Tech Entrepreneurs Gravitate to Areas With Strong Social Support Network: Study
Wed, April 21, 2021

Tech Entrepreneurs Gravitate to Areas With Strong Social Support Network: Study

Tech startups drive the economies of cities or countries where they are situated. It forces the economy to evolve by using advanced technology / Photo by: DisobeyArt via Shutterstock

 

Tech startups drive the economies of cities or countries where they are situated. It forces the economy to evolve by using advanced technology, creating new markets or transforming the old markets by introducing products that change the world, helping improve the production of goods and services in the city, and by increasing employment.

Tech Startups and Place to Operate a Business

In a new study titled "Social Networks, Funding, and Regional Advantages in Technology Entrepreneurship: An Empirical Analysis," which appeared in the journal Information Systems Research, authors from the University of Texas at Austin emphasized that tech startups or entrepreneurs gravitate to areas where they have a strong social support network.

By using the economic indicators made publicly available by the US government, demographics, network data, and professional histories from LinkedIn, and the investment profile from PricewaterhouseCoopers and CrunchBase, the researchers analyzed a total of 1,418 entrepreneurs who successfully secured funding to start a business.

Results reveal that tech entrepreneurs are more willing to relocate to areas where they have larger social network density and in areas where they can obtain multiple rounds of “modest” funding. 

Choosing Cities Where Costs May Be Lower

McCombs School’s assistant professor of information, risk and operations management Rajiv Garg, who is also the co-author of the study, cited via research platform Science Daily that if a person is starting a restaurant, large funding and location matter. Yet, if the entrepreneur wants to offer an app to the world, they understand that nobody will give much attention to where their office is located. Instead, tech entrepreneurs are more concerned with areas where costs are lower. This is why they find it attractive to operate in cities like Denver, San Diego, Seattle, and Austin than face the high cost of living and real estate in starting a business in New York City or Silicon Valley.

Results reveal that tech entrepreneurs are more willing to relocate to areas where they have larger social network density and in areas where they can obtain multiple rounds of “modest” funding / Photo by: Jacob Lund via Shutterstock

 

The “Sticky” Effect in Starting a Business

Researchers also mentioned that having a strong social support network will affect the tech entrepreneurs' decision as to where they wanted to operate. For example, the more LinkedIn connections they have in the city, the more likely they are to create an office based there. It’s called the “sticky” effect. If there are more connections in a particular area, this also means that the business can pull the number of talents they needed while keeping them these people in their homeplace.

Role of Angel Investors in Attracting Tech Entrepreneurs

Garg added that “angel investors,” which refers to people who invest in small or new businesses venture and provide capital for expansion and capital, likewise play an important role in attracting the tech entrepreneurs to build their office in a particular city. These venture capital firms are willing to distribute their investment among ten startups than direct all their money to a single startup. 

Garg and colleagues recommend that cities that want to attract entrepreneurs promote social connections through organizations and events, like the megaconference South by Southwest. Startup accelerator and mentorship group TechStars is another example. The researchers pointed out that cities need to draw not the “too young” entrepreneurs but the “young” ones or those in their early 30s. This is because entrepreneurs in such an age range have youthful energy and possess the balance of work experience and maturity to be successful in the job market. 

The authors believe that their findings are important for cities that are already dying or shrinking because of their geographical location. These cities may not be a great hub yet but they can make themselves appealing to the entrepreneurs by following simple steps.

Growing Global Tech Hubs

One of the most popular places for tech entrepreneurs aside from Silicon Valley is Denver, Colorado. In 2017, Colorado was ranked as the fourth among other US states by raising $344.5 million in venture-capital funding. Much of such activity was made possible because of the Denver area, wherein a community of startup founders is starting to reach maturation. 

Tel Aviv, a city in Israel, is another tech hub featured by Business Insider. About 2,900 startups are found in Tel Aviv. Successful companies like Gett (transportation company) and Waze (navigation software) are found in the area. New York is also a growing global tech hub. Its metropolitan area has become a launchpad for tech startups.

Hong Kong is growing into a serious business player in the startup scene. Although the Chinese special administrative region has a relatively small population, its tech ecosystem has improved because of government support, its proximity to mainland China, and a strong financial services sector. Raleigh-Durham in North Carolina has moreover become a popular environment for scientific innovation. The startups in the area are thriving.

In 2018, India ranked first among Asia Pacific countries with the highest number (250) of active tech hubs based on German database company Statista. Other countries included are Indonesia (51 active tech hubs), Malaysia (39), Thailand (38), Vietnam (37), Pakistan (35), Philippines (34), Bangladesh (15), Myanmar (14), Cambodia (14), Sri Langka (14), and Nepal (12).