WHAT IS A STARTUP ECOSYSTEM,AND WHY IT MATTERS

Eyal Benjamin, PhD


‘It takes a whole village to raise a child.' - an African proverb

Startups are a major driver for economic and social development both on the community level (organization, city, state) and on the personal level of their founders and employees.


Yet startups are complicated entities, and raising them is a complex task. It allegedly takes way more than a talented founder and a willing investor to successfully complete the nine-year journey to harvest*.


Firstly, without role models of successful entrepreneurs the propensity of individuals to launch a new venture or to join one as co-founders is much lower. Hence the first segment for any startup ecosystem are the 'wannapreneurs': highly motivated individuals with sparks in their eyes and a desire to change the world.


The second ingredient for a vibrant ecosystem are the investors, who are excited by the novelty and potential introduced by the founders and willing to risk money in pursuing those opportunities. As a matter of fact, not all investors are alike: a fully developed ecosystem will require a diversity of investors: angel investors, micro finds, VC funds, family offices, and more. This diversity is essential for providing the growing ventures with continued support throughout their life cycle from infancy to harvest.


As startups in essence involve a lot of newness, they are often built on cutting-edge technologies. They will require technology and science experts, labs, and access to unique research and development resources such as labs, equipment, facilities for experiments, and domain specific experts. They are commonly available in academic institutes. Hence although universities are often taken as old, slow, or conservative, their presence adds an essential ingredient to the success of many entrepreneurial journeys. Except for a few institutes, traditionally academia is not taken as a source for startup activity. Yet in recent years a growing number of academic institutes contribute to the startup ecosystem far more than mere scientific support by introducing a variety of entrepreneurship activities: courses, clubs, hackathons, and more.


To complete the scientific know-how required while venturing, there is a need for practitioner know-how in domains such as taxation, intellectual property, human resource, finance, legal, etc. Any vibrant and active startup ecosystem should occupy a wide variety of specialized consultants and industry professionals in those fields. This practical aspect of venturing is required to clear topics unique to the starting way of economic creation, such as investment agreements, employee compensation agreements, advisory board relationships, and more. The more advanced ecosystems will require all of the above in the global context, such as working with international investors, taking a company public in a remote market, etc.


One more major yet relatively silent member of a startup ecosystem is the local/national government. From a simplistic perspective the government should not interfere with entrepreneurial development other than properly maintaining the 'rules of the game' (preventing fraud, enforcing Intellectual property rights, etc.). Yet a short review of the various ecosystems across the world reveals that smart, punctuated,

and timed actions might increase and improve venturing activity in their regions. Examples of smart or advanced government actions will include reducing market risks in some segments, updating regulation to fit new market conditions, and democratizing data that enable advancement.


Last but not least are multinational corporations who scout the ecosystem for promising ventures to acquire or collaborate with. Their activity will incentivize both investors and founders to pursue opportunities as well as provide access to unique knowledge and resources to their internal teams and to the other members of the startup ecosystem.


There are many other contributing members in the ecosystem: accelerators, hubs, community leaders, brokers, etc. Yet the true power of an ecosystem lies in the mesh of relationships self-weaved into a magnificent range of countless interactions building the future - today.


* For further reading on this topic also see:

Cohen, Peter S. Startup Cities: Why only a few cities dominate the global startup scene and what the rest should do about it. Apress, 2018.

Feld, Brad. Startup Communities: Building an entrepreneurial ecosystem in your city. John Wiley & Sons, 2012.


 

Dr. Eyal Benjamin is a serial entrepreneur, with a background in venture capital investments. Today Eyal is a faculty member at the Coller School of Management of the Tel-Aviv University; leading the Entrepreneurial Activities at the Coller Institute of Venture; as well as the innovation studies at LAHAV, the TAU executive program. His research areas are facilitation of entrepreneurship and corporate innovation.


Eyal@keb.co.il