on its chance of becoming a scale-up. So what you see here from our research on scale-ups is that securing more advisors increases a startup's chance of becoming a scale-up kind of sequentially here. And if you look at from the rate of startups that have zero advisors versus just 1 to 2, the scale-up rates for those startups more than doubles and then goes up by another 50% from there to 3 to 4 advisors. There wasn't a statistically significant number of startups in our data set with 5 or more advisors, but we did include it here because it was kind of interesting that their scale-up rate was still, you know, it goes up sequentially here. Um, but there's just not that many startups that have that many advisors. But clearly there's this, this clear relationship between bringing in, um, advisors that are given equity stakes, um, and they're able to advise a startup. And as you increase this at least up to 3 to 4, your chances of scale-up go up. Um, but one thing that it's important to note here is that we observed from, from our research is that the number of qualified available advisors increases by an ecosystem's phase level. So here again, we're looking at those phase levels from activation, kind of the smallest ecosystems, up to integration, the, um, the most mature and top ecosystems. Um, and we— what we're doing here is showing that the distribution of scale-ups— or sorry, distribution of startups by the number of advisors they reported. Um, so we see that in integration ecosystems, the most mature and successful startup ecosystems, they have the lowest rate of all 4 ecosystem levels of startups with 0 advisors, and conversely, the highest rate, um, of, of startups with at least 3 to 4 advisors. And I think this has a couple of interpretations. Um, integration stage ecosystems, you know, of course they have more qualified advisors as a result of their track record of previously, previously successful startups and the kind of, um, you know, the previous founders who stay around and become advisors, successful investors who, you know, stay around, um, kind of seeding that next generation of startups. But it also seems to indicate that the accumulation of experience in these ecosystems would lead them to develop norms around the need for startups to have at least one, if not more, preferably more qualified advisors. So there's a little bit of that experience of the need for advisors. That's going to be more evident in those ecosystems with more, more experience of startups with success. They're kind of passing down that tacit knowledge to the next generation of startups. But I think that the takeaway for founders here is that there's a strong return of either locating your startup to one of these later-stage ecosystems and seeking qualified advisors there. Or alternatively, you know, you can try to develop relationships with advisors based in the top ecosystem to kind of take advantage and to leverage that unique experience of an advisor there. So next we'll look at ESOPs, and that's offering employee stock option plans. Um, to— what we look at is if a startup provides stock options to all employees, not just senior level but mid-level and lower level employees. Um, and of course, having ESOPs available with your startup for, for new employees that join, that increases the motivation of those employees, increases, improves the retention of employees and builds team spirit and commitment to your startup. So I think actually in one of the starkest findings from our report, the scale-up rate for startups that offered ESOPs to all employees was 3 times the rate of startups that did not. You know, admittedly, this is a bit of a thorny metric as ESOP policies kind of can differ across nationalities, of course, with different implications for the different models that exist. But I will say from previous startup genome experience on this topic is that we found that the access to senior developer and business growth talent decreases in countries where stock options for startups are taxed at vesting as opposed to at issuance and exit like it is in the US. And the reason why this is an issue of taxing at vesting is because employees, they struggle with the tax liability when a startup's valuation dramatically increases. I'm sorry, kind of the upshot of this is that, you know, if a startup struggles to attract talent because of discouraging ESOP laws at the national level, their chance to achieve a scale-up decreases, which is a loss not just for the local ecosystem because of that lower scale-up chance, but also for the country really, in that country's economy, as they miss out on that high economic impact of high-growth firms as a result of having those motivated employees with ESOPs available to them at the joining of that startup. Um, next, what we looked at here is the, the number of founders, um, per startup. And from our report, we see that, uh, scale-up success increases by step for the number of founders on the founding team of a startup, and then trails off up to 4 founders, and then trails off at 5 founders. Um, you know, and part of this, the reason for the trail-off here is that 5 or more, um, founders as part of the founding team is just— there's not that many startups that do it. Um, so there's just going to be fewer scale-ups, um, among the distribution. But what we see here is, is seeing the, the higher scale-up rate of, um, 3 and above, 3 to 4 founders. And that actually is, is is supported from startup— previous research from Startup Genome, which shows that mixed founding teams, ones that incorporate at least one founder with a technical background as well as one with a business background, tend to outperform startups that are founded solely by a technical or business background founders. So we kind of see the— the advantage of a mixed team, a mixed founder team for a startup, you know, up to 3 to 4 is kind of that ideal rate in its chances of becoming a scale-up. And then lastly, and there's been a lot of data presented here, so hopefully if you have some good questions, we can dig in a bit more, but I wanted to talk about, founders' hypergrowth experience. So this variable examines the impact of a startup having at least one founder on the founding member team with previous experience in a hypergrowth startup. So hypergrowth startup in this, in this instance is one that grew rapidly in a short amount of time. So from our experience, we determined that founding teams that were comprised of at least one founder with previous hypergrowth experience— again, that's, that's previously working at a startup that grew very quickly, um, in a short amount of time, um, had an 85% higher scale-up rate than, um, founder teams, uh, composed of, of founders without that previous hypergrowth experience. Um, and this is most evident in startups based in the most mature startup ecosystems. As we can see, that the startups from integration ecosystems with hypergrowth founders have the highest scale-up rates. I think the explanation for this is partly due to the fact that, you know, there's likely to be more previously successful founders in these top ecosystems. But I also think it shows that these founders' hypergrowth experience can be best leveraged in those ecosystems with the stronger global networks, more knowledge and talent, and available funding. So these factors kind of collectively increase that startup's chances significantly, you know, when there's a founder with that previous hypergrowth experience plus being located in a top ecosystem, you know, that, that equals success, that combination there. Um, but I also kind of see the opposite point being made here, which is that in turn this kind of shows how important it is for founders who are able to scale from earlier stage ecosystems, smaller ecosystems, to stay local once they exit. Um, and for, for smaller ecosystems the experience of a previously successful founder that was able to scale and remains in that ecosystem, it's, it's invaluable experience that they can pass on to other local founders, having an outsized impact on their future success chances of that ecosystem. So then, uh, as some final takeaways, uh, here we want to look at some of the top factors that we've determined to have the highest impact on a startup's scaling chances. Um, so this is kind of a step-level view, taking as the first step the baseline, the global scale-up rate of startups from our data set, um, you know, from all contexts, all, all levels of ecosystems, um, all geographies the ones that, um, from our data set, 4.6% of those startups became a scale-up. Um, and then we look kind of— what we want to do, show here, was the kind of the cumulative impact of adding some of the variables that we've discussed previously, um, to your startup's strategy and how much of an impact that has, um, on scaling rates. Um, so cumulatively, if you incorporate an ESOP strategy to all employees, cultivate global connections to top ecosystems, and then bring on 3 or more advisors, offer them equity stakes, scale-up rates clearly dramatically increase. In fact, it's 15 times higher for startups that do all 3 of these things compared to those who don't. And for reference, below, just below here, you see that For startups that do none of these things, the scale-up rate for those is just 1.2%. So the reason why we're highlighting these, these factors specifically is, you know, based on our research, these, these definitely had outsized returns on the chance to become a scale-up, but they're also something that a founder can have a direct influence on, at least to some extent. You know, so some of these will be a little bit difficult in a less mature, smaller ecosystem, like being able to attract quality advisors. Or for example, you know, if you're in an ecosystem based in a country that has, you know, less startup-friendly ESOP legislation, that's a bit of a challenge. But, you know, what we really want to show is the kind of the big things to keep in mind, perhaps give a little bit of food for thought when considering your future strategy. By taking these steps, you can dramatically improve your chance of being a scale-up regardless of the context. With that, I know there's a lot there. Maybe I can turn it over to questions. Hopefully there are some here.

Thanks so much. What we're going to do, folks, is jump over to Q&A for the next few minutes. Let's say, I think we had a few that come in. Some people were using the chat, so please use the Q&A button below the chat to feed us the questions. So I'll kind of ask the first one. Where did I put mine? I guess it's a little bit of an obvious one. So it's like, you know, what advice do you have for some of the founders who are not in these growing ecosystems? Like, you know, what if you're some— like, I didn't look at the full list, but like, what if you're like, I'm based here in Dubai, UAE. I think I saw Dubai somewhere on the list, but it's like, should I go to like Silicon Valley? Should I go to New York and stuff and just like be part of that ecosystem? Or should I stay within air and try to figure it out. Like, what are your thoughts on that based on all the data that you're seeing?

Yeah, it's a, it's an excellent question and definitely one, you know, we're trying to keep in mind. Of course, as these top ecosystems obviously have the highest scale-up rates, um, you'll have access to, you know, more funding and experience in those ecosystems. Um, so I think it really, it kind of It depends, of course, on your personal goals and your ability to make that move. But what I think, you know, we try to show, and probably a bit better in the report because, you know, there's so much to go over and we try to provide as much nuance as we can in the report, is that, you know, one way you can get exposure to one of those top ecosystems is by developing connections there. So that might mean having to travel there, go to conferences, you know, do some networking, try to leverage that experience from people in that ecosystem as much as possible and bring that back to your startup and back home. And so that's kind of one way you can increase your scaling chances sort of by proxy. And, you know, there's kind of depending on the stage of your startup, there might be, reason to go there. And of course, um, you know, some of these top ecosystems are not just Silicon Valley, New York, London, but I name those because probably going to be the most familiar to people. But, um, you know, Singapore, Berlin, um, Shanghai, those are other top ecosystems that are usually at the top of, of, um, and Paris, of course, are at the top of our ecosystem. So, you know, you can maybe cultivate your strategy as necessary to kind of go to those ecosystems as much as you can. And then, you know, like, we didn't show it in this presentation, but we see that, you know, probably unsurprisingly, startups from like Australia and New Zealand, because they're so isolated, you see that they're going global like way more than other firms. So they kind of have to keep going abroad to grow their scale up. And a lot of them end up relocating just because at some point there's kind of diminishing returns. You can only go to Silicon Valley so many times if you're based in New Zealand. So that's like, you know, there's at some point you have to kind of do the, you know, the ROI calculations on can I make 10 trips to Silicon Valley a year or should I relocate there? You know, can I make a couple to Shanghai? Or do I have to relocate there? So, you know, those are the kind of considerations kind of depending on the stage and context of your startup.

Okay, perfect. Prashant, anything to add to that?

I think Forrest has explained it very well, but I'll just add one example from our previous report, not from the Scaleup report, but from our Global Startup Ecosystem report, which is annual report. And what we have seen, like, you know, startup from Israel, especially moving to US cities and US specifically to Silicon Valley, New York City, and Boston. And it depends like, you know, which city, it depends on the subset from which subsector they are, like, you know, their startup is, they are choosing the city. For example, if a startup is from the life sciences, so they are preferred to more go to Boston because Boston is kind of a life sciences startup and they have multiple legacy companies and also the new startups. And it specifically, it also depends on the reason behind moving it or like, you know, if you are on a stage when you want to go for IPO. So we have seen in our analysis that startups are moving to New York City because of financial hub, because of exchange access. So yeah, so that's it from my side, just to add what Forrest said.

Perfect, thanks. Let's move on. So we'll do maybe like 3, 4 more questions and we'll try breakout for networking, but Mark Wright from Ontario, Canada is asking, you talked about this, but like, can you explain the key ecosystem phases? And then we've had a few quick questions. There's like, how do you really define an ecosystem? What are the kind of the principles or variables that you've kind of, yeah, like what's the exact definition you're using? Just so, because we've used this term quite interchangeably. Yeah, so Forrest or Prashant, whoever wants to go.

This might be best for Prashant if you want to take that one. He's our data expert and he's really entrenched in these definitional considerations, so I'll let Prashant take that.

Absolutely. I can definitely take this. Basically, we divided ecosystem in 4 categories. And I'm also sharing link here for the complete definition. So, so we divided ecosystem in 4 categories, in, uh, like, you know, attraction, globalization, integration, uh, another phase. So, so basically the— this methodology is based on number of startups in ecosystem. So let's say if the number of startups is like less than 1,000, then it's phase 1, which is attraction, uh, the first phase. And if the number of startups is more than 1,000, then it's going to the phase 2, which is globalization. And for globalization, like, examples are Melbourne is one of the examples which is in on globalization phase. And once, once, you know, the ecosystem start getting, you know, large exits over $100 million or billion, we say it's attraction ecosystem. Examples are like Berlin and Singapore. And when it comes to last last phase, which is integration phase. In this, this is basically like, you know, instead of I'm going to the definition, but for more to visualize it, like we have 3 ecosystems in phase 4, which is Silicon Valley, New York City, and London. As you can see, all these ecosystems are well matured and, you know, the large exits, more unicorns, more billion-dollar exits, and plus also the valuation. So, so that's one of my highlights. But for exact, uh, definition, I have already shared link in our QA, uh, section.

Perfect, thanks, appreciate it. All right, we had a couple questions on ESOP and advisors, uh, stuff. So let me just bring this up. Uh, did it go here? Yeah, so, so Joe He was asking what's the average equity given to advisors? So, you know, that was interesting. At FI, we advocate heavily for some of our startups to be like, hey, from the earliest stage, go get an advisor. We have something called the FAST agreement. It's been adopted by several startups. Give them, you know, 0.5% and like, you know, try to get a marketing advisor, try to get a product advisor. But like, yeah, what did you folks see at that level? How much equity, whether it's through the ESOP program or through a warrant, like, are people giving to their advisors at the scale-up level?

Yeah, so that's a great question. And unfortunately, we— maybe Prashant can weigh in on this a little bit as well, but we typically in our survey don't go to the depth of asking what percentage. And the reason why is because I think you're just going to— because we do a global survey, you're just going to see such a variety of different models. Of course, you know, if there's startups that, you know, are based in a country with not great ESOPs law, that rate's going to be zero potentially. And so, you know, it was difficult to have like a consistent, you know, consistent metric that we could use in our survey to ask for that specifically. You know, it's, So unfortunately, we couldn't go to that degree. We just kind of ask if they give equity to their advisors, and that's what we used as our metric. But there's, you know, there's— it's just so difficult based on, you know, not just the laws, but also the kind of the norms around ESOPs and how much is given to whom. You know, it's going to be difficult to make like an across-the-board comparison. You know, it's like always half a percent. Everywhere. And maybe Prashant can weigh in if there's anything I missed there.

No, Forrest, I think on this part you absolutely mentioned exactly what I want you to mention. So yes, it's quite difficult, as Forrest mentioned, to identify the, you know, the equity given to advisor. And this is also something coming from our, you know, the primary research from our survey. And yes, so basically we are asking a question like, you know, the help you are receiving from advisor when you are offering the equity. But specifically, we are not asking from the investor like how much equity you are sharing with the investors. So yeah, so from our survey, yes, we don't have that metric, but yeah. Means difficult to measure at the moment.

Yeah, I think that's fine. I think it was just helpful if we could know. At FYI, we advocate roughly the 0.5%. I would be curious to see what that looks like as a company grows. All right, let's do a couple more questions. I think this is Andy from the Bay Area is asking, from the startups you did survey at a very high level, what was the type of— were they SaaS, were they e-commerce, were they like— what was that like, uh, distribution look like? Was it evenly distributed? Did you find out there was one that was more particularly, uh, dominant, one type of industry, uh, in certain ecosystems? Yeah, that would be helpful to know.

Um, Yes, uh, so, so first, first thing, like, we are only considering the SaaS or technology startups. So as a Startup Genome, we are only doing analysis on technology startups. So all the startups in this analysis is only like, you know, the technology startups. Uh, the breakdown is very different because, you know, uh, most of us are like, uh, it's, it's not like, you know, uh, the exact one because we are measuring the almost 12 subsectors. So I can, I can give an example of the subsector which we are using, like AI and BD, artificial intelligence and, uh, big, uh, big data, clean tech, uh, fintech, fintech industry, and, uh, you know, different more, like total 12. Um, but on a high level, if I'll just correlate this question with, you know, the recent project which we are doing, like, uh, we are going to publish our, uh, publish sector code. And we have seen in our dataset, like, you know, the, uh, there is around, uh, 10% startups, like, you know, the share of cleantech funding is increased in recent years. This is just an example, right? You know, I'm just trying to correlate the things, not exactly, uh, uh, from, from the survey. But yes, we have seen like cleantech startups has recently increased the, uh, share on AI and BD. So our survey has also most of startups from AI and BD, uh, and also the second share, if I remember it correctly, is from cleantech and fintech. Forrest, do you want to add anything here?

Um, no, that, that covers it.

Yeah.

Um, so we do, we do see a spread. Um, the exact breakdown is, you know, we, we ask the startup to define kind of its area, and it doesn't always exactly map on cleanly to like the discernible sector. So it's a bit, again, like kind of a methodological, methodological issue of, you know, making those distinct breakdowns. But we, you know, because this was, you know, a data set of like 10,000 startup founders, we got it, we got a quality sample, you know, covering all, you know, all the major startup sectors and then some. Um, and we have a way of, in our survey, of making sure that, you know, they're clearly defined as a startup. So we're not including SMEs, um, you know, or like, you know, like a small family business. Um, so we're getting just, you know, we're isolating on startups. Um, and, you know, on a certain level we can do a bit of a sector breakdown, um, but for something like this, because we want to take that whole swath, um, as many startups as we could We didn't look into the specific subsector for this report.

Okay, got it. This is a question from Cindy. I just pulled it from the chat and threw it in there. But, you know, as you're going through ESOPs, I think that was an interesting point. Maybe can you just share any additional findings you did find on the ESOPs for the scale-ups? So you clearly identified that scale-ups have them. If you're kind of roll them out early, they're a little bit more successful to be a scale-up. But any other insights you're willing to share with the audience specifically around ESOPs? Because I think like that's a topic that we cover at FYI during the core program, but it's still something that's also missed heavily. Like when's the best time to integrate it, or any, any insights you can provide would be helpful.

Um, yeah, uh, I'll let Parshan jump in, in a sec here, but One thing from the report, we have a section on ESOP, and again, that report is posted in many other areas. I won't try to reshare my screen to share that report, but we did look at like a regional level and ecosystem level breakdown of startups that offer ESOP policies and their scale-up chances. And probably, you know, as expected, ESOPs are more common and have a higher scale-up rate in North America, for example, compared to Asia. Part of that is because of the laws here in the US that make it a bit easier to offer ESOPs. But also, of course, there's a little bit of like causality bias of like, because we in the US, we've— there have been so many previous startups that succeeded that had ESOPs they pass on that knowledge to the next generation, like that's essential, becomes a norm around it. Whereas in other smaller ecosystems or ecosystems that are developing a bit later than the US, that norm hasn't kind of taken off there yet. So, you know, we're seeing it spread, there's a bit more awareness of that now. But, you know, this also is to some level a policymaker decision and I I think they don't always understand. They think it's a tax dodge, you know, potentially, whereas, you know, by reducing the scale-up rate of all of your startups, that's actually worse for taxes kind of if all things are even. So that's, you know, it's a bit of a counterintuitive point to make, but it's an important one if your country doesn't have great ESOP laws. Is there anything you want to add? Parshant there?

Uh, not from my side on this, Forrest. I think you covered it very well.

Thanks. Okay, perfect. Uh, thanks. I think let's wrap up our questions there. So we're just about getting to the hour, and then we'll open up for networking. Um, I guess Forrest and Parshant, any last bit of advice for the audience before we wrap up? We had— we have about 100 people still live. I think at one point we had about 180, and then we're gonna have another 100 probably watching this recording. So anything you want to say before we wrap up here?

Yeah, so I mean, I just want to kind of return to, you know, it's at some point you're a bit constrained by the development level of the ecosystem you find yourself in as a startup. But there are factors you can employ that have kind of— they can help your startup, but also your ecosystem. And it's kind of crucial for those steps that you take, you know, their returns to your ecosystem. So by that, I mean, you know, fostering meetup groups for your ecosystem. As you saw, local connectedness, you know, ecosystems that are more locally connected, they have startups with a higher scale-up rate. So that's one thing you can do. It helps your startup as you meet other founders and can leverage their experience. But also, you know, there's returns to your ecosystem as you develop those connections. And, you know, and there's things you can do, like there are probably a lot of startup founders who have exited in a highly developed ecosystem. You know, you can invite them to come to your ecosystem and give talks. They'd probably be fairly interested in that. So there is like a way you can kind of get that global connection. You know, that would count as a global connection for us because that's now a relationship you have to someone in a top ecosystem. You can go to them for advice. You can take their advice that they give you, bring those norms and ideas back to your ecosystem. I think there's always ways to do— if you can't be in one of those ecosystems, there are ways to leverage that experience, and that's going to have returns for your local ecosystem as well.

Perfect. Prashant, any parting words for the audience?

Again, I think Forrest has summarized this very well, but I'll just add one line from my side, one or two lines from my side. So in our scale-up report, definitely as Forrest has already shown few charts, but there are a few more charts in our scale-up report. So it's good for the founders to see how the metrics, like, you know, how they can, if they are starting the startup, so they can look at the metrics and see like how they can scale up. To scale their startup quickly, especially the summarized slide which Forrest has shown, which is showing almost, you know, more than 15% X the scale-up rate for the startups with specific features using the specific metrics. And also like we have other, like our global startup ecosystem report where startups, where founders can also select where they can start the, you know, startups they have.

Yeah, perfect. No, honestly, I threw out the link a couple times on the web, on the chat, so you should have also seen it on the screen. It's been there. I think they're both great reports. I highly encourage the audience to go and like, you know, just browse through it and just learn. It's a lot of data, but it's like very, very interesting. I don't think anyone else in the, in the world apart from Startup Genome is doing this stuff. So very grateful for their R&D and development efforts. With that being said, I'm going to wrap things up. We'll break up for networking. Thanks everyone for joining us from all over the world. And yeah, we'll chat on the tables. Thanks Prashant, thanks Forrest, thanks for the team at StartGenome for putting this together. And yeah, we'll see you next time. Thanks.

Thank you so much.

Thank you so much. Bye-bye.