Natural beauty, money and plenty of nerds. It's a recipe which investor Paul Graham detailed some years ago on how cities around the world can transform into the next Silicon Valley. Using Graham's thinking two cities stand out among emerging economies - Santiago, Chile and Cape Town in South Africa.
Both have an attractive quality of life, good universities, easy visa access and it's quick to register a business (one day in Chile and three days in South Africa now - see last week's post).
It puts these two cities ahead of cities in Brics countries with massive markets - such as Russia's Moscow, Brazil's São Paulo and India's Bangalore - which were all ranked among the top 20 start-up locations by Startup Genome in their 2012 Startup Ecosystem Report (13th, 14th and 19th respectively).
Shanghai, which I've included in the table below, did not feature among the top 20, nor does Cape Town. Santiago was ranked 20th.
With the rise in emerging economies a few are trying to work out where the next cool start-up place is. SeedTable (highlighted in this article from City Lab) relies on a database of more than 100,000 technology companies, investors, and entrepreneurs from CrunchBase (a TechCrunch publication) to track tech start-ups in over 150 cities (see below image). Cape Town features prominently, as do the other cities mentioned here.
Cape Town rising
So why Cape Town? The city of 3.8 million is known as South Africa's creative hub and attracts designers, artists and geeks from around the country, in search of the good life that the city has to offer (the mountain, several beaches, wine farms and cultural activities) as well as the chance to interact with like-minded creatives.
The city is also home to Africa's best university (the University of Cape Town) and together with nearby Stellenbosch boasts three other top colleges and universities. It also has a growing number of venture capital (VC) funds - with a third of the country's VC deals originating in the Cape.
Added to this the city has the Bandwidth Barn, one of the country's top incubators, as well as an initiative to turn the city into a high-impact entrepreneurship hub (Silicon Cape) and another to create a better, more connected entrepreneurial ecosystem (Cape Town Activa).
Johannesburg and Gauteng province may generate about half of South Africa's gross domestic product (GDP), but more entrepreneurs in Cape Town (83.7%) perceive themselves to be innovative than those in Johannesburg (62.9%) or Durban (54.8%), according to South Africa's 2013 Global Entrepreneurship Monitor (Gem) report.
Added to this a third of entrepreneurs in Cape Town believe they will employ 20 or more people over the next five years, compared to eight percent in Gauteng and 13% in rest of the country. This says something about Cape Town.
Under the Andes
Ranked in 20th spot by Startup Genome's 2012 Startup Ecosystem Report Santiago, Chile has recently been lauded as one of the new emerging start-up cities in the world.
Chile is the most business-friendly country in South America and Santiago is arguably the safest capital on the continent too. The city of just over six million boasts several good universities and its location at the foot of Andes places it close to several outdoor activities.
The government's Start-Up Chile programme, its recent attempts to create an entrepreneurial ecosystem (by backing incubators, VC funds and angel investor networks) and the passing of a new law last year which makes it possible to register a business in one day, is making the quiet South American country an attractive place to start out.
But it beats the traffic
The downside to operating in Santiago and Cape Town is having to compete in not only small, but highly concentrated markets. Entrepreneurs must therefore scale their respective companies to compete with the rest of the world to avoid being bogged down. The relatively open economies of Chile and South Africa however may enable entrepreneurs to do just this.
But one thing is sure, the emerging economy hubs of São Paulo, Moscow and Shanghai are expensive (São Paulo is the most costly city in South America, while Shanghai and Moscow are among the top 10 most costly in the world).
The quality of life in these hubs is poor. Traffic is a nightmare - especially in São Paulo. And doing business can often be slow going, with heavy bureaucracy competing for top spot with wasting time in poor public transport.
This gives better organised cities on the periphery - like Santiago and Cape Town - an edge over fellow emerging economy cities. Perhaps it's time those tracking things stood up and noticed.
Affordability: Mercer (2014); Quality of living: Mercer (2012); Doing Business World Bank (2013); Tax rate: 2014 Heritage Foundation’s Index of Economic Freedom; City GDP: Brooking Institute (2012); Highest ranked university: www.topuniversities.com.
Stephen Timm writes on small business. Born in Cape Town, he presently lives in São Paulo. Next week he will be in Santiago for a week-long visit.
Stephen Timm is a