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Attracting innovators

A letter from German economic senator Cornelia Yzer inviting London's tech entrepreneurs to decamp to Berlin grabbed headlines in the UK shortly after the Brexit vote. So how proactive are tech hubs at attracting start-ups, and do such campaigns work? Michal Kaczmarski investigates.

Since bills and advertising leaflets make up most of his post, Maz Nadjm, the London-based founder of SoAmpli, a sales and marketing start-up, rarely gets much in the way of personally addressed mail. Yet to his surprise, he recently received a letter from Cornelia Yzer, Berlin senator for economics, technology and research, inviting him to relocate his business to her city.

The two-page missive from Ms Yzer was direct. “Britain’s vote to leave the EU will severely affect your operations in the United Kingdom,” it opened. “Therefore, I would like to direct your attention to the dynamic economic location – Berlin,” she continued, proceeding to outline advantages of investing in the German capital and giving contact details of officials ready to help Mr Nadjm with everything from registering his company to funding operations.

“My immediate reaction was curiosity,” says Mr Nadjm. “I was also impressed by how detailed, relevant and timely the information was. They clearly did their homework.”

Gone viral

In fact, he was so impressed that he posted the letter on LinkedIn, where it went viral. Besides sparking debate on the merits of relocating to Berlin, it also prompted individuals from Ireland, Spain and Finland to ask SoAmpli to consider their respective countries for relocation.

The letter, which had been sent to an undisclosed number of UK-based entrepreneurs and innovators, also caught a significant amount of media attention, and was reprinted by multiple news outlets, including Business Insider and the Daily Mail.

Ms Yzer believes that away from the headlines, her letter will bring business to Berlin. “We sent out letters immediately after the Brexit [vote]. Right now, we have had more than hundred contacts with businesses,” she says. “Though we cannot foresee a company relocating [to Berlin] within the next few days, we expect a shift [from investing in London].”

It is a shift that would have added resonance, given that London and Berlin are currently battling to be crowned the tech capital of Europe.

Proactive programmes?

Many cities around the world invest in and encourage start-up ecosystems. The US federal government recently realised that start-up entrepreneurs need incentives to relocate, and announced the introduction of ‘start-up visas’ in late August. But what of the other tech hubs? Like their Berlin peers, do they work to attract start-ups and do they have programmes catering to start-ups’ needs?

London does have such initiatives, which are offered through the city's investment promotion agency (IPA) London & Partners. David Slater, director of international trade and investment at the agency, says: “Our expert team offers free advice to potential investors, from start-ups to established companies, to help them explore how London can play a role in their global business.”

London & Partners also runs Touchdown London, which offers subsidised work space in co-working offices across the city. “The package provides a desk in London, exclusive one-year free membership to the London Chamber of Commerce and Industry, and assistance in helping to enlarge a company’s business network in London,” adds Mr Slater.

Such a proactive approach is not common among leading global tech hubs however. When approached by fDi, economic developers representing most of the top global 10 start-up clusters (Silicon Valley, New York, Los Angeles, Boston, Tel Aviv, London, Chicago, Seattle, Berlin and Singapore, as ranked by data management firm Compass) either pointed out programmes that had no specific focus on attracting start-ups or did not answer the question.

The exception, apart from London and Berlin, was New York. “In February 2016, we launched ‘IN2NYC’, a programme that helps foreign entrepreneurs get access to visas so they can relocate their businesses to New York City,” says Ryan Birchmeler from the New York City Economic Development Corporation. Since IN2NYC was established, more than 200 foreign entrepreneurs have started their visa application process, he adds.

Ambitious upstarts

While the top tech hubs seem to be complacent in the start-up stakes, there are several locations that while lacking size or clout, make up for it with their targeted programmes. One pioneer is Chile, which has offered visas and financial grants to foreign start-ups for more than six years, via its Startup Chile seed accelerator.

On a municipal level, corresponding programmes can be found in the western Chinese city of Chengdu, which offers one-year interest-free loans to foreign start-ups through its Go West programme.

Chengdu is not the only Asian city to woo foreign start-ups. In July, Seoul's metropolitan government announced the Seoul Global Startup Centre, which will give free work space, assistance with legal and accounting matters, as well as mentoring and visa services to a selected number of start-ups run by foreigners. Similar programmes, which include tax breaks for foreign start-ups and venture capital matching, can be found in the city of Fukuoka in south-western Japan.

Meanwhile in Europe, Ireland is one of the most active locations when it comes to attracting foreign start-ups. Enterprise Ireland, the country's economic development agency, runs a seed fund offering new businesses a $55,800 grant in exchange for a 10% equity, and in 2015 it ran a competition focusing on investing exclusively at foreign start-ups.

IDA Ireland, the country’s investment promotion agency, counts such companies as Neomed, an American neonatal care equipment producer launched in 2007, and StartingDot, a French domain name registry launched in 2011, among the foreign firms to start up in Ireland.

Game worth playing for?

On paper, IDA Ireland is very forward looking in targeting start-ups, but do the resultant job creation numbers stack up? Take Neomed, which created 22 jobs when it opened its Dublin office in 2014. The average job creation per project among foreign companies expanding into Ireland that year was 77, according to data from greenfield investment monitor fDi Markets. So is it a game worth playing for?

“The thinking behind the drive is that these companies will establish deep roots here from early in their growth, and make a substantial impact on the economy,” Richard Bruton, the then Irish minister for jobs, enterprise and innovation, said at an event announcing investment in Neomed and a number of other start-ups.

But according to Alberto Onetti, chairman and president at Mind the Bridge Foundation, an entrepreneurship promotion entity, there is an even more important outcome: namely that attracting promising start-ups can be instrumental in establishing and accelerating a tech cluster within a designated subsector.

“An ecosystem grows as some start-ups grow and turn into what we call ‘scale-ups’. Attracting companies from outside can definitively speed up the process,” says Mr Onetti.

All hands on deck

Recognising start-ups should be treated as FDI targets and getting IPA stakeholders on board is just the first step. The next is knowing how to recruit and facilitate them.

Here, IPAs should work with other start-up-oriented entities because the tools used for working with big multinationals differ from those used for small tech upstarts, according to Andy Shannon, head of global at Startupbootcamp, an international network of start-up accelerators.

“Any government initiative needs to be underpinned by an existing start-up ecosystem along with strong local support from corporates and their business leaders,” he says. “If a government wants to insert capital into start-ups, it should rely on ‘smart money’ investors with a strong track record of success, as opposed to investing directly on their own.” 

IPA stakeholders should also recognise that while getting start-up founders’ attention might be easy, it does not follow that convincing them to move and expand in a new location is a done deal. Take SoAmpli’s Mr Nadjm. “Receiving the letter [from Ms Yzer] was a nice surprise, but I would not consider moving to Berlin. At the moment, our immediate focus is the UK and North America because of the maturity of the market and the high demand for social media, which is the core of our business,” he says. “But of course, it is always nice to feel wanted by a German senator, considering we started less than two years ago.” 

Whether the letters sent out by Ms Yzer do more than just generate headlines and give UK-based entrepreneurs an ego boost remains to be seen.

This article is sourced from fDi Magazine
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