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Fostering a Startup and Innovation Ecosystem

Fostering a Startup and Innovation Ecosystem

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Page 1: Fostering a Startup and Innovation Ecosystem

Fostering a Startup and Innovation Ecosystem

Page 2: Fostering a Startup and Innovation Ecosystem

We believe that entrepreneurs are critical to driving a strong global economy and a better

world. We do our part by supporting the grassroots leaders who are at the core of every

strong entrepreneurial community.

We are on a mission to make the world a more innovative and prosperous place, one community at a time.

Page 3: Fostering a Startup and Innovation Ecosystem

Contents

01 Executive Summary

02 Introduction

03 Talent

04 Density

05 Culture

06 Capital

07 Regulatory Environment

08 Conclusion

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Executive Summary

Talent DensityHaving the right talent is essential to support busi-

ness growth. Countries need to invest in human

capital to build and retain a workforce not only

with the skills startups seek but also to help build

businesses and innovate for the future. Countries

can kickstart investment in human capital by creat-

ing flexible labor markets that attract people with

a variety of skills and experience; supporting edu-

cation for an IT and innovation workforce; and pro-

moting diversity in the workplace.

Innovation is something that is bred through the

intersection of great minds. Creating density of tal-

ented thinkers and makers dramatically increases

the potential for successful ventures to emerge.

Countries can foster startup density by support-

ing cluster growth, creating physical hubs, driving

awareness in the media, building networks with

mentors, and linking academics and research net-

works with businesses.

New ideas come from everywhere, and entrepre-

neurs do not have to be in Silicon Valley to be the

next Google or Facebook. In fact, a growing num-

ber of thriving tech companies got their start else-

where—Kakao, Spotify, and Waze, just to name a

few. That said, Silicon Valley is home to the most

prolific, thriving startup ecosystem in the world.

We are seeing communities take lessons learned

from Silicon Valley and apply them to their local

context to develop ecosystems in other places

like Tel Aviv, London, and New York City1. Plenty of

existing research and case studies provide advice

for entrepreneurs2 and have shown that there are

a few common ingredients that help to foster suc-

cessful ecosystems. In this paper, we will explore

five of these ingredients in detail: talent, density,

culture, capital, and regulatory environment.

Page 5: Fostering a Startup and Innovation Ecosystem

4

Culture Capital Regulatory EnvironmentCulture is a critical asset of an innovation cluster.

Countries can create an entrepreneurial coun-

try by highlighting entrepreneurs as role models,

accepting failure as an integral part of the learning

process, teaching entrepreneurial skills and pro-

mote jobs for startups and fostering public-private

communication.

Whether businesses are just starting or trying to

scale, financing is critical for success. Experienced

capital can really make a difference for new com-

panies. Experienced investors can help coach

founders along their journey. Policy makers can

take proactive measures to make it easier for start-

ups to access capital required to start and grow

businesses and create tax incentives for investors.

Governments have a role to play in creating a

stable, predictable, and supportive regulatory

environment for entrepreneurs and investors. In

order to create a supportive regulatory environ-

ment, countries should focus on the ease of start-

ing and closing a business, tax policy, intermedi-

ary responsibility and safe harbors, maintaining a

global web, patent protection that supports inno-

vation, formalizing alternative funding models, and

investing in R&D.

Page 6: Fostering a Startup and Innovation Ecosystem

5

New ideas come from everywhere.

if founders want to give their startup a boost,

they can join one of the 2000+ accelerators

globally.3 It has never been a better time to be an

entrepreneur.

That said, Silicon Valley is home to the most pro-

lific, thriving startup ecosystem in the world, and

we are seeing similar ecosystems develop in other

communities like Tel Aviv, London, and New York

City4. It is worth taking a closer look at the ingre-

dients that draw companies to these particular

places. Plenty of research and case studies out

there have shown that there are a few common

ingredients that help to foster successful eco-

systems. In this paper, we’ll explore five of these

ingredients in detail: talent, density, culture, capi-

tal, and regulatory environment. We use success

stories to illustrate ways that governments can

get help to create the right conditions for vibrant

startup ecosystems, harnessing the economic

benefits and cultural pride that come with it.

With access to the Internet, global entrepreneurs

also have access to the infrastructure, educa-

tion and networks needed to get startups off

the ground. Small businesses can now compete

with big brands via social media engagement,

clever online marketing, and efficiently delivered

advertising. Even in markets where there is a mis-

match between available capital and the startup

community, an entrepreneur can raise money

by crowdsourcing from the public. Rather than

leasing an expensive office, a startup can find a home

in a local co-working space and often outsource

functions via oDesk, 99Designs and eLance. And

Page 7: Fostering a Startup and Innovation Ecosystem

Talent

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7

Investing in human capital

Having the right talent is essential to support

business growth. In the past, companies chose

their locations based on proximity to raw materi-

als, commerce routes, or availability of low cost

inputs or labor. Today, high-growth companies

increasingly look for locations that allow them to

have access to a diverse and global talent pool. To

attract these companies, countries need to invest

in human capital to build and retain a workforce

not only with the skills startups seek but also to

help build businesses and innovate for the future.

Countries can kickstart investment in human cap-

ital by creating flexible labor markets that attract

people with a variety of skills and experience;

supporting education for an IT and innovation

workforce; and promoting diversity in the work-

place.

TALENT

Page 9: Fostering a Startup and Innovation Ecosystem

8

Governments can create more dynamic labor

markets to encourage investment. Experience

demonstrates that countries that adopt pro-growth

investment and immigration policies—which allow

for the freer movement of people and employ-

ees—tend to be the ones that cultivate a flourish-

ing entrepreneurial ecosystem. Silicon Valley in

particular has benefited from the skills and expe-

riences of entrepreneurs around the world. Over

half of the startups in Silicon Valley have one or

more immigrants as a key founder.5 On the other

hand, inhibiting flexibility of labor markets can

result in uncertainty for investors and companies

alike. For example, most venture capitalists are

critical of labor policy in Europe, and cite it as one

of the reasons they are hesitant about investing

money in European startups. They argue that ven-

ture capitalists invest in companies with uncertain

futures, and that the money they invest cannot

be locked up in managing a workforce that may

not be the right one when a company needs to

change its course6.

At the same time, firms in some countries report

difficulties in finding and attracting the right talent

for open roles. In some countries, one solution to

this dilemma may be to make it easier for com-

panies to attract skilled labor from outside their

home country. Immigration reform could enable

companies to attract underutilized talent from

other countries, simultaneously having a positive

impact on unemployment rates in the originating

country. However, in some countries with high

unemployment rate, it has been difficult for gov-

ernments to navigate around domestic economic

policy to focus on immigration policies.

In countries where attracting talent is a problem, a

high-skilled immigration policy can provide visas

for people with technical skills and successful

entrepreneurs while allowing more innovators to

contribute to their economy. Reid Hoffman has

said, “Immigration is key to any entrepreneurial

ecosystem”.7 Carlos Espinal, partner at Seedcamp

says, “One quick way of bridging a shortage in

staff in an area is to create immigration policies

that allow for talented and capable individuals to

enter the country and its labor force without major

hurdles.”8 In Canada, three passionate entrepre-

neurs – Boris Wertz, Danny Robinson and Maura

Rodgers – launched the Startup Visa Initiative in

2010 to garner support from other influential Cana-

Create flexible labor markets

Immigration is key to any entrepreneurial ecosystem

-REID HOFFMAN (CEO LINKEDIN)

50% of Silicon Valley

start ups have

1 or more immigrants

as a key founder.

“ ”

Page 10: Fostering a Startup and Innovation Ecosystem

9

dians and encourage the government to create an

alternate Startup Visa to attract talented immigrant

entrepreneurs.9 On April 1, 2013, the Canadian

Government opened their doors to entrepreneurs

from around the world with their office launch of a

first-of-its-kind Startup Visa.10

While there exists no specific U.S. visa program for

entrepreneurs, there have been proposals recent-

ly for a ”Startup Visa” for non-U.S. citizen entrepre-

neurs who can attract investment from a qualified

U.S. investor. The Kauffman Foundation analyzed

the job-creating potential of one current legisla-

tive proposal and the results were impressive. The

conservative estimates project that a startup visa

could create between 500,000 and 1.6 million new

American jobs in 10 years, making it an attractive

component of a new “jobs act.”11

Another interesting example is Start-Up Chile.

The government created this pilot program in

2010, which brought 22 startups from 14 countries

to Chile, providing them with a temporary 1-year

visa to develop their projects for six months, with

possibility of extension. This program has support-

ed a total of 750 projects in 3 years, from 65 coun-

tries.12 However, it is still too early to tell if this pro-

gram has encouraged immigrant entrepreneurs

to take up residence in Chile or more Chilean

entrepreneurs to start companies. Start-Up Brasil

is another government-funded program, which

attempts to produce a tangible economic impact

and homegrown success stories sooner rather

than later.13 Time will tell if these government pro-

grams can successfully bring global innovators to

contribute to local economies.

Several Asian countries offer a visa or other type

of residency permit specifically to entrepreneurs,

including Hong Kong’s investment visa14, Singa-

pore’s EntrePass15, Japan’s visa extension for

entrepreneurs16, and the Philippines’ investor and

employment generation visas. 17

Finally, it is important not to penalize employers

who want to attract the skills and experience they

need, even if that means foreign talent. In fact,

attracting foreign talent can support investment in

As part of the Jobs Act, a startup visa could create up

to 1.6 million new US jobs in

just 10 years.

the local workforce because it creates a virtuous

cycle that allows highly skilled workers from other

countries to train local employees. In addition, we

see that the creation of one job in the high-tech

sector of a region is associated with the creation

of 4.3 additional jobs in the local goods and ser-

vices economy of the same region in the long

run.18 Singapore has put in place a policy to pro-

mote employment of Singaporeans over outsid-

ers, and experts advise this will make Singapore

less competitive than other leading Asian cities,

such as Hong Kong.19

Page 11: Fostering a Startup and Innovation Ecosystem

10

The nature of employment is changing. A job in

today’s information economy is different from a

job in industrial economy, especially because the

Internet enables anyone to work from anywhere

on any project. PCG, the largest association of

independent professionals in the EU, says there

is a rise in people moving away from traditional

full-time jobs and “jobs for life.” Instead, they are

creating revenue streams from more flexible work-

ing arrangements, such as short-term contract

engagements, which are more widely available

than ever before.20

In a context where companies increasingly rely

on technology and problem-solving skills to tack-

le business challenges, we need to move away

from an emphasis on traditional education envi-

ronments—classrooms and curricula—and toward

a broader inclusion of learning opportunities that

promote hands-on skills development and can

be made available to anyone who’s interested in

learning. In education theory, this is also referred

to as “authentic learning” where students learn by

doing.21

There are a few different ways that governments,

schools, companies, and individuals can focus on

educational opportunities that complement the

traditional system, encourage an entrepreneurial

ecosystem, and create a competitive workforce.

Short term educational programs, such as classes

offered by General Assembly22 and Skillshare23,

support entrepreneurs and teach job-specific

technical skills like coding or search engine opti-

mization that may not be taught in the formal edu-

cation system. Similarly, programs that offer work-

shops and events such as Kstartup24, or provide

hands-on experience in creating a startup, such

as Startup Weekend25, can increase the quali-

ty of the workforce and entrepreneurial mindset

of a community. Companies are also supporting

education for a competitive workforce by incor-

porating new platforms for learning into their pro-

grams. For example, the online learning resource,

Udacity, has partnered with Salesforce to build

educational programs for employees26.

Additionally, governments and schools are already

rethinking the traditional education system. By

adopting technology in the classroom, teachers

and students are realizing the enormous benefits

of collaboration and teamwork at the center of the

learning process. In addition, integrating STEM

education into curricula early on can help to build

a pool of talent that’s needed to support high-

growth, high-tech new businesses. For example,

Estonia’s government backed a project in 2012 to

teach coding to students starting at age 7.27

Applied experience is another crucial element

to fostering a startup-ready workforce. Intern-

ship opportunities expose students to the entre-

preneurial culture, and break down culturally

constructed aversions to the “fail often and fail

fast” startup environment. For example, the UK’s

Support new learning experiences for a competitive workforce

University ventures

are 100x more likely

to turn into a publicly

traded company.

Page 12: Fostering a Startup and Innovation Ecosystem

We need to move toward a broader inclusion of learning opportunities that promote

hands-on skills development.

Page 13: Fostering a Startup and Innovation Ecosystem

12

Stanford is an interesting case study, but it must be

noted that Stanford is an exceptional case and not

the norm in terms of university support for entre-

preneurs. The Program in Innovation and Entre-

preneurship run by Stanford Graduate School of

Business targets students outside the business

school with ideas that could be commercialized.

The three-month, part-time program teaches

entrepreneurial skills and introduces participants

to external investors and experts.30 Steve Blank’s

‘Lean Launchpad’ class, hosted by the Stanford

Department of Engineering, plays a similar role for

graduate students across disciplines.31 Harvard’s

Innovation Lab (founded by Peter Tufano in 2010)

explicitly seeks to bridge the gap between depart-

mental ‘silos’.32 In addition, Stanford’s StartX pro-

gram and MITs 100K competition provide opportu-

nities for students to apply their education in real

settings, leading to new developments and expe-

rienced founders.

apprenticeship program has made it easier for

businesses to set up internship programs.28 On

the other hand, French employment law prohibit-

ing short-term employment prevents businesses

in France from hiring interns.

Research has found that university-based ventures

are more than 100x more likely to turn into a pub-

licly traded company than non-university startups.

However, there are challenges with tech-transfer

and IP/ownership of products and services built

at universities. Evidence shows that companies

with roots in American universities that are able to

overcome these challenges are particularly prom-

ising — 8 percent of these companies will go pub-

lic in comparison to a “going public rate” of only

.07 percent for U.S. enterprises founded outside

of universities – a difference of 144x.29

There already are university programs in the U.S.

that are focused on driving entrepreneurial talent.

Estonia’s government backed a project

to teach coding starting at age 7.

Page 14: Fostering a Startup and Innovation Ecosystem

13

strating the value that having more females can

potentially bring to a management team.34 More-

over, for startups with five or more females, 61 per-

cent were successful and only 39 percent failed.

Companies with more equalized gender distribu-

tion have 30 percent higher IPO’s.35 Further, it is

estimated that boosting women entrepreneurship

and employment could lead to significant increase

in countries GDP. For example, Japan could see a

9 percent increase in its GDP by boosting wom-

en’s entrepreneurship and employment; the Unit-

ed Arab Emirates could see a 12 percent increase

in its GDP.36

The impact of diversity is an ongoing topic of dis-

cussion, and a complicated issue because diver-

sity can be defined in different ways in countries

around the world. We see that a diverse work-

force encourages different ways of thinking, new

products and services to support a wide range of

users, and creative problem-solving techniques.

Governments can adopt dynamic approaches to

support new business development by proactively

supporting diversity in the workplace.

One area we have initially focused on is gender.

Governments can start by addressing the gender

gap. Research shows that by narrowing the gen-

der gap, employment will increase global income

per person by as much as 20 percent by 2030.33

The overall median proportion of female execu-

tives is 7.1 percent at successful companies and

3.1 percent at unsuccessful companies, demon-

Promote workplace diversity

IPOs are 30% higher at companies with more

equalized gender distribution.

Page 15: Fostering a Startup and Innovation Ecosystem

Density

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15

Foster startup density

Even when great minds do not think alike, pool-

ing ideas together can result in something real-

ly great. Creating a density of talented thinkers

and makers dramatically increases the potential

for successful ventures to emerge. Countries can

foster startup density by supporting cluster

growth, creating physical hubs, driving awareness

in the media, building networks with mentors and

linking academics and research networks with

businesses.

DENSITY

Page 17: Fostering a Startup and Innovation Ecosystem

16

Business clusters have proven to be success-

ful environments for entrepreneurship and eco-

nomic growth. Clusters are dynamic ecosystems

in which all actors contribute to their vitality and

success, and not just in the technology industry.

This is true of other sectors as well, as we have

seen with automotive clusters in England and Ger-

many. AnnaLee Saxenian, Dean of the School of

Information at UC Berkeley and expert on regional

development, notes that, “Proximity facilitates the

repeated, face-to-face interaction that fosters the

mix of competition and collaboration required in

today’s fast-paced technology clusters.”37

Tony Hsieh’s Downtown Las Vegas projectis a

great example of focusing on cluster growth.38

The project has invested $350 million to aid in

the revitalization of Downtown Las Vegas ($200

million in real estate, $50 million in small busi-

nesses, $50 million in education, and $50 million

in tech startups through the VegasTech Fund). The

project focuses on adding density of ground level

activities, spaces, and businesses to increase

“collisionable hours” where residents, employ-

ees, and regular visitors (they call them “subscrib-

ers”) walk around/eating at a cafe/drinking at a

bar.39 A number of other cities have seen growth

generated by clusters of startups in recent years.

London, New York, and Berlin have all witnessed

an explosive growth in entrepreneurial activity

with the proliferation of startups using web tech-

nologies to found and grow their businesses. This

has been possible thanks to a combination of pol-

icies focused on fostering and attracting a skilled

talent pool, incentives for investment in technolo-

gy-driven businesses, a strong business commu-

nity support network, and reliable transportation

that facilitates movement to, from, and in a city.40

These examples suggest that successful govern-

ment policy to develop clusters means focusing

on a city or area of town and providing funding

and support for the innovation hub. According to

the National Bureau of Economic Research, “The

first step in cluster development is to identify the

candidate cluster by geography, industrial compo-

Support cluster growth

sition, and existing networks. Government funds

can be awarded to do this initial study, or private

organizations may commission this work to raise

awareness and use in applications for government

funding in the future.”41

However, some government-sponsored busi-

ness clusters have failed when governments

lead instead of entrepreneurs. For example, in

Egypt, the former regime built a large technology

cluster outside one of the Cairo suburbs—the

Smart Village.42 The problem is that there is no

public transportation and by car it takes over 90

minutes to get there from central Cairo. The result

is that entrepreneurs could not build companies

there, and it is used strictly by multinationals.

Instead, a successful cluster, The GrEEK Campus,

is an entrepreneur-led effort to build a technology

cluster in downtown Cairo.43

Governments can also promote private sector

investments in entrepreneurship ecosystems.

In the UK, private sector investment is helping

to build a startup culture in East London, where

Virgin Media launched the pilot of their 1.5 bps

service and Google has opened its Campus.44

Proximity facilitates the repeated,

face-to-face interaction that fosters

competition & collaboration.

Page 18: Fostering a Startup and Innovation Ecosystem

17

According to a new report by Populus, Campus

has helped UK startups create nearly 2,000 jobs

and raise over £20 million in investment in the

last year alone.45 Cisco has also pledged $500M

through the British innovation gateway initiative

with a strong focus on East London.46

Yet, even though governments can influence

the development of these clusters at a local and

regional level, entrepreneurs must drive develop-

ment.47 Identifying and supporting natural agglom-

eration is important but policymakers should also

be clear that “entrepreneurs must lead the devel-

opment of any startup community, and empow-

erment of individuals is the best tool for creat-

ing meaningful change in yours.”48 Usually, half

the process involves identifying and magnifying

opportunities that entrepreneurs already see. In

the examples provided, it is easy to see that these

successful areas for technology startups typically

align with young creators in artsy, trendy urban

areas.49 These areas often have reasonable rents,

which keep the barriers to entry and costs low for

prospective investors and entrepreneurs. They

also attract creative young people who are less

risk averse.

The GrEEK Campus, is a successful

entrepreneur-led effort to build a technology cluster in downtown Cairo, Egypt.

Page 19: Fostering a Startup and Innovation Ecosystem

Many successful startups, like Instagram, are born

in coworking spaces that create a supportive

environment to foster new businesses and pro-

vide training, networking opportunities, access

to finance, and other activities. They serve as a

homebase for the startup community, and if possi-

ble, a free event space for education, demo days,

and opportunities to convene. They also provide

a focal point for investors, mentors, and others

looking to support the startup ecosystem. Physical

hubs differ from clusters in that a physical hub is

usually a single building or a campus environment,

while cluster describes businesses—including

physical hubs—spread across a larger geographic

area (e.g., a city).

Government-led spaces sometimes struggle

to gather momentum for a variety of reasons,

including the logistical challenges of government

procurement and bureaucratic red tape. Govern-

Create physical hubs

Page 20: Fostering a Startup and Innovation Ecosystem

19

ments can, however, encourage the creation of a

physical hub by offering financial support, incen-

tivizing private investment, and creating a positive

zoning/planning environment. For example, 1871

Chicago was one of the first and largest tech hub

spaces in the U.S. It created startup density in one

building using a space heavily supported by the

local government.

Physical hubs not only provide a place for entre-

preneurs to work, but also support mentors con-

necting with startups through programs, events,

and meetups. iHub in Nairobi, Kenya provides a

good example of the creation of a physical focal

point for the community which is now growing

rapidly, attracting investment, and encouraging

young people to be entrepreneurs in an emerging

market.

1871 Chicago was one of the first and largest tech hub spaces in the U.S. It created startup density in

one building using a space that is heavily supported by

the local government.

When creating physical hubs, it is important to

also keep in mind lessons learned from initiatives

that have not turned out so well. Entrepreneurs

from Berlin say that the government invests mil-

lions to support growth in entrepreneurship, yet

it is not entirely effective: the government bought

buildings by the airport, a part of the city that is

not densely populated nor culturally attractive.

The Hong Kong government invested heavily in

Cyberport, a large space for entrepreneurs to rent

cheap space and to work alongside other, like

minded, entrepreneurs. However, Cyberport is rel-

atively far from the city center and the project has

not been able to attract enough entrepreneurs to

make the space a success.

Page 21: Fostering a Startup and Innovation Ecosystem

20

It is important for leaders to tell the story of the

community and for entrepreneurs in the commu-

nity to drive awareness and celebrate success.

Through marketing and promotions, attracting

more investors, and using convening powers to

bring people together, governments can help cre-

ate a positive environment for creating the nec-

essary density of networks. By publicly touting

entrepreneurial success, cities can attract even

more talent—and, subsequently, more investment

from Venture Capitalists and Angel investors. The

Knight Foundation’s engaged communities strate-

gy helps support the success of communities and

promote engagement to increase entrepreneur-

ship.50 The Knight Foundation in collaboration

with The Atlantic’s “City Lab” kicked off “Startup

City: Miami” a conference where Miami’s mayor,

Philip Levine, highlighted Miami’s potential to

become a tech startup hub.51

Policymakers can also boost awareness among

highly skilled immigrants of the opportunities in

a city or area. Immigration policy is determined at

the national level, but local governments can raise

Drive awareness through media

awareness of the opportunities available to skilled

immigrants. The U.S. National Bureau of Economic

Research reports that “local leaders can take sim-

pler steps to make their cities more attractive to

immigrants (e.g., educating local employers about

visa programs, providing online information about

the city to immigrants), should they want to expand

this input into their economy. Michael Bloomberg,

for example, has been particularly vocal on skilled

immigration topics and aggressive in his support

of recruiting skilled immigrants to New York City.”52

Local leaders can take simpler steps to make their cities more attractive to immigrants.“ ”

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21

Actively sharing ad hoc and specialized knowledge

among entrepreneurs is vital to building commu-

nity. Sharing information about new technologies,

success stories, desired skills, and experts in the

local market are great for innovators.53 Meetups

such as Silicon Roundabout in London provide

a community where entrepreneurs can meet to

share ideas and lessons learned in a casual, social

setting.54 Startup Grind is another global start-

up community designed to educate, inspire, and

connect entrepreneurs. It hosts monthly events

in more than 85 cities and 35 countries, featuring

successful local founders, innovators, educators

and investors who share personal stories and les-

sons learned on their roads to success.55 Le Web

is Europe’s largest tech conference where each

year startups and web entrepreneurs can gain

valuable networking with thought leaders, VCs,

and mentors in the digital community.56 Incubators

also provide a program for startups to learn from

experienced mentors including Catalyzer in Hyder-

abad to AppfricaLabs in Uganda.57

Many successful programs operate across coun-

tries and oceans, connecting existing ecosystems

with emerging ones. For example, Blackbox Con-

nect, which welcomed 16 impressive startups from

15 countries in Google’s partner network. Blackbox

Connect facilitated meetings with a variety of men-

tors, investors, and academics and equipped them

with the Silicon Valley connections and resources

to enable them to scale their business globally.58

Build networks& mentors

Platforms like F6S create a community for start-

ups to find mentors, employees, resources, and

more.59 Some countries have even used their

expatriates in Silicon Valley as points of contact

to build networks with innovators in their home

countries. Take TechWadi, for example, which is

the leading non-profit organization building bridg-

es between Silicon Valley and the Arab world.60

In addition, The Indus Entrepreneurs (www.tie.org),

founded in Silicon Valley by entrepreneurs and

professionals with roots in the Indus region, offers

a global network that supports the next genera-

tion of entrepreneurs.

Many successful programs operate across

countries and oceans, connecting existing ecosystems with emerging ones.

Page 23: Fostering a Startup and Innovation Ecosystem

Stanford alumni and faculty have created

nearly 40K companies and 5.4M jobs with annual revenues of $2.7 trillion.

Page 24: Fostering a Startup and Innovation Ecosystem

23

Many successful clusters build on existing net-

works between universities and business. A study

found that the alumni and faculty at Stanford Uni-

versity have created nearly 40,000 companies

and 5.4 million jobs since the 1930s, generating

annual revenues of $2.7 trillion.61 As discussed in

the Talent section of this paper, Stanford offers

many hands-on opportunities linking students with

business.

Helping to establish a pipeline between university

research and startup formation encourages entre-

preneurship. The UK Government has created

the Catapult network of technology and innova-

tion centers aimed at bridging the gap between

the research taking place in universities and

the commercialization of technology.62 Catapult

brings businesses together with researchers to

drive additional economic benefit from academic

research—one of the UK’s strengths.

Entrepreneurs cannot and do not exist in a vac-

uum; they need to be able to access and build

on cutting-edge research and ideas produced by

universities and other businesses. The benefits of

strong connections between business and aca-

demia include funds for joint research, develop-

ment of standardized licenses to facilitate technol-

ogy transfer, and coordination of seed funding for

university spin-offs. In some cases, existing gov-

ernment funding of sometimes high risk academic

research results in great new ideas for products

and services. Universities can even be conveners

and support these networks by bringing investors,

entrepreneurs, and mentors together.

Link academic & research networks with business

Page 25: Fostering a Startup and Innovation Ecosystem

Culture

Page 26: Fostering a Startup and Innovation Ecosystem

25

Open andrisk-taking culture

Culture is a critical asset of a startup community.

Governments develop a culture conducive to

entrepreneurship by highlighting entrepreneurs as

role models, celebrating failure as the next step to

success, promoting jobs for startups, and fostering

public-private communication.

CULTURE

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26

Successful entrepreneurs are symbolic for aspir-

ing entrepreneurs. Promote the successful entre-

preneurs in your market—tech or otherwise—and

make a point of telling the whole story—not just

their success, but also their failures and how they

recovered. Throughout a community, all actors

can play a part in really showing off entrepre-

neurs. Universities and student groups can create

programs that encourage students to make their

business ideas happen. Companies can promote

entrepreneurs within their organizations; and

entrepreneurs themselves can organise to pro-

mote entrepreneurship collectively.63

Highlight entrepreneurs as role models

Governments have a role to play, too, and can

design campaigns to celebrate entrepreneurs and

entrepreneurship. For example in March 2014, the

Dutch government published a letter supporting

startups including funding (225m Euros).64 Simi-

larly the Punjab government in Pakistan has taken

great strides to promote the blossoming startup

sector there—successfully generating a number of

positive stories in global media.65

A work culture where

bringing your mistakes

to the table every week is a

normal thing to do, it feels less like failing and

more like learning.

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27

The appetite for radical change is what drives the

culture of Silicon Valley, where the mantra of inno-

vation is, “Fail often and fail fast”.66 But failure as a

virtue is counterintuitive, and a fear of failure has

been shown to hinder innovation in some places.

An article from Tech Chomp’s blog hypothesizes

why Australians may not have “big-picture think-

ing:” because while they are comfortable with suc-

cess, they do not do so well at embracing failure. It

notes that “If you have a work culture where bring-

ing your mistakes to the table every week is a nor-

mal thing to do, it feels less like failing and more

like learning.” 67Research from Europe finds that

many would-be entrepreneurs do not start a com-

pany because of their fear of the consequences

of business failure [bankruptcy]68; therefore bank-

ruptcy laws that do not over-penalize failure are

extremely important. In fact, one report notes that

businesses set up by re-starters actually grow fast-

er than business set up by first timers in terms of

turnover and jobs created.69 Another study by the

Inter-American Development Bank shows that one

reason women may not achieve as much success

as men is because they have fewer startup cycles

compared to men who go through 4-5 cycles and

learn from failure and grow each time.70

A culture of innovation thrives on risk takers, but

it takes time to build a community of role models

who can show that taking risks—and sometimes

failing—pays off. One way the entrepreneurship

ecosystem is trying to stop “failure” from being

a taboo topic is through FailCon, a one-day con-

ference started in 2009 for technology entrepre-

neurs, investors, developers, and designers to

study their own and others’ failures, learn from

these experiences, and prepare for success.71

Establishing connections with Silicon Valley and

other successful startup communities can also

help foster this kind of culture via networks that

support young, growing companies.72

Accept failure as part of the learning process

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85-90% of jobs will require ICT skills by 2020, according to CEDEFOP.

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29

Career training and education focuses on career

paths for a variety of vocations, but outside of

traditional business schools, “entrepreneur” is

usually not one of those. But like any other job,

entrepreneurs benefit from learning certain skills

to succeed. According to a European study, Infor-

mation and Communication Technologies (ICT)

skills are ‘gateway skills’ without which a person’s

likelihood of finding employment is significantly

reduced. 85-90 percent of jobs will require ICT

skills by 2020, according to CEDEFOP.73 ICT skills

can include data driven analysis, statistics, com-

puter science, coding, etc. While business school

or a formal entrepreneurship training are not pre-

requisites, arming young people with skills will

give them confidence to take risks and follow a

less traditional career path. To help, governments

can initiate a pilot program and work with tradi-

tional companies to encourage students to learn

the skills to become entrepreneurs, while guaran-

teeing a position in case their startup fails.74

Communication between the public and private

sectors encourages a direct dialogue with the

community, creating a positive feedback loop

through which businesses can help government

develop policy that supports innovation. In a policy

brief, “Inside Tech City,” the Lisbon Council notes:

...the [UK] government uses its muscle primarily to do

two things. First and foremost, it helps the cluster gen-

erate business and attract investment by boosting its

profile on the global stage through official patronage.

But it also facilitates and encourages a direct dialogue

with the community itself through regular meetings and

events….Monthly breakfasts at 10 Downing Street and

regular town hall meetings bring policymakers and the

tech-business community together, and have led, for

instance, to the creation of an ‘entrepreneur visa’ intro-

duced to bypass new immigration restrictions which

businesses say are depriving them of the talent they

need.77

Community initiatives can also promote jobs for

startups. Take, for example, Silicon Milkround-

about in London. This organization was created

by London-based startup Songkick to encourage

graduates to consider employment in London’s

high-growth technology startups, rather than the

traditional graduate training programmes offered

by blue-chip corporations.75 Another example, Sili-

con Valley Comes to the UK, was created in 2007

by serial entrepreneurs to encourage students to

consider the impact they could have if they were

to start or join a high-growth business. It is entirely

led by entrepreneurs with support from students

who run events around the UK and Europe.76

Promote jobs at startups

Foster public-private communication

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Capital

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31

Funding / Smart Capital

Whether a business is just getting started or is try-

ing to scale, financing is critical for success. Experi-

enced capital can really make a difference for new

companies, and experienced investors can help

coach founders along their journey. Policymakers

can proactively take measures that make it easier

for startups to access capital and can create tax

incentives for investors to help create more of that

capital. However, governments need to strike the

right balance between raising revenue and taxing

capital.

CAPITAL

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32

Public money alone cannot finance small-and

medium-sized enterprises (SMEs), but public

money is very useful as seed money to lure pri-

vate investors. This lesson is being applied in

Singapore, where the government has adopted a

“matching” model. This model has led to a number

of international venture capitalists locating in Sin-

gapore and investing in regional businesses. For

example, 500Startups and Golden Gate Ventures,

U.S.-based venture capital funds, are located in

Singapore because of the government capital

matching program. In total, Singapore has seven

government-sponsored tech incubators, with the

government providing up to 85 percent of the

investment.

Another great example of public finance is the

Inter-American Development Bank’s Multilater-

al Investment Fund (MIF) which has offered $2B

in matching capital and training to new VC firms

and angel investors/networks across Latin Ameri-

ca and the Caribbean (LAC) since 1993.78 It is the

most comprehensive and effective program and

has supported growth in entrepreneurship across

LAC. According to Susana Garcia-Robles, the Prin-

cipal Investment Officer in charge of MIF Early

Stage Equity Group, “the focus..[is] to try to help

the LAC region be more competitive vis a vis other

regions.”79

Similarly, the government in South Korea is one of

the main investors in the country’s venture capital

scene.80 Last year, it pledged USD$2.9 billion in

funding and loans for startups in the tech sector.

In Ireland, a government agency called ‘Enterprise

Ireland’ provides information, funding (matching

private funds) and resources to startups. In 20

years more than 850 companies have been cre-

ated with a success rate of 79 percent and 14,000

new jobs.

Provide access to capital

Governments should improve support and offer

financial packages tailored specifically for entre-

preneurs. According to a report from the Lisbon

Council, only 2 percent of startups in the EU have

VC funding compared to 14 percent in the U.S.,

but the European Union is working to help SMEs

grow.81 For example, the European Investment

Fund (EIF), the venture capital arm of the European

investment Bank (EIB), offers a variety of initiatives

that provide access to finance for SMEs. Its Euro-

pean Angels Fund is a co-investment fund that

provides equity capital to angel investors. They

have also created an Innovation Platform to foster

cooperation between strategic corporate inves-

tors, fund managers, and portfolio companies.82

However, making funds available does not guar-

antee success. Government funding structures

should be designed to meet and change with the

needs of the local ecosystem, keeping in mind

that more money does not necessarily lead to suc-

cess. For example, policymakers in Italy and Spain

should consider increasing the amount of seed

stage funding, while Berlin and London have plen-

ty of seed funding but need access to series A and

B rounds.83

Early stage capital is a nascent sector in many

countries. However, we have seen another way for

entrepreneurs to access capital through crowd-

funding, which allows many people to provide any

amount of money to fund a project. Today, there

are several crowdsourcing platforms. Every day on

Indiegogo, one of the world’s most popular crowd-

Page 34: Fostering a Startup and Innovation Ecosystem

funding platforms, 8,000 small firms or individuals

around the planet to try to raise funds from mem-

bers of the public to support their business idea

or other project.84 Indiegogo competitor Kickstart-

er has helped raise over USD$1 billion to finance

over 58,000 projects.85 In Europe, SEEDRS is a

crowdfunding startup for new ventures which

recently received FSA approval86 and in Asia Fun-

dator87 operates a similar model. These initiatives

allow companies to generate the equivalent of

seed rounds through raising money from non-ac-

credited investors. This does not include offering

equity in the company and does not require a lead

investor.

Kickstarter has helped raise

$1 Billion to finance over 58,000 entrepreneurial projects.

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34

Tax incentives can greatly increase the attractive-

ness of high risk investment. According to Carlos

Espinal, partner at Seedcamp, “Ecosystems that

have government support to help investors invest

more, generally manage to unlock a stored pool of

capital that can be repurposed to help stimulate

the economy.”88

In addition, markets that have experienced inves-

tors are at an advantage. Experienced investors

provide expertise to founders along their journey,

rather than merely auditing a company’s financials

after the fact, the way a public company analyst

may. Governments should attract experienced

capital, encouraging these investors to reinvest

and create a virtuous cycle that leads to more

experienced investors.

United States tax law offers one example of effec-

tive investment incentives. The law defines a class

of business—“qualified small business”—for which

there are tax breaks to encourage investment.

U.S. tax code also allows taxpayers other than

corporations who have held stock in a qualified

small business for more than 6 months to defer

the gain on the sale of such stock if they rein-

vest the proceeds of the sale in another qualified

business within 60 days of the sale. This is a very

good incentive to encourage investment in startup

companies, although a period longer than 60 days

would give investors more time to identify and

invest in another company.

In Australia, there are currently no general tax

incentives for investors to invest in small business-

es. Compare this to the UK, who recently took a

different approach with the introduction of their

Seed Enterprise Investment Scheme (SEIS).89

SEIS encourages startup investment by offering a

straight 50 percent tax break to those investing up

Create incentives for new and experienced investors

to £100,000, regardless of the investors’ normal

tax rate. This type of measure greatly makes high

risk investments more attractive to investors. The

UK program is more generous than the U.S. qual-

ified small business scheme in that it enables tax

relief in the tax year that the investment is made,

but it has also been criticized for having unwieldy

rules that discourage regular retail investors.90

Meanwhile, in Israel the country’s technological

incubator programs offer 2-year programs with

85 percent of the budget financed by the govern-

ment. Israel also offers investment incentives that

decrease corporate tax rates.

Governments can share, promote, and support

best practices with regard to tax incentives for dig-

ital entrepreneurship and encourage more people

to reinvest their gains in digital businesses. In the

UK, experts have been calling on the government

to consider the case for a capital gains tax rollover

relief for shares in order to attract and encour-

age a wide range of investors, particularly those

eager to reinvest their gains in new businesses.

Other ways to create incentives for businesses

is through ‘Employee Share Option Plans,’ where

governments can defer taxation of stock options

until the point of exercise in situations where

employees are taxed up front, at time of grant.

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The UK recently introduced Seed Enterprise Investment Scheme

(SEIS). SEIS encourages startup investment by offering

a straight 50% tax break to those investing up to £100,000.

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RegulatoryEnvironment

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37

Stable / Supportive Regulatory Environment

Governments have a role to play in creating a

stable, predictable, and supportive regulatory

environment for entrepreneurs. Investors and

entrepreneurs alike need a supportive regulatory

environment. As the policy and regulatory envi-

ronment increasingly define the scope for new

innovations in this field, the way regulations are

designed can have a significant influence on how

investors think about the location of innovators

and the destination of their investments.91 Ven-

ture Capital investors argue that countries in Asia

and Europe could get an edge in the competition

over investments if they offered a policy climate

more hospitable to online entrepreneurship than

in the United States. And for entrepreneurs, over-

ly burdensome regulations have prevented young

French entrepreneurs from setting up businesses

at home, so they are migrating to the UK, where

they find it easier to get ahead.92

In order to create a supportive regulatory environ-

ment, countries should focus on the ease of start-

ing and closing a business, tax policy, intermedi-

ary liability protections, maintaining a global web,

patent protection, formalizing alternative funding

models, and R&D.

REGULATORY ENVIRONMENT

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38

The rules and regulations to register and set up

as well as wind down a business can be cumber-

some, but many governments are working to ease

the burden on entrepreneurs by making it easier

to start and close a business. Putting registration

processes online, reducing or eliminating mini-

mum capital requirements, simplifying post-regis-

tration procedures (tax registration, social security

registration, licensing), creating one-stop shops

for registration, and reducing bankruptcy penal-

ties are a good place to start.

The World Bank’s 2014 Doing Business report

notes that some governments have already recog-

nized that implementing such reforms can jump-

start entrepreneurship.93 For example, in Dubai,

businesses are to be offered a “hassle-free” trade

licence valid for four months, allowing them to

start operating immediately rather than waiting

weeks or months for government approvals.94

The UK has initiated a “Red Tape Challenge” to

explore ways to fulfill regulatory requirements in

the least burdensome way possible.95 The Obama

administration aimed to lower filing burdens for

new businesses in the 2011 JOBS Act.96 In Portu-

gal, cutting the time and cost of firm registration

increased the number of business startups by 17

percent and created about 7 new jobs a month per

100,000 county inhabitants in eligible industries.97

To compare countries, the 2014 Doing Business

report ranks the UK as #7 in “ease of starting a

business” based on the number of procedures,

the number of days and cost, compared to the U.S.

which falls on #4, France at #34 and Brazil at #130

while Singapore is at #1.98

Streamlining administrative processes not only

helps businesses get started, it also helps com-

panies close in the event of failure—and failure is

part of startup culture. The World Bank recognizes

Increase the ease of doing business

The way regulations are designed can have

a significant influence on how investors think about

the location of innovators and the destination of their investments.

improvements in this that include “creating spe-

cialized bankruptcy courts, expediting insolvency

proceedings, making business operations during

reorganization easier and regulating the profes-

sion for insolvency representatives.”99 In addition,

reducing the stringency of bankruptcy legislation

from the highest to the average level in the OECD

could raise capital flows to patenting firms by

around 35 percent.100

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39

Tax policy can be a very effective policy lever to

influence entrepreneurial activity. Companies of

all sizes want a predictable and stable tax system

in order to do business.

Governments can support entrepreneurs by pro-

viding that stability and can use their tax systems

to create incentives for investment, risk-taking, and

capital formation. Here are a few ways to do this:

CORPORATE TAX Competitive corporate tax

rates make a country an attractive place

to invest and to grow a business. 101

TAX BREAKS FOR HIRING Governments have

used tax holidays and other incentives to encour-

age entrepreneurs to hire new employees. One

example is the CICE, a tax credit in France equal

to 6 percent of certain wages paid to salaried

employees in a given calendar year. (Eligible sal-

aries must not be more than 2.5 times the French

minimum wage.)102 In addition, other R&D tax

credits offer recovery of expenditures including

wages.103

TAX REBATES Governments can create an “up

front” tax break for initial investments in start-

ups. As noted previously, the UK introduced

their Seed Enterprise Investment Scheme (SEIS),

which encourages startup investment by offering

a straight 50 percent tax break to those investing

up to £100,000, regardless of the investors’ nor-

mal tax rate.104

CAPITAL GAINS TAX RELIEF Governments can

establish lower capital gains tax rates for capital

that is reinvested in new businesses (U.S. model).

This way founders are more incentivized to re-in-

vest in their own company or other startups.

INCOME TAX BREAKS FOR ENTREPRENEURS

Governments could pursue an income tax break

up to a specific amount for individuals who start

new businesses. The Irish government target-

ed such a tax break at individuals who had been

unemployed for over 15 months.

RESEARCH AND DEVELOPMENT TAX CREDITS

Governments can encourage innovation by pro-

viding tax benefits for companies that invest in

R&D. For example, The French R&D tax credit,

“Crédit d’impôt recherche”, is a tax credit ranging

between 30 percent and 40 percent of the qual-

ifying R&D expenses (including costs of research

Focus on tax policy

personnel and depreciation).105 In addition, Cana-

da offers SR&ED, a federal tax incentive program

to encourage businesses of all sizes, particularly

small to medium and startup businesses, to devel-

op new or improve existing products, processes,

principles, methodologies, or materials. Eligible

businesses can recover up to 64 percent of their

expenditures including wages, materials, machin-

ery, equipment, travel and training expenses,

property taxes, utility expenses, and overhead.106

In addition, simplifying tax compliance is also an

entrepreneur-friendly policy. In some countries,

Value Added Taxes and/or sales taxes create

cumbersome and time-consuming paperwork for

businesses. Simplifying and digitizing these pro-

cesses, including tax payment, reduces burdens

on small businesses. The World Bank notes that

today firms can file tax returns electronically in 76

of the 189 countries covered in 2014’s Doing Busi-

ness report.107 For example, companies in Sweden

pay taxes only twice per year, and spend 122 hours

per year on the necessary procedures, compared

to 15 annual tax payments required in Italy, which

takes up to 285 hours of work time from small and

medium businesses.108

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40

Internet services like email, video conferencing, or

online storage solutions help SMEs to reduce their

expenses and increase their productivity. These

services lower the barriers for small businesses,

stimulate employment, and drive entrepreneur-

ship. In Europe, online services contributed €430

billion to GDP in 2012. Of this, they generated

€210 billion by improving the productivity of other

companies and different economic sectors.109 The

OECD also recognizes that “The ability of new

and small firms to innovate is considered crucial

to ensure long-term and sustainable growth, since

SMEs tend to harness technological or commer-

cial opportunities that have been neglected by

established companies and bring them to market.

In this context, platforms that help new firms to be

established and grow are crucial to the innovation

performance of an economy.”110

The best way to get the economic benefits of

the internet while also supporting local laws and

deterring illegal content is to support “safe har-

bor” laws for internet companies. Since the early

days of the web, safe harbors have provided the

rules of the road for the information economy.

They guarantee that as long as an online platform

Create intermediary responsibility and safe harbors

Corporate Tax can make a country an attractive place to grow a business.

Tax breaks, and rebates can encourage innovation.

meets certain conditions, it is not liable for the acts

of its users. This has allowed companies to build

businesses and platforms with a clear understand-

ing of what they are and are not legally respon-

sible for. Safe harbors provide SMEs with the

legal certainty needed to attract investors and to

innovate and design new products. Examples

of such laws include the U.S.’s Communications

Decency Act Section 230, the Digital Millennium

Copyright Act, and the European Union’s e-Com-

merce Directive.

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41

Entrepreneurs are able to grow their business-

es, sell goods through global markets, and offer

services virtually anywhere because of the open,

global Internet. Efforts to stymie the open flow of

information through legislative requirements, such

as data localization, will restrict that growth and

limit the ability of businesses to scale from their

home markets to the whole world. The Boston

Consulting Group and ICANN found that among

small and midsize enterprises, web users are 50

percent more likely to sell products and services

outside of their immediate region and 63 percent

more likely to source products and services from

outside of their region.111 Governments should

resist efforts to impose restrictions on the flow of

data that would balkanize the web, which restricts

growth by increasing costs and barriers of entry to

new markets.

A recent study conducted by ECIPE notes that

access to foreign markets through trade liberal-

ization and globalised supply chains are the major

sources of growth, jobs, and new investments,

particularly in developing economies. Many sec-

tors of the economy rely on digitally supplied

services and goods. Given today’s globally inter-

connected economy, poorly designed national

policies that increase data processing costs have

a severe economic impact. ECIPE concludes that

“the impact of recently proposed or enacted legis-

lation on GDP is substantial in all seven countries:

Brazil (-0.2 percent), China (-1.1 percent), EU (-0.4

percent), India (-0.1 percent), Indonesia (-0.5 per-

cent ), Korea (-0.4 percent), and Vietnam (-1.7 per-

cent).”.112 In addition, UC Davis professor Anupam

Chander noted in a recent paper that hindering

the global flow of data by forcing data localization

“raises costs for local businesses, reduces access

to global services for consumers, hampers local

start-ups, and interferes with the use of the latest

technological advances.”113

Enable a free and open global web

Web users are 50% more likely to sell products and services outside of their immediate region and

63% more likely to source products and services

from outside of their region.

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Artists and entrepreneurs are using the Internet to

create fantastic new works. Platforms like YouTube

have launched careers and created entirely new

markets that reach a huge audience. Today over a

hundred hours of video are uploaded to YouTube

every minute.

Innovation and creativity have always relied on

both copyright protection and limitations to copy-

right, and that remains true online. The Internet

and information technologies are key drivers of

the economy and cultural development, and copy-

right law’s delicate balance has been essential to

enabling this. Consider, for example, how journal-

ists quote third-party content in their articles, or

how consumers were able to use VCRs to record

their favorite television shows. Today, copyright’s

limitations are essential to the functioning of

online services like Google, YouTube, Facebook,

Flickr, Twitter, and beyond.

In order to maximize innovation and creativity,

countries should adopt exceptions that allow the

market, new technologies, and new types of cre-

ativity to evolve. As opposed to providing narrow

black-and-white exceptions adopted at a fixed

point in time, countries should also adopt flexible,

purpose-based standards so that new legitimate

uses of copyrighted content can be developed.

The benefits of flexible exceptions are demon-

strated in countries where such laws already exist;

in fact, in the U.S., a recent study found that indus-

tries that depend on fair use contribute $4.4 tril-

lion to GDP.114 And the introduction of a flexible

exception regime in Singapore helped grow the

economy.115 Industries that rely on limitations not

only drive incredible content creation today, but

also significant economic benefits.

Create flexible limitations to copyright

Patent Trolls generated

$29 billion in direct

costs for patent litigation.

Equal to 11 Mars rover

missions.

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43

A robust yet balanced patent system is good for

innovation. Real innovation should, and must, be

protected. But no one should be able to patent

the obvious or use patents as economic weapons.

Some of the greatest innovations in software have

resulted from collaboration on open source soft-

ware and that collaboration has generated billions

of dollars in economic activity.

However, the patent litigation scene is spiraling

out of control. Over 5,100 patent actions were

filed in 2012, an increase of 29 percent since 2011.

Median damages range between $1.9 million and

$16.5 million, spurring a “lottery effect” for patent

holders who spam the system with frivolous suits

for the chance at a big payout. The system is ripe

for manipulation by patent trolls. Last year, patent

trolls generated $29 billion in direct costs from pat-

ent litigation. This is the equivalent of eleven Mars

Rover missions. Patent trolls do not make any-

thing; their business model is to acquire low-qual-

ity patents and use the threat of expensive litiga-

tion to extort settlements. Studies have shown that

litigation can cost up to $1.75 million in legal costs,

taking valuable time from executives and engi-

neers that would be better spent on developing

new products. Small- and medium-sized entrepre-

neurs cannot afford to fight back. In order to pro-

tect entrepreneurs—and innovation at large—from

this harmful behavior, reasonable patent systems

should:

MAKE IT EASIER TO RECOVER ATTORNEYS’

FEES FROM PATENT TROLLS. The threat of

having to repay attorney fees to defendants

will discourage patent trolls from filing friv-

olous lawsuits in the hopes of getting rich.

WEED OUT BAD PATENTS THAT EXIST. We need

fast-track PTO review for bad patents that are

Provide patent protection that supports innovation

used by trolls as their weapons of choice and give

companies an alternative to expensive litigation in

the courts for patents of questionable validity.

GRANT SOFTWARE PATENTS ONLY WHEN

AN INVENTION IS USEFUL, NOVEL, AND NOT

OBVIOUS. The application must be detailed and

the scope of the patent should be clearly defined

so that subsequent inventors can understand and

design around patented inventions. Reducing the

number of overly broad functional patents will

reduce the abuse of the patent system.

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44

Crowdsourcing platforms like Kickstarter and

Indiegogo provide entrepreneurs with access to

new forms of capital. These platforms sometimes

operate in opaque regulatory environments.

In Europe, where national policies regarding

crowdfunding differ from one Member State

to another, it is essential to harmonization of

the single market that the EU work toward an

overarching policy structure for crowdfunding.116

Research and development underpins much high-

growth entrepreneurship. Focused government

programs can provide incentives for businesses to

engage in more R&D. For example, South Korea

has transformed into an economic heavyweight,

having systematically applied substantial

resources to research and development. As a

result, South Korea has become the world leader in

patent activity and information and communication

technology.

Formalize alternative funding mechanisms

Support research and development

Page 46: Fostering a Startup and Innovation Ecosystem

South Korea has transformed into an economic

heavyweight, having systematically applied substantial

resources to research and development.

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46

Conclusion

Talent DensityPrograms like the proposed US “Startup Visa” and

Startup Chile, the government’s successful pilot

program to bring global innovators to contribute to

their economy, are ways governments can invest

in human capital.

Supporting innovation hubs as we have seen in

New York and Berlin, driving private sector invest-

ment in Tech City in London, and creating physical

hubs such as iHub in Nairobi can foster startup

density.

As we noted at the start of this paper, new ideas

come from everywhere. With the right ingredients

including talent, density, culture, capital, and a

supportive regulatory environment, startup eco-

systems can succeed in many cities around the

world. We understand that governments play a

large role in supporting these communities:

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47

Culture Capital Regulatory EnvironmentBy celebrating failure through conferences like

Failcon, opening a dialogue between entrepre-

neurs and policymakers like the breakfasts at 10

Downing Street have done, and promoting jobs for

startups, governments can help create an entre-

preneurial culture.

Efforts including Singapore’s matching funds or

Israel’s subsidized incubator programs provide

access to capital, which is critical for new and

growing businesses.

Finally, a stable, predictable, and supportive reg-

ulatory environment is crucial to creating the nec-

essary conditions for a thriving startup ecosystem.

Tax policies can help companies start and grow,

safe harbors allow companies to flourish, the free

flow of information enables companies to com-

pete globally, and intellectual property protection

with flexible limitations to copyright and patent

protections support innovation.

Page 49: Fostering a Startup and Innovation Ecosystem

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