With tech start-ups such as Spotify, a music streaming service, valued at $4bn, Rovio, a game developer, with a price tag of more than $2.25bn and WhatsApp, an instant messaging provider, recently sold to Facebook for $19bn, it is only natural that most locations have their eyes set on becoming the next Silicon Valley. But should investment promotion agencies (IPAs) jump on board and help?

Yes, but to an extent, says Micah Gland, CEO of Helsinki Business Hub, the entity in charge of promoting the Finnish capital, which is the birthplace of Rovio and one of Europe's major start-up hotbeds. “As an IPA we need to understand our role. Thriving start-up ecosystems are led by entrepreneurs, not by public sector players. If we try to control or lead, we will end up stifling it.”


Best left alone

While catering to big multinationals, IPAs often roll out their red-carpet services. For start-ups, there is a school of thought that such help should be limited, as these companies are often still at formative stages and might not know what kind of help they actually need.

Start-ups will also typically lack knowledge of how to operate in real market conditions and need time to see how feasible their business ideas are. A recent study by global consultancy McKinsey of nearly 3000 start-ups launched between 1980 and 2012 showed that only 3% saw their total revenues reach $1bn or more in this period, with 72% of these companies failing to cross the $100m mark.

“It is a good idea to leave as much as possible to the market, and support initiatives from within the community that can be self-sustainable,” says Olof Zetterberg, president of Stockholm Business Region (SBR), another major European start-up hub and a home to Spotify.

Opening doors

Where should IPAs channel their help, then? Mr Zetterberg, who as well as running SBR also serves as the chairman of Stockholm Innovation and Growth, a local business accelerator, says that his IPA focuses on matchmaking events, which enable budding entrepreneurs to make the right type of connections and tap into the local business ecosystem.

Mr Gland agrees that contact facilitation is not to be underestimated. SBR sees it as one of the main ways of supporting start-up efforts, especially when it comes to linking new companies with potential investors.

“In 2013, one-third of all investment rounds into Finnish start-ups included international investors. The relationships we develop with these investors allow us to talk to executives of rapidly growing companies about expansion opportunities in Helsinki,” says Mr Gland, whose agency participates in activities arranged by the International VC Zone, a platform linking venture capitalists with start-ups in the Baltic Sea region.

“We systematically build close relationships with start-up investors from around the globe – be it traditional venture capitalists, internationally minded angels or corporate venture groups,” says Mr Gland. “Together [with business incubators and accelerators] IPAs have an important role to play, as long as they remember to let entrepreneurs lead the way."