Every budding founder is dreaming the start-up dream of becoming the next Biontech or N26, turning their back-garage project into a unicorn, exceeding $1bn in private market valuation. Owing to the technological advances and the many jobs being created, economic ministers have also set their sights on start-ups, seeking to further start-up creation in their jurisdictions. The magic formula, by which the now aligned interests of founders and ministers should become a reality, is by having an “entrepreneurial start-up ecosystem”.
The problem only is that start-up ecosystems are not a particularly well understood notion. What constitutes such an ecosystem? Why are they important, and what makes them successful? There isn’t an agreed upon definition of a start-up ecosystem, but speaking to founders, similar ideas emerge again and again: access to finance, a highly skilled workforce – and its related knowledge and know-how – physical infrastructure, business networks and start-up communities. The latter being considered crucially important by start-up’ers.
As a community of like-minded people freely sharing ideas and experiences develops, leading in practice to dedicated start-up hotspots that attract founders at increasingly faster rates, the more word about them spreads. This is closely linked to the aspect of infrastructure – be that techno-parks, co-working spaces or — in the digital era — 5G broadband and data crunching facilities.
Talent is as self-explanatory as finance: that is a vibrant ecosystem of institutional and corporate venture capitalists, government-backed funding, and business angels.
Despite the nebulous nature of start-up ecosystems, there is a working template at hand. Trade and investment promotion as well as regional development agencies, which are seeking to enhance their nations’ existing characteristics, do this through business support, advice, mentorship, and dedicated infrastructure. In their case, this is to attract FDI.
There isn’t a big step from special economic zones to start-up incubators. Networking, linkage and up-skilling programmes are well-honed skills of those agencies. Aftercare services, seeking to encourage the growth of existing firms, also offer a skill set that perfectly fits the task at hand.
Maybe the most important characteristic shared by both start-up ecosystems and these agencies is a long-term orientation in setting up and nurturing the knowledge, know-how and network contacts embedded in them. In fact, the argument could be made that these agencies should eagerly embrace start-ups, given the temporarily collapsing volumes of FDI-inflows and the much-discussed spectre of de-globalisation and decoupling.
Martin Kaspar is head of business development at a German mittelstand company in the automotive industry.
This article first appeared in the August/September print edition of fDi Intelligence. View a digital edition of the magazine here.