AI Reshapes Startup Ecosystems Around The World, Despite the Funding Winter

Forbes

11 hours ago

Silicon Valley is still the number one startup ecosystem in the world, thanks to its leadership in the creation of AI-native startups, according to The Global Startup Ecosystem Report 2025, produced by Startup Genome. It is home to 22% of all AI-native startups worldwide, greatly outdistancing most other ecosystems, the researchers found.
New York City, tied with London for second place for the past four years, gained ground on the list, pushing London to third place.
Startup Genome is an innovation ecosystem development organization that collaborates with economic and innovation ministries in 65 countries. The annual report, first published in 2012, examines 40 startup ecosystems worldwide.
The findings reflect a surge in AI and Big Data, now the fastest-growing sub-sector. The industry saw a 33% increase in VC funding and now garners 40% of all global VC investment, up from 26% in 2021, according to the report.
Cities that want to foster job creation need to embrace policies supportive of a strong tech ecosystem sooner rather than later, according to JF Gauthier, founder and president of Startup Genome.
"A lot of people are unhappy because they were doing well in their job, their city was doing well, and suddenly they're doing less and less well, and they don't know why," says Gauthier. "They blame the government, but it's not the government's fault; it is that tech is growing four to five times faster than the rest of the economies, those cities that have a lot of tech are booming, and that creates a lot of disparity. Those cities that don't have a lot of tech are losing their best engineers, their best people."
Rounding out the top 10 in the ranking were (4) Tel Aviv, (5) Boston/Beijing (tied), (7) Los Angeles, (8) Seoul, (9) Singapore, and (10) Shanghai.
The list also suggested where much of the startup activity around the globe in the next few years will take place.
Paris rose two positions on the list to number 12; Philadelphia jumped 12 ranks to number 13; Bengaluru-Karnataka in India rose seven positions to number 14; and Seattle jumped five points to number 15. Hong Kong surged to number 27 globally, rising off the list of emerging ecosystems.
It's not only AI that's powering the trend. Two other fast-growing sectors are life sciences, with total deal amounts rising by 17%, and cybersecurity, with a 4% increase, the report found. Cleantech is declining, with a 40% drop in total deal amounts, while edtech has shrunk by 57%, as investors have looked to other sectors for opportunity.
Among other key findings:
The total value of startup ecosystems worldwide has declined sharply for the first time since 2020. The trend began in 2022, as early-stage funding declined in deal count and total amount. There were 13,215 early-stage funding deals in 2021; by 2025, only an estimated 4,020 more are expected, according to Startup Genome.
Some regions suffered disproportionately from the decline in value. Asian and sub-Saharan African ecosystems declined by 17%, while Latin America startup communities reported an aggregate drop of 45%, Europe 24%, the MENA region 22%, Oceania 19%, and North America 18%.
The number of large exits declined by 31%, with the number of unicorns dipping, too. Exits above $50 million peaked in 2021, with 3,531 exits valued at $973 billion. For 2025, Startup Genome projects 3,008 exits valued at $237 billion. Inflationary valuations following the pandemic contributed to the trend, making it challenging for startups to recreate a similar lift in value now, the report states.
It remains to be seen which ecosystems, beyond the largest ones, will make the most of the trend toward AI-native startups. In Delhi, Istanbul, Paris and San Diego, the number of AI-native startups more than doubled from 2021 to 2024, the research found.
However, ample funding will be a factor in many ecosystems. Currently, 90% of AI funding is concentrated in the US and China, the researchers noted. Toronto-Waterloo, Shenzhen, Shanghai and Mumbai saw a more than 10-fold increase in AI-related financing between 2022 and 2024.
Also unclear is how successfully AI-native startups will monetize their business models. "Everybody is trying different things, and we don't know where it's going to go," Gauthier says.
But Startup Genome projects that some business models now common in the startup world, like software-as-a-service (SaaS) companies, may become dated. The report compares them to the packaged software companies that died after the browser Netscape launched in 1994, helping to usher in the internet era.
"You need to start with AI," says Gauthier. "If you start a SaaS company right now, you're going to get killed by an AI-native startup product because they're going to do what you do, plus 100 other things, and then do them faster.
To help more ecosystems take full advantage of AI in job creation, Startup Genome is creating an entrepreneurial policy action alliance that calls upon leaders of countries' ministries of innovation, economic development, and other city and public agencies. The goal is to encourage them to support homegrown AI startups rather than purchase infrastructure.
"You need to act; you need to start investing massively, as much as much as you can, into an entrepreneurial AI because buying infrastructure is just sending more money to Seattle and Silicon Valley," says Gauthier. "If you invest in your AI entrepreneurs, you're creating a loop, you're supporting AI startups that will export, will attract foreign direct investment that will hire talent and give them experience."
Although some of the bigger ecosystems are spawning the most startups, there is plenty of activity in the emerging ecosystems Startup Genome ranked, as well.
Nomiki Petrolla is running her startup, theanna.io, a data-driven social network for women founders, ... More in Columbus, Ohio, a fast-growing startup hub.
One such ecosystem is Columbus, Ohio, which is tied for 51st through 60th place with US cities such as Nashville, Pittsburgh, Sacramento, and Tampa Bay, as well as internationally with Abu Dhabi, Bangkok, Bogotá, Chengdu, and Prague.
Nomiki Petrolla leads theanna, a data-driven social network for women founders based in Columbius. Petrolla, also mentor in the prestigious Techstars accelerator, started theanna.io in February 2024 and has attracted more than 150 members paying $99 a month as she continues to scale up.
With the business picking up traction, Petrolla is focused on her next challenge: "How do we turn that small ripple we've created into something bigger?" It's a question that many entrepreneurs in startup ecosystems around the world will be asking themselves in the next few years, as AI and other trends bring new opportunities.