Five years ago, the European Commission arranged the first meeting of the Accelerators Assembly, a key part of the Commission’s Startup Europe initiative that supports tech entrepreneurs. It was an opportunity for technology entrepreneurs, investors, and other industry players to discuss common challenges and agree on solutions to grow in a European market.
At the beginning of our journey to help European startups, an entrepreneur said to me, “I do not want public money. I would prefer it if you helped me get connected to the right people and prepare a level field for me to grow.” This was a clear starting point: founders wanted ‘smart’ money, the kind that comes with experience, passion and knowledge. This could only be provided by serial entrepreneurs who have successfully launched and sold their own startups, and who are now re-investing in the startup ecosystem. If this is the case, then what role should governments and public administrations play in fostering the entrepreneurial ecosystem for information and communication technology (ICT) growth to thrive?
Startups have a transformational impact on the economy and society, able to impact consumption patterns thanks to their innovative use of technology. For instance, the new ‘sharing economy’ is changing the way people consume limited resources and how they interact within their communities. Startups are also starting to have an impact on net job creation. While only 5 per cent of new firms that survive past the first five years grow, they have a disproportionate impact on job creation, accounting for 21 per cent of the total job creation in the Netherlands to 52 per cent in Sweden, according to recent data from the Organization for Economic Co-operation and Development (OECD).
At the same time, startups operate through new, lean ways of working, characterized by the ability to act swiftly to evolving market forces. Indeed, transformative innovations developed by startups are not necessarily a result of new research or technology, but a direct consequence of dynamic, innovative ecosystems composed of groups of well-connected, like-minded people – such as those found in Silicon Valley and Cambridge.
This has implications for governments seeking to set new policies to foster innovation. The ecosystem should include all the necessary components that allow innovative startups to act and move quickly, such as easy access to capital and talent, minimal bureaucracy, and creating a culture where taking risks is not punished. This ‘act fast’ approach implies that governments will have to adapt to this new reality if they want to play a relevant, positive role in the startup ecosystem.
The main role of governments should be to facilitate the emergence of dynamic ecosystems by working closely with entrepreneurs, investors, corporates, local champions, role models, and other interested players. This would require a shift in the role of public administrations from the comfort zone of doing direct investments and launching large financial initiatives, to a more nitty-gritty action plan, empowering the ecosystem to implement the action plan itself. Government authorities can help startup ecosystem players, and encourage them, but should neither compete with nor replace them.
There is a risk that public administrations might jeopardize startup ecosystems if they pour public money into them, which would compete against money from alternative finance or venture capital. If public money were used to fund startups, instead of ‘smart’ money from experienced former entrepreneurs, this would have a negative impact on startups, who would find their capacity for growth limited due to lack of connections and advice that often comes when serial entrepreneurs have provided the investment. There are, however, some creative ways of financially supporting startups that could have a positive impact. For example, Italy’s Lazio region provides extra funding only to startups that have raised a much higher amount of money from a recognized private investor.
This blog is edited from the ITU News article, ‘New role for governments in the era of ICT startups’, which can be found here.
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