What Influences an Entrepreneur’s Choice of Startup Location?

The choice of startup location is a critical decision that can profoundly impact its success. Numerous factors come into play when entrepreneurs evaluate potential locations for their ventures. These factors range from access to talent and funding opportunities to regulatory environment and market demand. Additionally, the presence of a supportive ecosystem comprising incubators, accelerators, and networking opportunities can significantly influence a startup’s decision. Cultural factors, such as the local entrepreneurial spirit and attitude towards risk-taking, also play a role in shaping the choice of startup location. Furthermore, geographical proximity to industry clusters and potential partners can provide startups with valuable networking opportunities and access to resources. Overall, the interplay of these various factors contributes to the complex decision-making process that startups undergo when selecting the regions in which to establish their operations. Hence, this UCLA Anderson Review article highlights a few critical factors that influence an entrepreneur’s choice of startup location.

According to the article, Silicon Valley is renowned for hosting numerous successful startups, including foreign-born unicorns like Waze and Grammarly. The prevailing belief is that these startups are attracted to the region due to its vast talent pools and access to a significant customer base in the U.S. However, a study published in the Strategic Management Journal challenges these assumptions. The research, conducted by Yuan Shi, Olav Sorenson, and David M. Waguespack, suggests that migrating startups are primarily driven by the potential to raise more capital, rather than clustering around similar firms or geographical hubs. Contrary to popular belief, the study reveals that there is no single dominant destination for migrating startups. Instead, their choice of startup location is heavily influenced by funding sources. 

Interestingly, the study finds that emigrating firms raise substantially more venture capital than those that remain in their home countries, with an average of $60 million raised by movers. Despite the perception of widespread international moves among startups, the study indicates that such occurrences are relatively rare, with only 1.4% of ventures relocating internationally after receiving funding. The research, drawing from a comprehensive database of nearly 76,000 venture-backed firms, offers valuable insights into the dynamics of startup migration and the underlying factors driving these movements.

There are several factors that influence the choice of startup location for most of the entrepreneurs. Read through the preceding text to get to know the most important one.