By John Thornhill
To generalise heroically, two big stories have been told about the geography of innovation. The first, popularised by the New York Times columnist Tom Friedman, is that the world is flat: modern technology is so cheap and connected that anybody with internet access can invent a product or service that can scale globally.The second, articulated by Professor Richard Florida from the University of Toronto, is that the world is spiky: innovation takes place in relatively few metropolitan areas, often clustered around a powerful company or university.
Although these stories appear to be contradictory, they may be simultaneously true. Technology may have democratised access to knowledge, enabling a poor teenager in Lucknow to dream up a potentially world-beating idea. But the ability to turn that idea into a global business still depends on networks of people, finance, and organisational resources that remain highly concentrated.
One of the biggest studies of venture-capital-funded deals (an important but not exclusive part of the innovation landscape) would appear to support that double story.
The report from the Center for American Entrepreneurship, co-written by Prof Florida, studied 100,000 VC deals in 300 metropolitan areas between 2005 and 2017. It found that there had indeed been a globalisation of innovation, with vibrant tech centres emerging in China, Europe and India. Silicon Valley’s share of VC-funded deals has dropped from 95 per cent in the mid-1990s to little more than 50 per cent.
However, the top six cities in the world attracted more than half of all VC investment; the leading 24 accounted for more than three-quarters. The most startling trend has been the rise of China, which accounts for three of the top 10 cities by invested capital.
Henry Chesbrough, a professor at University of California, Berkeley, and author of Open Innovation, says that innovation has increasingly moved out of the big, closed corporate research centres, typified by the legendary Bell Labs in the US, into more networked organisations.
Researchers and innovators have benefited from engaging with outside partners, enabling them to pass through the “valley of death” that often lies between research projects and their commercial application. As Prof Chesbrough puts it: “Your lab used to be your world. But nowadays the world becomes your lab.”
Where Silicon Valley excels is encouraging that free flow of people and ideas between research universities and entrepreneurial companies.
Prof Chesbrough says that such fluidity would be regarded as “scandalous” in many European countries. But he is now working with the EU-backed Attract project, including the Cern research institute, to help encourage more open innovation.
Alice Newcombe-Ellis, founder and chief executive of Ahren Innovation Capital, has also launched an intriguing attempt to turn pioneering research in Britain into commercial success with the declared ambition of creating billion-dollar businesses. Ahren has raised $100m of venture capital and partnered with some eminent scientists, including Professor Venki Ramakrishnan, president of the Royal Society.
“We are not just investors, we are builders. We will not just provide patient capital, but active support,” Ms Newcombe-Ellis says.
There are signs, though, that the VC game as we have understood it is evolving in new ways. As the CAE report highlights, the number of VC-funded deals has fallen sharply over the past two years, even if the value has increased.