The world's 3 failed start-up hubs.

The US, UK, Germany, France and Sweden have all excelled in creating nurturing, helpful and well-funded start-up ecosystems there are many more places in the world that have failed tremendously in capitalising on this innovation and talent.

Many countries do not possess the economic strength to invest in a start-up ecosystem that is truly world class, and others do not have the political stability to make a success of it. Some unfortunately have both. There are many nations across the globe that have the luxury of these two fundamental pillars as well as the talent that needs accelerating. In my mind however, there are three stand-outs that by looking within the context of their peers have failed in creating a start-up community that is considered an attraction to that country.

#1 - India

None of these on the list are going to be without contention, as with the first. India is by far one of the countries with the worst poverty conditions in the world, and has at the same time been able to harvest a number of ‘unicorn’ tech start-ups in recent memory; namely the likes of Snapdeal (f.2010), Flipkart (f.2007) and Zomato (f.2008).

Whilst a country generating 9 unicorn status companies would typically be impressive, it isn’t for India; a country with huge economic resources at its disposal and a people who have entrepreneurship in their DNA. India have thousands of engineers, designers, architects and more available, but rather than invest this talent into creating home-grown businesses, they’ve commoditised these services into the world’s biggest agency. Anyone who has tried to find talent through sites like Upwork know that a huge proportion of hireable talent comes from India.

It may be down to the fragmented nature of Indian culture where commonalities like language are not country-wide or perhaps it’s the huge number of people who live in absolute poverty vs those who have a better quality of life. But with a population on the verge of breaking the 1.3bn barrier and the highest growth of smartphones in the world, some would say this is the market to watch if not act on right now. Still, you do not see the same levels of venture capital funding moving into the region, with the vast concentration of funds going into Europe and the US. The Indian government has done very little (at least on a global stage) to promote its businesses’ and continues to tout the success of the above unicorns – with the majority of these over a decade old.

A market like India should be going toe-to-toe with China. It has a faster growing economy than China, and is the only country that can number them in terms of absolute workforce. Whilst the political system in India is not like China’s, there is the same ability to regulate with similar speed, and the government could (and should) be helping businesses by creating a platform of funding and support to help their economy accelerate even further. What’s more, India has one of the worst ratios of workplace equality with a tiny number of women in leadership and / or STEM careers. Whilst China performs marginally better here, it does make a huge difference and contributes largely to why I think India is a failed start-up hub.

Denmark

Countries with small populations tend to punch way above their weight when it comes to service and technology based businesses, but this is not the case with Denmark.

The disclaimer here is that I love Denmark. It’s my most visited destination out of the UK, it’s a GREAT place to do business and I have lots of friends there. However, I wouldn’t start my start-up tech business here if I had the choice.

Denmark is indeed small, but is home to some of the smartest people in the world, and some of the world’s best known brands. Whilst many nations tend to lead in one area or another, Denmark has a presence in most sectors as a world leader. It has a stable economy and is one of the best in terms of equality. They spend a huge chunk of their GDP on R&D, are consistently voted one of the best places to do business in the world, and have one of the strongest most creative communities on earth. So, surely this is recipe for success?

Well, it would if they were not surrounded by equally as impressive countries with seemingly even more to offer. The Nordics alone contribute to 9% of global unicorns, so this is fertile land for the industry, but being surrounded by Germany, the UK, The Netherlands, Norway, Sweden and Finland makes Denmark the cross-roads of the most competitive start-up place in Europe.

As a result, it leaks talent everywhere. Who’d want to stay in 'little' Denmark with all of this opportunity less than 1 hours’ flight away? When you look at the country’s two most famous start-up’s Skype* and Just-Eat, they moved to London the moment they needed scale. Similarly, each were founded more than a decade ago. Since then, Denmark has created some impressive start-ups and when you get on the ground in Copenhagen you see there are even more early-stage companies who have come up with absolutely ground breaking ideas. Danish entrepreneur Morten Lund knows more about this than anyone and is one of the few grandees in Copenhagen desperately trying to make things happen there.

I speak to loads of Danish start-ups, and there seems to be a recurring theme when it comes to founding a company and moving for scale Most commonly:

1.    I’m happy with the size of the Danish market, there’s enough business here: This comes from a cultural mind-set of modesty and reality that taking over the world is not going to only be extremely difficult, but also very stressful. There a hundreds if not thousands of lifestyle businesses across Denmark; affordable rents and a huge consumer base make it very possible to have a perfectly comfortable life opening a restaurant, coffee shop or even small creative agency – but thinking about scale -being the next JUST-EAT or Skype just doesn’t seem to be prevalent. It’s worlds away from the US attitude of ‘go big or go home’.

2.    It’s so hard to get funding: And it’s true. If that aforementioned thinking IS prevalent then the next hurdle to overcome is funding. Denmark is really, really poor when it comes to VC funding, and its angel community isn’t exactly thriving. There are some very very good angels, such as Lars Seier Christensen, Torben Nordal Clausen and Tommy Ahlers out there, but there needs to be a better community. Sunstone capital is one example of a fund that gets absolutely flooded with domestic requests, but then decides to shun its local talent for occasionally calling itself a “Nordic VC” and tapping into that market, and then referencing itself as “Pan-European” when that title suits an upcoming investment opportunity. If one of the leading funds in the country can’t commit to a razor sharp focus on its home market, then what chance does Denmark have of keeping its companies in house?

On the political side, you do have one of the most aggressive taxation systems in the world (all for good socioeconomic benefits, of course), and the country is one that I know most will return to to raise a family once they’ve had their hit business – as the country is a brilliant place to raise children; it’s just not going to be a place that harbours a world-class start-up hub.

(Contentious if Danish – co-founders were Swedish / Danish and developed by Estonians).

Japan

Japan for me seems like it should be the core of the technology world. After all, I grew up in a world dominated by Sony, Honda and Nintendo. Most consumer electronic brands, video game developers and automotive companies came from Japan and it seemed like they were so far ahead they’d be the leaders for many years to come.

Not only have Japan been caught up in all the innovation they created through the 1990’s and 2000’s but they have, in many areas, been surpassed. Sony is a shadow of its former self, and other, smaller companies have retreated back to their domestic market or have died altogether. It’s quite depressing for a country that for so long has been associated with the future.

It’s the same thing when it comes to start-ups. Sony never really harboured a culture of venture investing (although Softbank has certainly caught the bug), and Sony never really encouraged innovation outside of its world. Most would have bet that Japan would have been the leading start-up hub of the Far East, and one of the leaders in the world. Unfortunately, their moment has passed – at least for now – with China and South Korea now storming ahead with start-up investment, governmental support and a growing ecosystem. Both China and South Korea have taken it upon themselves not to fall into the trap of India or Japan, becoming a country of contractors or failing to continue the pursuit of innovation through supporting smaller companies and here we see a great thing happening.

Japan on the other hand has a raft of problems from huge debt to a shrinking population and economy – so I can understand if supporting a start-up economy is not the top priority. However, it becomes a virtuous circle. By supporting start-ups, you begin to combat the very problems that plague the country.

On paper, Japan looks like it should be world-class. It has all the ingredients. But it has the problems of attracting talent outside of its shores, and providing a solid range of investment opportunities from angel, through to IPO. I have no doubt that Japan could solve these problems extremely quickly and have a start-up ecosystem that they could be proud of. But in order to achieve this, I think the biggest issue Japan needs to overcome is that of its regulatory constraints.

As with any of the above three mentioned countries, I do not think that they are failed, forever. On the contrary, history has proven to us that today’s failures are tomorrow’s successes and we could all be seeing budding entrepreneurs flocking to Mumbai to scale their fledgling business. For now, these three (and many more like it) have a lot to do in order to improve.