For the first time, Waterloo Region's startup ecosystem has landed among the top 20 in the world on an annual list compiled by The Startup Genome and Telefónica Digital.

Waterloo placed 16th among 20 global locations, just behind Berlin and ahead of Singapore, according to the Startup Ecosystem Report 2012.

"We're absolutely thrilled to find ourselves on this list of the world's leading startup communities," said Iain Klugman, CEO of Communitech, the organization that supports startups and high-growth tech firms in Waterloo Region, which now counts more than 1,000 companies. "We look forward to moving up in the rankings as we work to meet the challenges laid out in the report."

Citing Waterloo's "close proximity and density of universities," the report made note of the quality of talent flowing into our tech companies, but warned that "it will be crucial for Waterloo not to allow a brain drain."

The report also noted "a healthy distribution of certain attributes" of the ecosystem, but said "a massive funding gap in the second developmental stage," namely, product validation, makes it a challenge for our companies to grow on home soil.

To the surprise of no one, Silicon Valley topped the list, followed by Tel Aviv, Los Angeles, Seattle and New York City to round out the top five. Elsewhere in Canada, Toronto and Vancouver ranked eighth and ninth respectively.

While the Valley remained on top, the report's authors said this year's findings suggest "it no longer wields the power and influence it once did," and that other centres are beginning to challenge its supremacy when it comes to tech innovation.

The report is based on feedback gleaned from more than 50,000 entrepreneurs who use the Startup Compass, a benchmarking tool that helps early-stage companies evaluate themselves against other startups by comparing key performance data.

The Startup Compass is a product of the Startup Genome, an initiative inspired by a 2010 Kauffman Foundation study that showed that startups were leading job growth in the United States.