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Ranking tech entrepreneurialism: the U.S. and Israel ahead of Europe

Ranking tech entrepreneurialism is a tricky task and whatever measure you come up with is going to annoy somebody, but by at least one measure, Europe’s most entrepreneurial country is Ireland. What does “most entrepreneurial country” mean? In this analysis, we looked at Dow Jones VentureSource data on the total amount of venture capital raised by tech companies in each European country since 2003, divided by population to get the per capita figure, then averaged it out over the 39 quarters.

More of a yardstick than a micrometer, it does nevertheless reveal a distinct pattern on the continent: high-entrepreneurial activity in the northwest (especially in the Nordic region), falling away as you go farther east and south.

After Ireland, the next nine are: Sweden, the U.K., Finland, Denmark, the Netherlands, Norway, France, Germany and Switzerland. The bottom three are Croatia, Romania and Bulgaria.

To encompass as much of the continent as possible, we used the European Free Trade Association (the 28 nations of the European Union plus Iceland, Norway, Switzerland and Liechtenstein) as the definition of Europe.

Ireland attracted four times as much venture-capital funding per capita as the European average and a staggering 650 times as much per capita as bottom-ranked Bulgaria. Sweden attracted 3.7 times the European average.

Despite Ireland’s battering during the financial crisis, the country’s tech startups fared relatively well. Of Ireland’s 311 VC-backed deals since 2003, 131, or 42%, came in 2009 or later, VentureSource says. By contrast, the U.K. closed 1,441 such deals, or just 34% of its 10-year total of 4,208, in the post-crisis period. And across Europe as a whole, the past five years account for 39% of the total for the decade.

Ireland’s success derives in part from the country’s favorable corporate-tax rate, which is among Europe’s lowest, said Noel Ruane, European venture partner for Polaris Partners LLP, a Boston-based venture-capital firm with offices and investments in Ireland. But the presence in Ireland of so many tech giants—among them Google Inc.GOOG -0.21%, Amazon Inc.AMZN +0.92%, Apple Inc.AAPL -0.26%, Facebook Inc.FB -1.01%, Twitter Inc.TWTR -2.52% and, most recently, Dropbox Inc.—is at the heart of the country’s ranking, he said.

“You have a young, highly educated population that has participated in huge value creation in these companies,” Mr. Ruane said. “That has whetted and fueled their appetite to do the same on their own.”

He said his company plans to increase its investment in Irish tech companies to $50 million by the end of the first quarter of next year, from $25 million this year.

Rob Moffat, principal at London venture firm Balderton Capital (UK) LLP, was also unsurprised at the top-rated countries. “They are small, trading-driven countries that have a global outlook,” he said. “The average Irish or Swedish entrepreneur is global [in outlook] from day one.”

Commenting on the other end of the table, Mr. Moffat said not too much should be read into Central and Eastern Europe’s underperformance. “It is very early days still. The problem the region has is that it is very diffuse: There are maybe 20 cities that have five or 10 interesting startups in each of them.” Among leading industrial nations, Italy fares worst—just 0.07% of the European per capita average.

However, when we compare Europe with the U.S. and Israel, a far-from-flattering picture emerges. Over the last 10 years, on average, for every $1 raised per capita in Europe, the U.S. raises just under $10 and Israel raises $16.

Worryingly for Europe, Israel and (to a lesser extent) the U.S. are pulling even further ahead. In just the past five years, Israel has raised $23, and the U.S. just over $10, for every dollar raised per capita in Europe. In absolute terms, Israel has raised more venture money in that period than any single EFTA country, and more than the bottom 24 EFTA countries combined.

But Liam Boogar, a commentator on the French startup scene, criticized the analysis. “I am not sure it tells us very much, and what it does tell us isn’t that useful,” he said. “I am much more interested in looking at how many companies start and get a successful exit. That is more interesting and a better measure of entrepreneurial activity.”

As with all such analyses, there are health warnings. First, the very small number of deals in some European countries—single figures in many cases—means results have to be treated with great caution. Further, very small nations (with populations under one million) weren’t included on their own, but were included in the EFTA total.

And while per capita venture capital fundraising is a useful comparator, the uneven distribution of innovation in some countries, especially those in Central and Eastern Europe, may damp their performance. Poland’s startup activity is concentrated in three cities; most of the 38 million population play no role.

Lastly, the position of the U.K. may be anomalous. Many companies that originate elsewhere in Europe are registered in the U.K., inflating its performance and deflating other countries’.

VentureSource records deals from seed rounds through to late-stage funding. Fundraising rounds that include angel investors, wealthy individuals who invest directly in a startup, are counted only when the round also includes at least one venture-capital firm.

Dow Jones VentureSource doesn’t categorize companies as “tech startups,” so the figures are drawn from three of its categories: business and financial services (business-support-services and financial-institutions-and-services subcategories only); consumer services; and information technology. Dow Jones & Co., owned by News CorpNWSA -0.06%, is the publisher of The Wall Street Journal.

Ben Rooney