Startups: The Foundational Origins of Contemporary Innovation Districts

John H Howard, 11 November 2025

This Innovation Insight draws on the case studies covered in the recently published Handbook of Innovation Ecosystems by the Acton Institute for Policy Research and Innovation

Across the world's innovation districts, startups serve as primary engines of growth, but as the case studies make clear, the districts themselves constitute the broader infrastructure that sustains them. This distinction matters: understanding where and how startups originate requires examining the ventures themselves and the specific conditions that enabled their emergence.

While every district champions innovation, the birth, journey, and impact of their startups tell a distinctive tale about the culture and strategy of the place they call home. A startup's origin story shapes its trajectory, and an examination of these beginnings reveals that they are born from different crucibles. Understanding these foundational models is crucial for any nation, including Australia, that seeks to build a resilient and competitive innovation landscape.

Four Foundational Models

Across leading innovation districts, precincts and hubs, we can identify at least four genesis models for startups. Each model creates a distinct ecosystem with unique strengths, challenges, and cultural dynamics.

The Academic Cradle

In places like Cambridge, Zurich, and Pittsburgh, startups are often the direct offspring of university research. The Cambridge Cluster is a celebrated example, where the journey from laboratory to market is ingrained in its DNA. The creation of ARM, whose processors now power over 90% of the world's smartphones, began as a project at Acorn Computers, a company founded by Cambridge alumni.

Similarly, Switzerland's Innovation Park Zurich is a hothouse for deep-tech ventures spun out of ETH Zurich. Companies like Climeworks, which developed new technology to capture CO2 directly from the atmosphere, were born from university research.

In Pittsburgh, the city's AI-Robotics corridor was sparked by the Three Mile Island nuclear crisis, which prompted a Carnegie Mellon professor to build the first cleanup robots, eventually leading to spinoffs like Astrobotic, a leader in space robotics.

These ecosystems excel at translating complex science into new companies.

The Government Blueprint

This is where startups are cultivated through deliberate, top-down state industrial strategy.

South Korea's Pangyo Techno Valley was transformed from farmland into "Korea's Silicon Valley" through a meticulous government plan. This purpose-built district became the launchpad for gaming and IT giants like Krafton, the developer of PUBG.

Station F in Paris, the world's largest startup campus, was conceived by a single visionary, Xavier Niel, but its success in nurturing unicorns like the AI company Hugging Face is inseparable from the French government's support for the tech sector.

22@Barcelona and comparable districts have benefited from the strong visions and support of metropolitan governments. In many cases the impetus comes from urban renewal and industrial transformation imperatives.

These districts demonstrate that with strategic investment in infrastructure and programming, a thriving startup scene can be engineered.

The Corporate Spinoff

This is where new ventures are born from "corporate fission" within established giants.

The story of Brainport Eindhoven in the Netherlands is inextricably linked to Philips. As the electronics giant restructured, it spun off what would become ASML, now Europe's most valuable technology company and the world's leading supplier of semiconductor machinery. This single act seeded an entire deep-tech ecosystem, turning the region into a global semiconductor hub.

This is a more structured, industrial form of the "Fairchild effect" seen in Silicon Valley, where the departure of the "Traitorous Eight" from Shockley Semiconductor led to the founding of Fairchild Semiconductor, which in turn spawned giants like Intel.

A Cultural Uprising

Growing organically from the ground up, fuelled by culture, affordability, and a touch of rebellion.

The emergence of Tokyo's "Bit Valley" in the Shibuya district was not the result of a government plan; it was due to the area's youth culture, music scene, and lower rents, which attracted young founders who did not fit into the city's traditional corporate world. Companies like CyberAgent and DeNA began in small Shibuya offices, creating an internet and mobile gaming hub driven entirely by the private sector.

Likewise, Berlin's "Silicon Allee" flourished in the abandoned buildings of the Mitte district after German reunification, offering affordable space for creative and tech ventures long before it became a formal innovation corridor. In these places, culture, not a committee, was the original catalyst.

The Silicon Valley Anomaly

No discussion of startup origins is complete without addressing the special case of Silicon Valley. Despite numerous attempts worldwide, its success has not been perfectly replicated This is because its rise resulted from a specific convergence of forces at a particular moment in history. It uniquely fused all four foundational models simultaneously. It had:  

• The academic cradle of Stanford University, which encouraged the commercialisation of research.

• The corporate spinoff culture sparked by Fairchild Semiconductor, which became a talent factory that seeded dozens of new ventures.

• A large government catalyst in the form of Cold War-era defence and NASA spending, which funded high-risk research and development on a large scale.

• A cultural uprising built on an ethos of risk-taking, where business failure was seen as a learning experience rather than a stigma.

The principles developed there have become a global template, but the conditions enabling their emergence are historically contingent. Silicon Valley's ascendancy resulted from the alignment of the elements at a moment when venture capital infrastructure, defence spending, and cultural attitudes toward failure converged irreplaceably.

Subsequent districts cannot recreate these exact conditions; rather, they must identify equivalent local factors that provide comparable catalytic effects. The challenge lies in creative translation, not in replication.

The collaborative link between universities and industry, pioneered by Stanford, is a universal goal, as seen in the relationship between MIT and Kendall Square or the three universities anchoring Research Triangle Park. The entrepreneurial culture of risk-taking is what districts from Beijing's Zhongguancun to Austin now strive for.

The continuing attempts to replicate Silicon Valley persist because even partial success—revitalising a neighbourhood, creating jobs, or establishing a national lead in a key technology—is a significant achievement for any city or nation.

The Gravitational Pull of Anchor Tenants

The long-term success of an innovation district typically requires gravitational stability, though the source of this stability evolves with the ecosystem's maturity.

Early-stage districts are often characterised by distributed networks of firms and a range of community factors. As these ecosystems mature and formalise, a dominant anchor tenant often emerges to consolidate activity and provide institutional stability and credibility.

This evolution from distributed to anchored structure represents an evolutionary progression rather than a prerequisite. In addition, the nature of this anchor tenant differs significantly depending on the ecosystem’s foundational model, providing the stability required for a startup scene to mature into a sustainable cluster.

• In the Academic Cradle model, the university is the quintessential anchor. Institutions like Cambridge, ETH Zurich, or Carnegie Mellon are sources of research and magnets for brilliant minds, providers of specialised infrastructure, and a constant pipeline of new talent and ideas. They offer the long-term stability and credibility that allows a surrounding ecosystem of high-risk startups to take root and grow.

• For districts born from a Corporate Spinoff, the parent company acts as the initial anchor. Philips in Eindhoven and Fairchild Semiconductor in Silicon Valley provided the critical mass of technical expertise, market knowledge, and experienced managers that seeded their respective ecosystems. Even after spinoffs are established, the ongoing presence of large corporations provides a market, a source of talent, and a benchmark for the entire region.

• In a Government Blueprint model, the anchor is often a creation of the state itself. This could be a purpose-built campus like Station F in Paris, a national research laboratory, a major teaching hospital with affiliated medical research institutes, or a major state-backed business enterprise. The government uses its resources to create a centre of gravity that would not otherwise exist, providing the foundational infrastructure and legitimacy that attracts private sector investment and entrepreneurial activity.

• The Cultural Uprising model is the exception, as these ecosystems often begin without a single, formal anchor. Their initial gravity comes from a collection of smaller firms and cultural factors, creating a more distributed network. Over time, however, a highly successful startup that emerges from this scene can evolve to become the new anchor tenant, attracting the next generation of founders and solidifying the district’s status.

The China Behemoth: A State-Driven Model

China presents another special case in the global innovation landscape, with districts that operate on a scale and at a speed rarely seen elsewhere. Unlike the more organic evolution of their Western counterparts, China's innovation hubs are acts of economic engineering, driven by a deliberate, top-down state strategy.

They are instruments of national policy designed to transform the country from the "world's factory" to a global innovation leader. Here, the state is not just a facilitator; it is the master planner, primary investor, and strategic director.

Shenzhen is the prime example. It’s expansion from a fishing village of 30,000 in 1980 to a city of over 1 million within a decade exemplified the state's capacity to rapidly urbanise and industrialise targeted zones

In Beijing's Zhongguancun an idea can become a prototype in hours. A semiconductor facility for SMIC was built in a record 13 months. Shanghai's Zhangjiang Park is the nucleus of China's semiconductor industry, a direct response to geopolitical tensions. This state-guided entrepreneurship creates a distinct culture, a "symbiotic relationship with the state" that provides everything from subsidies to talent pipelines.

The approach can nurture the "maternal fission" model as in Hangzhou, where the government strategically supports spinoffs from giants like Alibaba, and the evolution of "shanzhai" (copycat) culture into a form of rapid, iterative innovation.

These districts are crucial components of the nation's strategic goals, particularly achieving technological self-sufficiency and reducing reliance on foreign technology. The story of China's startups is less one of garage tinkering and more one of strategic creation on an unprecedented scale.

Beyond the Models: Acknowledging Complexity

The 'four models' framework might be considered an oversimplification because it overlooks decades of established economic theory that provides a more detailed explanation for how innovation hubs thrive.

• Concepts like cluster theory, popularised by Michael Porter, would suggest that success comes from a geographic concentration of interconnected companies, specialised suppliers, and institutions. This co-location advances competition and cooperation, leading to greater innovation through knowledge spillovers and access to a skilled labour pool.

• Similarly, the theory of agglomeration economics would contend that firms cluster to reap the benefits of density, such as shared infrastructure and the informal exchange of ideas. From this viewpoint, the four models might seem to ignore the powerful, ongoing economic forces that sustain these districts long after their initial creation.

• Critics could also cite path dependency, arguing that a region's history dictates its future, and that focusing on a single "birth" misses the crucial context that made it possible.

While these economic theories are indispensable for understanding the mechanics of regional economies, the modern startup phenomenon has unique characteristics that warrant a more focused framework.

The four models do not replace cluster or agglomeration theory but complement it by explaining the specific start-up catalyst that ignites a startup ecosystem geared towards the technologies of the future. The venture-backed, high-growth firm aiming for rapid scale is a different economic actor from the traditional businesses on which much of cluster theory was based.

These startups operate in emerging industries like AI, biotech, and software, which have different dynamics and are more reliant on intangible assets, such as intellectual property and specialised talent. The speed and scale of change are also different. The velocity of development in places like Shenzhen represents a different rhythm of economic activity.

The models presented here help to capture the specific initial conditions—the 'spark'—that enable this kind of accelerated growth. While academic theories offer a rich explanation of why clusters work, these models provide a practical narrative about how they can get started, offering tangible pathways for policymakers and practitioners to follow.

Charting an Australian Course

For a nation like Australia, the scale and state-driven speed of China's innovation model can appear formidable. Australia cannot and should not try to compete on those terms. Instead, it can carve out a globally significant role by playing a different, more focused game, leveraging its distinctive research capabilities and emerging market opportunities.

1. Australia must concentrate commitments in areas of established competitive strength and strategic opportunity.

Rather than spreading resources thinly across unfamiliar terrain, policy and investment should target sectors where Australia possesses either demonstrated commercial success or distinctive research capability aligned with accelerating global demand. Some areas represent proven ecosystems; others represent carefully chosen bets where Australia's capabilities position it advantageously as markets develop.

• Established ecosystems with demonstrated commercial and global scale:

Biomedical and health technology remains Australia's strongest area, with Melbourne's Parkville Biomedical Precinct being the largest in the Southern Hemisphere, having seen the creation of numerous biomedical, pharmaceutical and medical device companies. Similar strength exists at Monash-Clayton, Camperdown (Tech Central), Randwick Health and Innovation Precinct, Herston Health Precinct (Brisbane), Adelaide's Biomed City, the emerging Floreat Biomedical Precinct in Perth and the Gold Coast Health and Knowledge Precinct.

Software and digital platforms constitute Australia's second proven success area. Companies including Atlassian and Canva have achieved global scale, demonstrating Australia's capacity to build internationally competitive ventures in this domain. Expanding this ecosystem through sustained venture capital access and continued concentration in Sydney and Melbourne represents a lower-risk investment yielding measurable returns.

Advanced manufacturing capability spans Geelong's carbon fibre and materials science capabilities at Deakin, Tonsley's robotics and energy systems integration in Adelaide, Brisbane's Advanced Robotics Manufacturing Hub linking defence and civilian applications, Henderson's naval shipbuilding and maritime engineering through the Australian Marine Complex, and Bradfield's aerospace-logistics nexus in Western Sydney. Together, these districts create complementary capabilities that can attract global partners seeking stable, digitally enabled production networks across strategic sectors. 

• Emerging opportunity areas with distinctive Australian competitive advantage:

Space, defence, and cyber security represent higher-risk but strategically significant opportunity. Lot 14 in Adelaide functions as a dedicated space and defence hub, complemented by the Australian Space Agency's relocation to the state. The Canberra Ecosystem concentrates quantum computing and cybersecurity research through UNSW (Canberra), the ANU, CSIRO's Data61 and other university partnerships.

Whilst Australia has not yet produced global startups of the scale seen in biotech, these sectors face accelerating global demand and Australia's research institutions hold legitimate competitive position.

Quantum computing and AI technologies position Australia at the frontier of emerging fields. Globally, these are rapidly growing areas, meaning significant investment by Australia could establish disproportionate influence as industries develop. However, outcomes remain uncertain and require patient capital, extending well beyond typical venture funding timescales, and fundamentally, long-term government commitment.

Renewable energy and climate technology similarly represents emerging opportunity aligned with Australia's natural advantages in solar resources and research capability. Global investment in this sector is intensifying, although Australian startups have not yet achieved the scale of international competitors. The approach being taken is a deliberate investment in developing future capability rather than leveraging current dominance.

The sectors identified above have been singled out because they combine three essential criteria:

• Demonstrated research capability within existing Australian institutions

• Genuine acceleration in global market demand

• Realistic prospects for commercial development within the timeframe policymakers can influence.

This is not an exhaustive list of all national strengths and opportunities. Australia could pursue global innovation ambitions across many other sectors. For example, Environmental monitoring and agricultural technologies in food, fibre and the bioeconomy represent areas where national strengths exist and global opportunities beckon.

Other aspirational areas warrant monitoring and selective support but should not dilute the concentrated investment required to move Australia from promise to proven global participants in these chosen domains.

Australia has long experience with the Vegemite problem, where resources are spread too thinly to develop capacity across too many frontiers simultaneously, and typically develop strength in none. The investments required to bring many of these ambitions and aspirations to life run into billions, not millions.

While it is possible to tap into the “off-budget” funding for Future Made in Australia, the National Reconstruction Fund, Renewable Energy, and Net Zero, this approach is far from optimal for policy and strategic planning and focused long-term commitment..

2. Australia must fix its fragmented governance model.

One of the weaknesses identified in Australian districts is the "intricate maze of state agencies, local councils, and statutory authorities" that hinders coordination. In particular, Australia must adopt more cohesive frameworks, learning from global best practices, such as the "triple helix" model, which ensures a foundation for a long-term vision.

3. Australia should lean into "Trusted Tech" as a competitive advantage.

In a world of increasing geopolitical tension, Australia's position as a stable, democratic nation with a strong rule of law is a significant asset that differentiates it from China.

Australia's stable institutional framework and democratic governance provide a potential competitive advantage in attracting international partners in sensitive sectors, though this positioning requires deliberate cultivation through governance innovation and international partnership strategies.

In areas such as AI, quantum computing, and genomics, being a secure and ethical partner is a powerful advantage that can attract international collaborators and investment.

4. Cultivate patient capital and a long-term vision.

World-class innovation districts are not built overnight; they require decades of sustained commitment. The growth-stage capital gap is a critical weakness in Australian ecosystems. Policy should focus on adapting models that provide this crucial long-term funding, whether it is the university-backed "patient capital" seen in Cambridge or the government-supported venture funds spun out of Toronto's MaRS Discovery District.

This means treating innovation district funding as a multi-generational project and a long-term journey toward national prosperity. The short-term stimulus approach, with small amounts of money, must be avoided.

5. Australia must address the scale-up conundrum  

A critical challenge is the volume of capital. The highly attractive returns from property investments, together with the fiduciary restrictions on the use of superannuation funds, have throttled the size of capital needed for deep technologies, especially in hardware, but even in driving software success, where Unicorns like Atlassian and Canva are fully reliant on overseas capital. This is Australia’s scale-up conundrum.

Australia faces a critical scale-up challenge that threatens to export its most promising innovations. Despite waves of successful start-ups, the nation's venture capital investment remains 15 times lower than the United States as a percentage of GDP. For too many Australian entrepreneurs, this has meant taking their innovations overseas to fully commercialise. Atlassian and Canva have demonstrated Australian entrepreneurial capability but have relied almost entirely on offshore capital to achieve scale. These pressures continue as start-ups enter the growth cycle.

The $4.2 trillion superannuation system is an underutilised strategic asset. However, current prudential standards, intended to safeguard retirement savings from excessive risk, don’t accommodate the delay that usually occurs between the initial investment required to develop and the breakthrough opportunity idea and the payoff. Also, fees and costs of due diligence are not considered alongside the returns that such investments can generate. These costs, relating to cutting-edge science and technology, can be significantly higher than for other asset classes, resulting in opportunities faltering at the first hurdle.

Meanwhile, universities and research organisations should continue to explore new forms of financing for translational research infrastructure, such as public-private partnerships and leveraged finance. In addition, high-net-worth individuals, family offices and philanthropists have a role in preventing Australian ownership in potentially high-growth deep technology businesses from migrating offshore. Many are intensely committed to this.

However, without coordinated action from both institutional super funds and private capital sources, Australia risks becoming merely an incubator for innovations that mature under foreign ownership, thereby sacrificing both economic returns and strategic capabilities to overseas interests.

By understanding the diverse ways startups are born and ecosystems are built, Australia can move beyond the shadow of global giants. It can establish itself as a vital, high-value, and trusted hub in the global innovation network by strategically playing to its own considerable strengths to build a competitive advantage. We know from a business context that "comparative advantage" thinking and copycat strategies through attempted replication rarely deliver lasting value.

Decisions to create those strengths, as demonstrated by Singapore, must be taken with clear vision and workable plans, dedicated allocation of infrastructure, knowledge, and financial resources, long-term policy commitment, and cross-jurisdictional institutional support.