articleposted 29 December 2021

Three Ways For Startup Ecosystems to Innovate For Growth

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The startup ecosystems are growing in every corner of the world. Ambitious entrepreneurs appear everywhere, and they’re keen to find unique ways to solve the world’s problems. But innovative ideas can only be executed within a system built to nurture them. Startups need a favourable and supportive environment to create a long-lasting impact on the local and global economy. 

Before looking at the success reasons of the top-tier ecosystems like Silicon Valley in the USA or Startup Nation in Israel, let’s begin with an overview of what makes a startup ecosystem. One typically consists of:

  • Startups

  • Investors

  • Academia

  • Big corporations

  • Associations and membership-based organizations

  • Entrepreneurship programs, accelerators & incubators

  • Government

But how an emerging ecosystem can get all of these to thrive?

To find this out, let’s take a look at Cyprus. Its startup community is just beginning its journey, being only 57th among the top 100 startup ecosystems globally. Israel, for comparison, is the 3rd one according to that same report.

Establishing the ecosystem in Cyprus first required reaching a critical number of ventures launched on the island. But without the other core ecosystem components, the challenges Cyprus faces are typical for rising startup communities: a shortage of tech talent, lack of funding, and a small local market.  

Yet when the competition for resources is fierce and reaches the global scale, startup ecosystems can’t stand still or blindly follow the practices of their predecessors. This makes innovation the only way for a new and small-sized ecosystem to accelerate its growth. So how can one innovate in those three areas?

Public Initiatives For Talent Shortage Tackling

Educational institutions play a fundamental role in nurturing local talent and setting the next generation of entrepreneurs, managers, and engineers. That’s why local Ivy League schools have been so crucial in forming today’s Silicon Valley.

But not so many countries focus on making education so advanced it notably accelerates business growth. Cyprus, for one, doesn’t have enough tech universities yet, so the shortage of talents here will remain at least for the next few years. To overcome that, the country’s government seeks ways to make the region more attractive for technically skilled people from abroad by simplifying the immigration rules and methods to obtain visas and get residence permits. 

Establishing a growing flow of digital nomads, investors, and entrepreneurs helps the local ecosystem grow sustainably. Take, for example, Estonia. After introducing digital nomad visas in 2014 and e-Residency in 2015, the number of Estonian startups grew from around 250 to 1100. Of course, other factors such as friendly immigration policy and investment program patronage count in here. Still, the fact is that by now, over 82 thousand people have obtained Estonian digital IDs to work for the tech businesses and startups established within the country’s economic area.  

Holistic Approaches For Funding Source Generation

Building a large investor community requires a holistic approach both from the private sector and the government to attract and incentivize venture capitalists and inform them about new funding opportunities. The key objective here is increasing the capital available for seed investing by converting non-active investors into active ones and stimulating them to fund more startups. Also, this can be achieved by engaging retail investors into the educational programs about venture capital, to provide them with a broader picture of investment opportunities.

In 1993, the Israeli government established Yozma Venture Capital to infuse the domestic ecosystem with funding from abroad and enforced a stipulation to back each startup investment from three parties: a foreign venture capital firm, a local venture investor, and an Israeli investment company or bank.

Within a few following years, more than a dozen VC firms based in the U.S., Europe, and Japan started investing in Israeli startups and opened local offices in the country. As a result, Israeli’s annual venture capital outlays rose from only $58 million in 1991 to $3.3 billion in 2000.  

Eleven years later, Israeli introduced the Angel Law, an initiative granting investors the ability to offset their investments in tech startups from their overall taxable income. In the case of multiple fundings, several tax benefits apply. 

The more political leaders are determined to help the startup ecosystem strive, the more advantages they can offer to venture funding institutions and meet the needs of the private sector in the long term.  

Stimulation Programs For Role Model Attraction

Rising startups need to have access to serial entrepreneurs, advisors, and mentors ready and willing to share their hard-earned lessons from the battlefield. Community engagement, investor clubs, and acceleration and mentorship programs help achieve that. 

In 2010, the Chilean government in Santiago hatched an innovative program called Startup Chile. It offered grant money to experienced entrepreneurs from established startup ecosystems to set up new companies in Santiago with the expected benefit of sharing their knowledge, wisdom, strategy, and tactics with the local talent. 

It wasn’t an issue for entrepreneurs aiming at global markets to migrate and stay in Santiago. And then they indeed started sharing their strategies and experience of what a good business model is, how to pitch a startup to investors, how to use lean methodology for efficient product development, and how to stomach the risky roller coaster ride of a startup. 

As a result, the Chilean government sparkled a chain reaction that made the bright young local talent feel comfortable starting startups instead of following a conventional corporate career path: within 2010-2018, over 1,600 new startups had been established, with an average survival rate of 54.5%.

Bottom line

Before thinking about any changes, emerging startup ecosystems like the one in Cyprus need to encourage and establish a dialogue between the private and public sectors. Only setting a common goal and coming up with a shared roadmap that every party will be willing to stick to can enable the growth and blossoming of the local ecosystem.  

by Tetyana Romanyukha - Head of Operations at TechIsland

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