Over the last decade, governments around the world have poured money and effort into startup ecosystems. There are more innovation hubs, accelerators, pitch competitions, seed funds and startup events than ever before. By almost any measure of activity, ecosystems are busier.
Activity is up. Outcomes aren’t.
The global investment in startup ecosystems
The scale of investment is remarkable. National innovation strategies, regional development funds, university entrepreneurship centres and international development programmes have all made startups a priority. Billions in public money have gone into building the conditions for new companies to emerge and grow.
And in some ways, it has worked. Participation has increased. The number of startups has increased. More people than ever see founding a company as a realistic career.
But scale-ups and sustained impact remain rare.
The persistent concentration of outcomes
Despite billions in government investment, value creation across startup ecosystems remains extremely uneven. Startup Genome’s 2023 analysis puts North American ecosystem value at roughly $5.3 trillion, against $281 billion for MENA, $197 billion for Latin America and $24 billion for Sub-Saharan Africa over the same period.
More programmes haven’t changed that distribution. Ecosystems have added accelerators, funds and events, but the number of companies that grow into globally competitive businesses has stayed stubbornly low. The pattern of outcomes looks much the same, just with more activity around it.
Visible progress vs real leverage
Part of the problem is what gets measured. Ecosystem reports usually count things that are easy to count: startups supported, events held, funds disbursed, participants trained, jobs announced.
These numbers show visible progress. They’re easy to report to ministers and donors, and they go up reliably when more money goes in. But they don’t tell you whether anything has changed in the quality of the companies being built.
Real leverage is different. It’s the point in a system where a change produces a disproportionate effect on outcomes. In startup ecosystems, that point is rarely where most of the money goes.
Why this isn’t an execution problem
It’s tempting to assume that ecosystems are underperforming because programmes are badly run. Sometimes they are. But many are well designed, well managed and staffed by committed people. They deliver what they promise: the events happen, the cohorts graduate, the funds are deployed.
The problem isn’t how well these interventions are executed. It’s where they are aimed.
The causality mistake most interventions make
Most ecosystem interventions act on context: capital, office space, events, networks, regulation. All of these matter. But none of them makes decisions.
Founders do. They decide which problem to work on, which customers to serve, when to change direction, who to hire and when to raise money. Every ecosystem resource reaches outcomes through founders’ decisions. Context influences outcomes only indirectly.
Most ecosystem strategies rest on two assumptions that, in emerging economies, usually turn out to be false:
- that the founders entering programmes already have the mindset, knowledge and skills needed to succeed
- that the local ecosystem can support them as they try to build and scale a company
Where those assumptions are wrong, no amount of accelerator funding closes the gap. Adding more context around founders who aren’t yet ready to use it produces exactly what we see: more activity, similar outcomes.
What needs to be true for outcomes to shift
If founders are the agents of outcomes, then outcomes will only shift when founder capability shifts. In practice, that means a few things need to be true.
Founders are developed before they’re accelerated. Mindset, knowledge, skills and patterns of behaviour are built deliberately, through practice and correction, before founders are given capital and pushed to grow.
Founders learn from people who have done it. In Silicon Valley, most founders aren’t on their first company, and they learn from “elders” who have built and scaled companies before them. Most emerging ecosystems have neither. Close to 100% of founders are first-timers, and there are few local elders to guide them. Programmes need to bring that experience in and grow it locally.
Support is sequenced to the founder’s stage. Opportunity discovery, solution building, go-to-market and scaling need different capabilities. Building the right one at the right moment is far more effective than offering everything at once.
Success is measured by capability, not activity. That means looking at how founders’ decisions improve over time, how many go on to build second and third companies, and how many alumni become mentors themselves.
Questions to ask about your own ecosystem
If you’re responsible for a national or regional startup strategy, a few questions will show quickly whether your investment is aimed at activity or at leverage:
- What share of your budget goes directly into developing founders, as opposed to the context around them (space, events, funds, networks)?
- Who teaches your founders? How many of the people working directly with them have built and exited high-growth companies themselves?
- What do your programmes measure? If the main KPIs are participants, events and funds deployed, they’re measuring activity.
- How many of your founders are on their second or third company? If almost all of them are first-timers, your ecosystem isn’t yet compounding.
- What happens to alumni? Do they become mentors, investors and early employees for the next generation, or do they disappear from the ecosystem?
- Are founders selected for polish or for learning velocity? Programmes that pick the most confident pitchers are selecting for the wrong signal.
None of these questions needs a large study to answer. But the answers usually show clearly where an ecosystem’s effort is going, and why its outcomes look the way they do.
If founders are the agents of outcomes, interventions must act on founder capability
Busier ecosystems aren’t a failure. The energy, investment and participation they represent are valuable. But on their own they won’t produce different results.
The ecosystems that break the pattern will be the ones that point their effort at the real constraint: the capability of the founders making the decisions. That’s the highest-leverage investment a government can make in its startup ecosystem.
Want to aim your ecosystem investment at the real constraint? Talk to us.