Stimulating start-ups: What can governments do?

What are the key things governments can and should do to help start-ups thrive? Matt Clifford, CEO of Entrepreneur First, shares his views

In this difficult economic climate governments are turning to entrepreneurs as a source of economic growth. Unfortunately, governments globally have an inauspicious record when it comes to stimulating start-ups through public policy. Many – perhaps most – such initiatives end in failure. Almost every government dreams of recreating Silicon Valley in their home country; few have even got close to succeeding.

The good news, however, is that there are some policies with a track record of success. These initiatives are not always glamorous – and sometimes not even popular – but they do provide the best chance of nurturing start-ups that create wealth and jobs.

I would highlight three critical areas as a starting point for governments seeking to create an environment for high-growth entrepreneurship:

1. Promote (the right kind of) entrepreneurship 2. Make sure start-ups have access to the right skills 3. Work with investors to enable start-ups to get the smart financing they need.

1. Promote (the right kind of) entrepreneurship

NESTA has shown that just 6% of companies are responsible for over half the job growth in the UK. So, while there are lots of good reasons to support small business, a government seeking economic growth should focus on the small number of firms that grow rapidly.

What does that mean? First, ambition for scale (not starting up for its own sake) should be the core message when governments promote entrepreneurship. Second, public campaigns should promote entrepreneurship as a high-skill profession, not a last-resort substitute for employment. 

Most importantly, we need to make entrepreneurship a viable and exciting career choice for our most talented young people. This is our mission at Entrepreneur First, because one of the best ways to boost a start-up ecosystem is to channel talent towards it.

2. Make sure start-ups have access to the right skills

It’s hard for a start-up to grow big without innovating. And innovation usually requires highly skilled employees, particularly employees with technical skills. Public policy therefore needs to make it easy for start-ups to access the skills they need.

There are two concrete implications. First, make sure these skills are a core part of our school and university curriculum. The recent Next Gen report by Alex Hope and Ian Livingston represents a great starting point.

Second, make it easier for talented foreign entrepreneurs and engineers to found and join start-ups in the UK. One of our saddest tasks at Entrepreneur First is telling talented international students that they can’t join the scheme for visa reasons. Singapore’s Entrepass scheme is a great example of how targeted immigration policy can create jobs through entrepreneurship.

3. Work with investors to enable start-ups to get the smart financing they need

One of the most tempting – and dangerous – options for a government looking to promote entrepreneurship is to make direct investments in start-ups. Unfortunately, governments have historically performed poorly when “picking winners” (Japan’s abortive efforts to stimulate its venture capital industry in the 1990s are just one example).

Much better is for government to work alongside private investors and provide incentives for investing in start-ups. Israel’s Yozma programme, which provides match funding and risk sharing, has helped transform venture capital into a $10bn industry in under 20 years. The UK government’s proposed Seed Enterprise Investment Scheme looks to be a helpful step forward along these lines for the UK angel community.

Enter the entrepreneur

Where does this leave us? Recommendations in these three areas only scratch the surface of what can be done to help start-ups thrive (and government is far from the only relevant player). On the other hand, if governments get promotion, skills and financing wrong, progress in other areas won’t repair the damage.

There is still more that could be done in the UK, but the current policy environment is as good as it’s ever been. 2012 should be a great year to launch a start-up – and that, of course, is where the entrepreneur takes over and the hard work really begins.

Matt Clifford is the CEO of Entrepreneur First, the national graduate scheme for aspiring entrepreneurs which opened for applications in November.

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