New academic research has found that Silicon Valley, often seen as a utopia for startup creation and investment, can breed inequality and sameness among budding entrepreneurs—raising questions on which elements other countries, such as Scotland, should adopt and avoid.

The research appears as a chapter in an anthology called Entrepreneurial Ecosystems in Cities and Regions, and is co-authored by Dr Michaela Hruskova at the University of Stirling and Dr Katharina Scheidgen at Georg-August University in Germany.

The two academics discovered that Silicon Valley’s “uneven” investment landscape is in fact a barrier to many budding businesses.

Those who make it in Silicon Valley are arguably already successful—or have deep pockets and resources—leaving many potential entrepreneurs sidelined, said the authors, making the region a “double-edged sword for entrepreneurs.”

Drawing on 63 qualitative interviews with entrepreneurs and investors in the USA and Germany, they found that Silicon Valley entrepreneurs are typically expected to self-fund the company until they can demonstrate a considerable traction with customers, either through sales revenue or user numbers.

This is in stark contrast to the entrepreneurial ecosystem in Berlin, another leading startup hub for example, which tends to only require a strong team with an investment-worthy idea but where investment activity and startup numbers are much lower.

Investing in a company after it has gained business traction means the risk of failure is lower and return on investment higher, the authors argue. It also means the startups must get more creative in building their company and leveraging resources before they can secure investment.

That said, the researchers suggest non-US countries could still learn from Silicon Valley’s more discerning entrepreneurial ecosystem to be more selective in backing startups.

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“Our research shows that Silicon Valley represents the Olympic Games of the startup world. It is a place that rewards the fittest, a place for those entrepreneurs, innovators, and change makers who have, in a lot of ways, already succeeded,” said co-author Dr Michaela Hruskova, lecturer in entrepreneurship in the University of Stirling Management School.

“Unlike their UK and European counterparts, Silicon Valley entrepreneurs need to achieve significant traction before they even approach investors, often using a founder’s personal savings, to first build a product and generate sales.

“This uneven playing field is a double-edged sword for entrepreneurs. It fosters inequality, particularly among those entrepreneurs from disadvantaged socioeconomic backgrounds, and can lead to homogeneity among startups.”

Dr Hruskova added: “But there are lessons to be learned for other countries from Silicon Valley’s more discerning entrepreneurial ecosystem. Startups there are forced to adopt creative ways to bootstrap their company. A little bit of improvisation can go a long way in entrepreneurship.”