The complexity of the challenge means that developing the right mix and strength of these policies has still to be found.
When looking at a region’s innovation capacity, the easier things to measure are the amount of money going on research and development, or venture capital deals or even just the number of start ups. But while you get what you measure – lots of money funding research or small start ups – the bit that really counts is how well connected is the ecosystem linking the really talented entrepreneurs and those with money and resources to help them succeed.
Given low capital and population controls currently in most countries, and the power of the internet and communications tools generally, a well-connected ecosystem is one that builds the cross-regional and sectoral ties as well as those between different constituencies. The really good innovation hubs draw in ideas and talent even if they are then funded and develop elsewhere, and also help both the profitable exits of companies as well as the recycling of this money and talent for the next generation.
So when an entrepreneur from a small town in Norway last month gained seed money from African billionaire Tony Elumelu through his family office Heirs, the obvious question to ask is: “How do they hear of each other?”
Hanna Aase, founder of video social network Wonderloop, who moved to California after “growing up in a small town in Norway”, said: “Heirs heard of Wonderloop as chairman Tony Elumelu and me as a founder are in some of the same finance networks and know each other from that.”
A little digging reveals the initial spark came in London, UK. So in one $500,000 seed round, for an admittedly good founder and business idea, you have the Nigerian billionaire owner of a large African conglomerate and non-profit foundation, a Norwegian entrepreneur, who connected through an initiative forged in London to help the business be grown in the US state of California.
Aase added: “We have several investors from abroad and I think they all agree that the right thing for the company is to start it from Silicon Valley in California, where the knowledge of how to grow these companies is without a doubt where the ecosystem for this lies.”
Working out how to tap into these types of connections and where is the locus of knowledge to support different types of entrepreneurial endeavour should be the goal of governments.
Too often, however, different agencies in the same region end up trying to compete for resources to generate a life of their own, and find it easier to talk the talk, rather than walk the walk – to discuss what could be done rather than get on and do it.
One way to do this is to project a collective spirit of teamwork. Julie Sinnamon, CEO of Enterprise Ireland, the country’s inward development agency, in our outlook survey said: “In 2015, we would like to see a continued all-of-government approach to job creation in Ireland. To have all arms of government and the private sector working together will be critical to the continued success of Team Ireland. From a policy perspective we need to continue to assess our policies and company supports that support entrepreneurship and job creation through the lens of national competitiveness.”
But into this mix comes the question of whether governments are becoming “surrogate venture capitalists”, as academics at Babson College noted in their research on federal government funding of venture capital-backed companies after finding lobbying was leading to clean-tech businesses leveraging each dollar of real venture capital with 99.5 cents of “virtual venture capital” from the government.
And, if so, this raises the question posed by them and University of Sussex professor Mariana Mazzucato in her book, The Entrepreneurial State: Debunking Public vs Private Sector Myths, about whether the state should share in the success.
Mazzucato’s book suggested of how it could be done through the example of Finland’s Sitra – this month’s regional report looks further.
The book also sparked a thoughtful riposte from Stian Westlake at charity Nesta (see comment), questioning the practicalities.
All sides agree governments are important and can help the innovation ecosystem through their taxation, regulation and funding policies. However, the complexity of the challenge means that developing the right mix and strength of these policies has still to be found.
This grail is still out there.