Assessing the attraction of cities on venture capital from a scaling law perspective

TL;DR

This paper uncovers a nonlinear scaling law between venture capital activities and city size in China, proposing a residual metric for unbiased comparison and revealing distinct urban development patterns.

Contribution

It introduces a scale-invariant residual metric for VC activity analysis and demonstrates nonlinear scaling relationships in Chinese cities, advancing understanding of urban innovation dynamics.

Findings

Nonlinear scaling relationship between VC and city population

Residual metric effectively distinguishes local effects from scaled growth

Identification of three city groups with distinct VC development trends

Abstract

Cities are centers for the integration of capital and incubators of invention, and attracting venture capital (VC) is of great importance for cities to advance in innovative technology and business models towards a sustainable and prosperous future. Yet we still lack a quantitative understanding of the relationship between urban characteristics and VC activities. In this paper, we find a clear nonlinear scaling relationship between VC activities and the urban population of Chinese cities. In such nonlinear systems, the widely applied linear per capita indicators would be either biased to larger cities or smaller cities depends on whether it is superlinear or sublinear, while the residual of cities relative to the prediction of scaling law is a more objective and scale-invariant metric. %(i.e., independent of the city size). Such a metric can distinguish the effects of local dynamics and scaled growth induced by the change of population size. The spatiotemporal evolution of such metrics on VC activities reveals three distinct groups of cities, two of which stand out with increasing and decreasing trends, respectively. And the taxonomy results together with spatial analysis also signify different development modes between large urban agglomeration regions. Besides, we notice the evolution of scaling exponents on VC activities are of much larger fluctuations than on socioeconomic output of cities, and a conceptual model that focuses on the growth dynamics of different sized cities can well explain it, which we assume would be general to other scenarios.