Why High-Impact Startups Thrive in a Few Global Cities and Not Everywhere

In the global push to boost entrepreneurship, governments have long focused on increasing the number of start-ups. But new research led by the Asian Development Bank (ADB), with inputs from Imperial College, London, Loughborough University, London, Xiamen University, Malaysia, and the South East Asian Central Banks Research and Training Centre, challenges this approach. The report argues that not all start-ups are equal, and more importantly, not all places are equally capable of producing successful ones.

While new businesses are being created everywhere, the most impactful companies, those that grow fast, attract big investments, and create large numbers of jobs, tend to emerge from only a handful of regions. These are known as entrepreneurial "hotspots," and they dominate the global innovation landscape.

Why a Few Cities Dominate Innovation

Cities like Silicon Valley, New York, London, Shenzhen, and Bengaluru are not just popular names; they are engines of global entrepreneurship. These regions attract most of the world's venture capital and produce a large share of high-growth companies, often called "unicorns."

The reason is simple. These cities offer the right mix of talent, funding, infrastructure, and market access. Entrepreneurs in these areas are surrounded by other innovators, experienced professionals, and investors, creating an environment where ideas can quickly turn into successful businesses.

In contrast, many regions may have many small businesses, but very few of them scale up. This shows that having more start-ups does not automatically lead to stronger economic growth.

What Makes a Startup Ecosystem Strong

The report highlights five key factors that explain why some regions succeed while others struggle.

First, knowledge sharing plays a big role. When companies and people are located close to each other, ideas spread faster. Informal conversations, networking events, and collaborations help entrepreneurs learn and improve quickly.

Second, strong talent pools are essential. Successful regions attract skilled workers, experienced founders, and industry experts. This makes it easier for new businesses to hire the right people and grow faster.

Third, access to funding matters. Venture capital firms prefer to invest in nearby companies, allowing them to stay closely involved. This creates a cycle where successful start-ups attract more investors, and more investors attract better start-ups.

Fourth, strong institutions support growth. Universities, research centers, and business support services help turn ideas into real products. They also provide training, mentorship, and legal support.

Finally, digital tools help businesses grow, but they do not replace physical proximity. Even in a digital world, being close to partners, investors, and customers still gives companies an advantage.

Different Models, Same Outcome

Countries around the world have taken different approaches to building these ecosystems. The United States relies heavily on private investment and flexible markets, which allow start-ups to grow quickly. In Asia, governments play a more active role by investing in infrastructure and guiding key industries. Europe focuses more on research and public support but often struggles with scaling companies.

Newer ecosystems in regions like the Middle East and Africa are experimenting with mixed models, combining government support with private entrepreneurship. While progress is being made, many of these regions are still developing the networks and resources needed for large-scale success.

Despite these differences, one thing remains clear: high-impact entrepreneurship is mostly concentrated in large cities. These urban centers provide the density and diversity needed for innovation to thrive.

What Governments Should Do Next

The report suggests a shift in policy thinking. Instead of trying to create more start-ups everywhere, governments should focus on strengthening existing ecosystems.

This means investing in education, research, and innovation networks. It also involves improving access to funding, especially at early stages, and encouraging experienced professionals to return or relocate to emerging hubs.

At the same time, policymakers need to manage growth carefully. Too much concentration can lead to high costs, congestion, and reduced innovation. A balance must be maintained to keep ecosystems productive and livable.

Most importantly, governments should avoid over-controlling the process. Successful ecosystems grow through a mix of support and freedom, allowing entrepreneurs to experiment and take risks.

The Real Lesson for the Future

The key takeaway is simple but powerful. Entrepreneurship is not just about starting businesses; it is about building the right environment for them to succeed.

A small number of regions will continue to lead the global innovation race because they have the right combination of talent, capital, knowledge, and institutions. For other regions, the challenge is not to copy these models exactly, but to build their own strengths and connect with global networks.

The future of economic growth will depend less on how many start-ups are created and more on how many of them can truly scale and make an impact.