2. Categories of policy intervention
This chapter provides an overview of the main policy approaches employed in supporting entrepreneurship. It presents three categories of intervention: policies focused on institutional and regulatory conditions, policies providing direct support to entrepreneurs and start-ups in areas such as access to resources and markets, and holistic place-based initiatives aiming to reinforce entrepreneurial ecosystems at national and regional levels. For each of these categories the chapter presents the main areas of policy intervention, describing the rationale for intervention and providing examples of instruments. It also identifies the case studies in Part II of the document that illustrate the approach.
Most OECD countries have multiple policies and programmes in place to promote productive entrepreneurship. The focus of these policies and programmes, the tools they use, and how they are delivered vary and evolve over time, reflecting changes in economic conditions (e.g. the level of unemployment) and learning from previous policy successes and failure (Greene et al, 2008).
Three broad types of interventions can be identified: policies focused on institutional conditions, policies providing direct support to entrepreneurs and start-ups and policies aiming to improve entrepreneurial ecosystems.
Policies aiming to improve institutional conditions for entrepreneurship primarily focus on achieving favourable attitudes and motivations amongst potential entrepreneurs and easing administrative and regulatory barriers to entrepreneurship. This type of policy intervention includes efforts to develop an entrepreneurial culture, improve the taxation system to facilitate entrepreneurship and investment in new firms, reinforce competitive conditions and ensure the regulatory framework is conducive to business creation and growth by a range of entrepreneurs. Policies targeted at institutional conditions often have a national focus. However, there is also considerable scope for interventions to address institutional conditions at the regional and local scale, particularly where sub-national tiers of governments have tax and spending powers which may influence the costs and rewards of entrepreneurship.
Entrepreneurial culture
The shared values, beliefs and expected behaviours of a society shape collective attitudes about the desirability of entrepreneurship and, in turn, individuals’ propensity to start a business. Key factors include perceived status of entrepreneurs, social attitudes to failure, and perception of the skills required for entrepreneurial success. Policies to foster an entrepreneurial culture focus on creating awareness in society at large about entrepreneurship as an option for a wide range of people and projects and encouraging positive perceptions of entrepreneurship and entrepreneurial attitudes.
Examples of intervention include awareness campaigns and events. These aim to raise awareness of the contributions of entrepreneurship to society and to increase the visibility of successful entrepreneurs of various backgrounds. They also raise awareness of the resources and support available to entrepreneurs. These activities may be carried out in collaboration with the media.1
Entrepreneurship competitions, prizes and awards are another approach for developing an entrepreneurial culture. They can be organised by governments, but are also often developed by entrepreneurial support organisations and large businesses (e.g. banks). The public sector can help fund these types of initiatives even when organised by third parties. Some are targeted at specific categories of entrepreneurs (e.g. youth, women, and people with disabilities), types of businesses (e.g. social enterprises, growth-oriented enterprises), or sectors (e.g. digital enterprises, technological enterprises, green enterprises). Prizes aim to create greater awareness of the role of entrepreneurs in society, identify and celebrate successes and showcase examples of best practices to inspire potential entrepreneurs. There are also direct benefits for prize-winners, notably cash prizes, in-kind support, visibility and networking opportunities.
Taxation
Taxation on personal income, business profits and capital gains influences people’s decision to become a business owner or an employee, the decision whether or not to grow a business, and the decision whether to operate in the formal or the informal economy (OECD, 2007). It may also influence the legal structure chosen for a new business – self-employed, partnership, Limited Liability Company. A taxation framework supportive of entrepreneurs focuses on ensuring equal tax treatment for business owners vis-à-vis the employed population and minimising disincentives to business creation and incentives to continued informal entrepreneurship.
Examples of interventions include assessing the impact of tax policies on entrepreneurs and different types of firms and introducing reforms to reduce unnecessary burden on new and small firms. This includes efforts to reduce the cost of tax compliance (Chittenden et al, 2005; Pope, 2008)
Another type of intervention is the introduction of temporary or permanent tax incentives to reduce costs for new firms. These can also be used to support business growth (e.g. through reductions on labour taxes for hiring a first employee). These incentives can apply to all entrepreneurs or target specific types of business (e.g. businesses started by youth and women entrepreneurs benefit from temporary tax rebates in several EU countries) (OECD/European Union, 2019). Specifications dedicated to small firms can also be introduced in existing tax incentive schemes. For example, enhanced research and development (R&D) tax credits may be introduced for small businesses together with extra provisions for new and small firms, such as carry forward of benefits to future years (designed to address the lack of profits that some innovative start-ups will face in their early years) or for R&D work provided by a third-party (designed to address lower levels of in-house R&D in small firms). The benefits of targeted incentives have to be balanced against the pitfall of increased administrative complexity (Pope, 2008).
Case 3: Zones Franches Urbaines – Territoires Entrepreneurs, France (taxation) is an example of a tax incentive to start-ups in geographical areas of economic distress. It offers temporary tax reductions to entrepreneurs setting up or relocating in disadvantaged urban areas.
Tax incentives can also be targeted to investors in new firms, in particular business angels and people ready to invest in small firm equity funds. These incentives aim to increase investment in new and small businesses. Case 2: Tax incentives for early-stage investors, Australia (taxation) offers tax offsets to investors providing funding to innovative start-ups.
Competition policy
Anti-competitive practices may restrict entrepreneurs’ access to markets as well as resources, such as finance. Competition policies such as anti-trust laws and reduction of state ownership in the economy are designed to create opportunities for new firm entry. Examples of interventions also include updating licensing regulations.
Start-ups may also face difficulties accessing public procurement. Government is a major consumer of goods and services. However, the share of small firms in public contracts is much smaller than their share of private sales (Morand, 2003). This is particularly true of central government contracts.2, 3 This is due in part to the typical larger size of contracts, as well as their low tolerance for risk, making new and small firms less attractive suppliers. Complex tendering procedures and administrative burden also create cost barriers for small firms (OECD, 2019; Storey and Greene, 2010). Longer payment delay may also affect the ability of start-ups to engage.
Examples of interventions to support new firm access to public procurement include the use of “set-asides” earmarking a proportion of public contracts to be delivered by small firms as well as efforts to break down contracts into smaller ones. Efforts to reduce the complexity of applying for public tender are another approach, including measures such as the use of framework agreements and the centralisation of information to reduce the number of times full applications have to be completed. In addition, some schemes organise competitions for new and small firms to develop innovations that will help respond to emerging government procurement needs.
As the proportion of small firms that tender for public sector contracts is very small (Loader, 2013), measures to encourage new entrepreneurs to be proactive in bidding for government contracts (e.g. ‘meet the buyer’ events) are an important complement to demand side interventions.
Regulatory framework
Business regulation is required to facilitate a competitive environment for entrepreneurs, protect consumers’ and workers’ interests as well as limit negative externalities (e.g. environmental pollution). However, it also imposes monetary costs on businesses (e.g. cost of registering a business, healthcare and pension cost of labour, costs of complying with a new standard) and administrative costs (e.g. management and staff time incurred). Evidence suggests that these costs are proportionally greater for small businesses, which may inhibit start-up activity and create incentives for informal entrepreneurship. Regulations regarding access to social and health benefit may also affect entrepreneurship. For example, abrupt ending of unemployment or welfare benefits upon starting a business may create disincentives to business creation among the unemployed.
Governments therefore have to find the right balance of regulation that neither discourages entrepreneurship or pushes it into the informal economy nor enables businesses that are exploitative, fraudulent or generate negative externalities to operate.
Regulatory improvements for entrepreneurship focus on reducing administrative burdens on start-ups. This includes improving access to information on regulations as well as reducing the costs of compliance for entrepreneurs and small firms, including registering a business, gaining regulatory permits, accessing utilities and protecting intellectual property. This can be achieved through different means, including digitalisation of procedures and greater co-ordination between government departments to reduce duplication of information provision. Stakeholder consultations ahead of the introduction of new regulations and close monitoring of their effects on entrepreneurs and small firms are also factors for success (Storey and Greene, 2010). Regulation must also adapt to technological change and market evolutions (e.g. the emergence of ride-sharing apps and residential short term rentals). Other regulatory measures may also facilitate entrepreneurial endeavours indirectly, such as the introduction of welfare bridges whereby welfare benefits progressively taper down for entrepreneurs, or measures to strengthen access to social and health security coverage for entrepreneurs. The latter measures often focus on labour market integration through self-employment rather than on productive entrepreneurship.
Case 1: Entrepreneur's Desk, Portugal (regulatory framework) provides an example of regulatory simplification. The initiative aims to simplify the regulatory process for entrepreneurs by offering them a single point of contact to obtain all the information needed regarding the development of an economic activity in Portugal, carry out administrative procedures online including payments and obtain public services online when possible. The initiative aims to reduce and simplify procedures as much as possible (e.g. reducing licensing requirements) in addition to digitising the core ones.
The second type of policies for productive entrepreneurship are programmes that are targeted directly at entrepreneurs. They aim to address major challenges in business creation, helping entrepreneurs acquire resources required to successfully start and grow their businesses (knowledge, finance, networks etc.). Programmes providing direct support to entrepreneurs may have a broad focus, open to all potential entrepreneurs or be tailored to the needs of specific population groups who are under-represented among entrepreneurs or encounter specific disadvantages in engaging in entrepreneurial activities (e.g. women, youth, the unemployed, and people living in rural regions). Programmes may use a wide range of interventions to support entrepreneurs and may combine more than one type of support.
Education and training
Lack of entrepreneurial skills is an important barrier to entrepreneurship (OECD/European Union, 2017). Education and training for entrepreneurship aims to foster the broad development of entrepreneurial competences, entrepreneurial mind-sets and transversal skills through various channels including in the initial education system, life-long learning and re-training. It also includes targeted technical training offered to aspiring and active entrepreneurs.
Interventions throughout education system, from primary and secondary school to university have the potential to raise awareness of entrepreneurship and create more positive attitudes. While entrepreneurship education is being introduced in curriculums in the European Union (European Commission, 2018) and in many OECD countries, the scope of programmes varies widely.
Many universities now engage in activities to promote entrepreneurship amongst students and recent graduates (Kuratko and Morris, 2018), with universities in many countries offering a wide range of academic programmes in entrepreneurship (Morris et al., 2013; Mazzarol et al., 2016). Although the evidence on the impact of entrepreneurship courses on entrepreneurial intentions and activity is scarce, a number of studies suggest a positive impact (Halabisky, 2012). Other suggest more mixed results (Nabi et al., 2018, Bae et al., 2014).
Success factors for entrepreneurship education include the incorporation of experiential learning and practical activities (e.g. model firms, entrepreneurship clubs, business plan competitions) into theoretical teaching to enable students to generate viable business ideas and equip them with the tools for the start-up process (Morris et al., 2017). This needs to be accompanied by practically-oriented student start-up programmes that support students who wish to engage with the start-up process with training, coaching and training and access to resources.
Case 4: Converge Challenge, UK (education, training) is an innovative approach to entrepreneurship education in higher education institutions. This is a business creation competition and enterprise development programme for staff, students and recent graduates of Scottish universities and research institutes with high potential business ideas. Applicants attend a business course and a business consultation before pitching their idea at an event. Semi-finalists and finalists receive additional business training and winners receive a cash prize and in-kind business support.
Entrepreneurship education focuses on developing entrepreneurial capacities and mind-sets while training programmes tend to target aspiring entrepreneurs and aim to teach the knowledge and skills required to start and grow a business. This includes entrepreneurial skills (including recognising and exploiting economic opportunities), technical skills (specific to the area of operation of the business), managerial skills and personal skills (including self-awareness, accountability, emotional skills and creative skills).
Some training programmes focus on the start-up stage while others focus on business growth, with some programmes aimed at ambitious businesses seeking to scale-up. They are delivered in a variety of ways, including online courses, seminars and workshops, and vary in lengths from one-off trainings to long-term programmes spanning several months. Governments intervene at both the national and regional levels to provide entrepreneurs with access to training, both directly and through independent suppliers.
Information, advice, coaching and mentoring
Entrepreneurs and managers of new start-ups may face difficulties in understanding how to undertake business creation and may need personalised support to successfully transform their ideas into new ventures. Issues such as incorporation and legal establishment, access to financing, and recruitment of skilled workers are areas where entrepreneurs frequently need outside expertise. They are also unlikely to hold in-house all the necessary skills for business creation and growth. Information, advisory and mentoring programmes can support potential and new entrepreneurs and start-up management teams at various stages in the entrepreneurial process on all aspects of starting and operating a business.
The rationale for government intervention is that the use of business advice is affected by market failures that are mainly related to imperfect information. Businesses find it difficult to place a value on the benefits of external paying assistance, particularly prior to receiving the assistance. In turn this makes businesses reluctant to pay for it and limits the incentive for private sector suppliers to provide assistance. Businesses also face difficulty assessing the competence and trustworthiness of external information or advice. This leads to the sub-optimal use of business support and reliance on the informal acquisition of advice and information.
Interventions to provide access to advice for entrepreneurs include the provision of information on entrepreneurship and sign-posting to available business support services.
Interventions also include more in-depth support such as coaching (whereby trained professionals support entrepreneurs on a specific issue) and mentoring (whereby experienced entrepreneurs transfer knowledge and provide support to potential entrepreneurs in a more organic manner over longer timeframes). Coaching is particularly helpful for businesses that have got beyond the early stage where the entrepreneur has identified a specific need that requires to be addressed to scale-up the business. First-time entrepreneurs in an early-stage start-up may benefit from the more holistic advice and guidance of a mentor. For example, evidence suggests that mentoring is an important component in student start-up programmes, guiding student entrepreneurs in acquiring relevant knowledge, providing psychological support, and helping them to form relationships with the broader business community (Ahsan et al., 2018).
Support for networks of entrepreneurs, facilitating peer-learning and access to resources, is also an important approach to capacity building for entrepreneurs, notably at the local level (Motoyama, 2019).
Information, advice, coaching and mentoring support may be delivered through public agencies or through private or not-for-profit organisations. It may be provided in generic form or on a customised basis. It can be delivered online, via telephone and/or through physical centres. It can be offered as a free service or there may be a charge to users. And it can be free-standing or integrated into other programmes. These services are often key supports provided by business incubators for example.
A common approach to information, advice, coaching and mentoring support is the development of one-stop-shops which provide a single access point to all government services and information, advice on starting and running a business, information on legal rights and responsibilities (e.g. tax, employment), links to financial and other types of support (e.g. mentors, consultants) and to public, private and not-for-profit organisations that provide specialist business support (e.g. exporting, design, innovation, intellectual property office). A national information and advice service is typically complemented by regional or local services which provide advice and links to various sources of support such as local training, workshops and events, often on a more personalised basis. A growing focus of these service is on supporting businesses to become digital.
Case 5: Growth Hubs Network, UK (information, advice, coaching and mentoring) and Case 6: Regional Business Development Centres, Denmark (information, advice, coaching and mentoring) are examples of a localised approach to business advice, providing face-to-face professional advice and signposting entrepreneurs to national and local/regional support to make it easier for them to find appropriate support to start or grow a business.
Case 7: Siva Partner Incubators and Business Gardens, Norway (information, advice, coaching and mentoring) incorporates several types of business support, including advice, access to expertise, training, networking support and peer-to-peer learning to support business development and innovation. This is delivered by co-locating firms in incubators and business gardens to provide advisory services and peer learning opportunities. It is targeted at both individuals with promising ideas and established businesses. The programme operates nationally but with a particular focus on rural areas where entrepreneurs face special challenges in accessing the resources to develop their businesses.
Access to finance
Access to finance is a major constraint on entrepreneurs, inhibiting both business start-up and growth (OECD/European Union, 2017; OECD/European Union, 2019). Loans from banks is the largest source of external finance for entrepreneurs (Facebook / OECD / The World Bank, 2018). However, new and small businesses lack a trading history and often a collateral, limiting access to bank finance.
Policy intervention may be used to facilitate access to different forms of finance for starting and developing businesses. Instruments include direct financial support (e.g. grants, loans, equity) as well as indirect support, providing incentives to the private sector to finance entrepreneurs (e.g. guarantees and risk sharing schemes) and initiatives to develop financial literacy and investment readiness. Policy intervention may also support the development of private finance through public venture capital funds and incentives to investors, particularly business angles (e.g. through tax incentives).
Direct financial support
Grants are a financial subsidy to enable entrepreneurs to undertake activities that enable them to start, expand or to enhance their business (e.g. grants for training, equipment, or consultancy). Grants may be helpful in delaying the need for (dilutive) equity financing and are effective at targeting specific investments (e.g. innovation), however, they may be inflexible as the use of funds is restricted. Voucher are similar to grants. They offer small amounts of finance to encourage entrepreneurs to access external expert advice, notably for innovation.
Indirect financial support
Through loan guarantees, governments underwrite a proportion of a bank’s loan to a firm in the event that the business fails. The borrower pays a premium – a fee and/or higher interest. In most cases the banks, rather than the government, undertake the screening and the delivery of the loans. However, the cost-effectiveness of such schemes is influenced by their design. For example, excessively high guarantee levels may reduce the incentive of banks to efficiently screen loan applications, resulting in higher defaults. Mutual Guarantee Institutions which screen borrowers and pool collateral for commercial bank loans is an alternative but less common approach to extending access to bank loans to new and small firms without collateral (Columba et al., 2010; Cusmano, 2013).
Venture capital
Many early-stage fast-growing entrepreneurial businesses require equity finance as they lack access to debt financing due to their risk profile. However, access to equity finance is limited as making small investments is not efficient for venture capital funds and venture capital investments are spatially concentrated. A major focus for government entrepreneurship policy support has been initiatives to address this “equity gap”. While only a small proportion of entrepreneurial businesses seek venture capital, the rationale for this form of intervention is the growth potential of these often innovative start-ups.
Some governments have established public sector venture capital funds (PSVCFs) with specific investment parameters (e.g. size of investment, sector, location). Evidence on the efficiency of PSVCFs is mixed. Some evidence suggests that they augment rather than displace private venture capital investment, but some studies also find that supported companies perform less well than those supported by private venture capital funds (Brander et al., 2010; Luukkonen, et al., 2013; Grilli and Murtinu, 2014). Indirect approaches have also emerged, with governments establishing “hybrid” funds (Murray, 2007) in which public money is used to leverage private investment into funds that are operated by private sector investment managers, reducing the risk to private investors and increasing their returns.
Co-investment funds
Another form of intervention is co-investment funds (CIFs), which invest alongside both VC funds and business angels, in deals that these investors bring to the CIF, thereby leveraging their networks and expertise and minimising the public sector’s transaction costs. Some CIFs pre-approve their investment partners while others make their own decision on every investment opportunity that is brought to them. CIFs can be seen as a further development of hybrid funds. The concept is widely attributed to the creation of the Scottish Co-investment Fund, established in 2003 in response to the contraction of the VC sector.4 In Europe, it is estimated that around 150 co-investment and related funds were operating at national and regional levels in 23 countries in 2016 (EBAN, 2016). Although evidence is limited, angel CIFs appear to have significantly increased the volume of investment activity in the early stage equity market, leveraging additional finance from private investors and enabling angels to participate in larger deals. Evaluations of the Scottish CIF have identified significant additionality and low displacement. However, like other PSVCFs, CIFs are constrained by the supply of investable businesses. They also depend on the existence of angel groups to be effective. The presence of venture capital funds providing follow-up investment is also critical to avoid funds being locked into investments.
Case 8: Regional Co-investment Funds, Sweden (access to finance) is a distinctive approach to CIFs as it operates as 11 separate regional funds rather than as a single fund, to reflect regional differences in access to finance.
Business angel investment
Governments can also stimulate business angel investment activity, which plays an important role in supporting entrepreneurial ventures. Business angels typically make small investments at an earlier stage and provide “smart” capital, contributing their knowledge and experience as hands-on investors. They are also less geographically concentrated than venture capital funds and generally invest locally.5 Interventions include tax incentives to private individuals who invest in entrepreneurial businesses to offset the high risks of this type of investment, and support to interventions designed to improve market efficiency, such as Business Angel Networks (BANs). These organisations typically operate on a regional scale, facilitating connections between entrepreneurs and business angels. Many of these organisations also provide education and training both to prospective business angels and to entrepreneurs, helping them become “investment ready” (Mason and Kwok, 2010). Some governments also support the development of angel groups (i.e. angels who invest together) on account of their ability to make larger investments, including follow-on investments, greater professionalism and greater visibility to entrepreneurs.
Case 10: LINC Scotland, UK (access to finance) is an example of an intervention to build a regional business angel community, specifically by supporting the formation of angel groups. An alternative, and much less common, approach to supporting angel investors is Case 11: INVEST - Grant for Venture Capital, Germany (access to finance) which provides an investment grant (20% of the investment) to business angels who make investments in young and innovative companies and an exit grant equivalent to 25% of the profit made when selling the shares to compensate for tax on the capital gains.
Case 9: Cooperative Venturing, USA (access to finance), which operates in the Pacific North West of the United States, is an example of a different type of approach that concentrates on increasing the financial competencies of entrepreneurs, which aims to increase their ability to access existing sources of finance support. It is a type of investment readiness scheme that mentors entrepreneurs in their preparation to raise capital and connects them to potential business angels and banks. It is run by a regional accelerator. The programme has a particular focus on women and minority entrepreneurs.
Fintech
The development of the Fintech sector may offer new funding options for entrepreneurs. A study by the Cambridge Centre for Alternative Finance suggests the online alternative finance industry (i.e. crowdfunding) increased from EUR 1.12 billion in 2013 to EUR 10.44 billion in 2017 in Europe (Ziegler, 2019). However, evidence on its current impact on access to finance for entrepreneurs is mixed, as the development of online alternative finance varies between countries and market penetration remains limited. Some public bodies have opted to use crowd lending platforms as a low cost way of making loans. For example, the British Business Bank (the United Kingdom’s economic development bank tasked with enhancing the supply and diversity of finance for small businesses) provides loan finance to UK smaller businesses via Funding Circle, a global small business loans platform. Some local government authorities in England have also lent through Funding Circle by specifying eligible post codes among other criteria.
Internationalisation
Research strongly suggests that exporting improves firms’ competitiveness, financial performance and growth. Firms also derive organisational learning effects from exporting, especially firms that start exporting at an early age. Research also suggests that exporters make a disproportionate contribution to economic growth (Hessels and van Stel, 2011). However, most small businesses do not export. Entrepreneurship policy can be used to support new businesses to access global markets and encourage them to take an international orientation (Leonidou et al., 2016). Examples of intervention include exporting awareness campaigns, provision of information and advice on how to start exporting, and logistical support through trade support desks and trade trips. Governments may also offer financial support to entrepreneurs seeking to export, or offer guarantees to help them access finance for exporting or reduce the risks involved (e.g. insurance to businesses exporting to certain countries, guarantees to banks providing loans to export businesses, foreign exchange rate risk cover).
An example of intervention encouraging internationalisation in new and small firms is Case 12: Startup Global USA, USA (internationalisation). This is a collaboration between the United States Government and a not-for-profit organisation that runs seminars in various locations to provide entrepreneurs with information and networking opportunities for exporting with sources of expertise, including government officials, professionals and experienced entrepreneurs.
Technology and Innovation
Innovative start-ups (including non-technological innovators) contribute to employment and productivity growth. However, there are several particular barriers to their creation. Researchers in higher education institutions, public research institutions and existing enterprises may lack the entrepreneurial and managerial competences to successfully commercialise business ideas. Moreover, risk and uncertainty related to the results of innovation and imperfect appropriability are linked to difficulties in accessing finance for innovative start-ups.
Examples of intervention to support innovative start-ups include support of applied R&D in areas with commercialisation potential, financial support and advice for early stage firm development (e.g. proof of concept), and efforts to foster public-private knowledge flows, university spin-offs and technology diffusion.
Innovation vouchers, discussed earlier, enable technology businesses to collaborate with universities and other research organisations to access expertise that will support them in developing innovative products, processes or services. Proof-of-concept programmes typically include grant funding to support the pre-commercialisation of leading-edge technologies emerging from universities, research institutes and hospitals. The objective is to move novel technologies from the research base and closer to commercialisation by enabling them to attract follow-on investment.
Another form of support for technology entrepreneurs is business incubators – providing shared office accommodation (often subsidised) and support services (e.g. shared laboratory space), along with professional business support and advice. Other benefits include opportunities for peer learning and collaboration from networking with other businesses in development, and legitimacy from the incubator or science park brand. Case 13: Canada Accelerator and Incubator Program, Canada (technology and innovation) is an initiative of the Government of Canada that provided funding to incubators and accelerators (see above) to undertake new activities or offer increased levels of service to early stage technology firms.
The environment in which entrepreneurship occurs affects entrepreneurial intentions, the entrepreneurial process and firm growth (Mason and Brown, 2014; Stam, 2015; Spigel, 2017; Audretsch et al., 2019). Strategic and competitive advantages are increasingly based on local resources, networks and knowledge spillovers. In recent years, many countries have introduced policies seeking to strengthen entrepreneurial ecosystems.
Policies that focus on supporting the development of entrepreneurial ecosystems aim to foster a comprehensive and integrated supportive environment for business start-ups and scale-ups. These policies often involve coordination of multiple strands of action, targeting a wide range of actors and supporting directly and indirectly other types of interventions discussed above (i.e. initiatives for institutional conditions and in support of entrepreneurs). Brown and Mason (2017) identify four key components of entrepreneurial ecosystems whose presence and linkages affect entrepreneurs: (i) entrepreneurial actors, which provide incubation, acceleration, coaching and mentoring services to entrepreneurs; (ii) entrepreneurial resource providers, which support entrepreneurship with financial resources (e.g. banks, business angels) and knowledge and opportunities for collaboration (e.g. large firms, research institutions); (ii) entrepreneurial connectors, fostering linkages in the ecosystem (e.g. professional associations, business brokers) ; and (iv) an entrepreneurial orientation, which includes an entrepreneurial culture.
Successful policies take a holistic approach and actively engage with stakeholders in a collaborative way rather than adopting a top-down structure (Autio, 2016). They should seek to support the building of networks in the ecosystem, for example by supporting forums that bring entrepreneurs together with other actors (e.g. pitching events, training, match-making) (Isenberg, 2011). Interventions should consider the needs of firms at different stages of business creation. Moreover, because of the importance of the geographical dimension of ecosystems, policy will generally need to focus at the sub-national scale (Isenberg, 2011). Dedicated independent coordinating bodies may be an option to facilitate the co-ordination of entrepreneurial ecosystems.
Examples of policy intervention include the development of integrated support structures, dedicated strategic documents (e.g. entrepreneurship strategies, action plans) and other co-ordination mechanisms.
Case 15: Startup Estonia, Estonia, for example, is a government initiative to develop Estonia’s entrepreneurial ecosystem by co-ordinating and actively involving non-government actors in the start-up ecosystem through various community building activities. It also promotes the ecosystem internationally, provides training to start-ups investors and promotes start-up friendly regulation.
Case 14: Startup Delta/TechLeap.NL, the Netherlands takes a different form: set up as a public-private partnership, it brings together all of the regional entrepreneurial ecosystems in the Netherlands into a single hub to help create better linkages in the start-up ecosystem and facilitate access to key resources. It also seeks to foster supportive regulation, attract foreign entrepreneurs, and support the internationalisation of Dutch start-ups among other activities.
Case 16: Dutch Centre for Entrepreneurship – DutchCE, the Netherlands is a network of HEIs and accelerators/incubators to develop entrepreneurial competences in people. They offer entrepreneurship programmes for students and entrepreneurs, encourage research on entrepreneurship and support policy making.
Monitoring and evaluating the impact of entrepreneurial ecosystem policies is complex. Individual components of an entrepreneurial ecosystems operate in a mutually supportive way (Stam 2018). Successful entrepreneurial ecosystems are based on positive feedback mechanisms that create a virtuous circle (Malecki, 2018), making it difficult to disentangle the impacts of specific dimensions and identify causality (Spigel and Harrison, 2017). Developing measurements to evaluate ecosystem vibrancy (e.g. entrepreneurial culture, networks, talent) could be better suited to the evaluation of ecosystem initiatives (Stam, 2018) and complement traditional indicators of entrepreneurial activity. Such metrics could help to determine the strengths and weaknesses of individual ecosystems over time and the impact of policy intervention. However, developing appropriate metrics has challenges, including defining suitable proxy measures for qualitative outcomes.
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Notes
← 1. An example of this approach is Lisbon Start-Up City: https://eacea.ec.europa.eu/national-policies/en/content/youthwiki/310-promotion-entrepreneurship-culture-portugal
← 2. Loader (2013) notes that in the UK local authorities engage with small suppliers much more effectively than central government, with the level of Local Authority procurement with SMEs broadly commensurate with its level of economic activity. This reflects to some extent the local nature of Local Authority services and the local dimension to small business trade.
← 3. According to research by the UK Federation of Small Business (2019), only about a fifth of Scotland’s GBP 12 billion procurement budget (central government, local government, National Health Service, Further and Higher Education) goes directly to small businesses, even though they account for 98 per cent of Scotland’s business community.
← 4. See Harrison (2018) for a review of the Scottish Co-Investment Fund.
← 5. There have been several recent reviews of research on business angels: see White and Dumay (2017), Edelman and Manolova (2017), Wallmeroth et al (2018), Tenca et al (2018). See Mason and Botelho (2018) for a discussion of business angel investing.
