MN3194 Entrepreneurship Block 3 PDF

MN3194 Entrepreneurship (online) Block 3: The Entrepreneurship Ecosystem This block begins with a video on the VLE you can access it here: https://www.youtube.com/watch?v=mW6dGqp4YYQ Aim of the chapter The aims of this chapter are as follows: Understand what are the core elements of entrep...

MN3194 Entrepreneurship (online) Block 3: The Entrepreneurship Ecosystem This block begins with a video on the VLE you can access it here: https://www.youtube.com/watch?v=mW6dGqp4YYQ Aim of the chapter The aims of this chapter are as follows: Understand what are the core elements of entrepreneurship ecosystems Understand what policies governments put in place to foster entrepreneurship Be able to distinguish the major types of venture funding See the value of an entrepreneurship culture Learning Outcomes By the end of this chapter, and having completed the essential reading and completed the activities you should be able to: Understand why entrepreneurship ecosystems are vital to the global economy Give examples of various government policies put in place to foster entrepreneurship Differentiate accelerators and incubators Identify companies of the secondary and tertiary support sector Reading list Essential reading Startup Genome. Global Startup Ecosystem Report 2019. (San Francisco: Startup Genome LLC, 2019, https://startupgenome.com/gser2019). Bloom, N. et al. Brexit Is Already Affecting UK Businesses — Here’s How. (Harvard: Harvard Business Review, 2019, https://hbr.org/2019/03/brexit-is-already-affecting-uk-businesses-heres-how) The World Bank Group. DOING BUSINESS 2019. (Washington: The World Bank Group, 2019, http://www.doingbusiness.org/en/reports/global-reports/doing-business-2019) CFTA - Continental Free Trade Area. (Addis Ababa, African Union Headquarters, 2019, https://au.int/en/ti/cfta/about) References cited: PEST Analysis. (Australia: GroupMap Technology Pty Ltd. 2019, https://www.groupmap.com/map- templates/pest-analysis/, Viewed 5 May 2019) Bloom, N. et al. Brexit Is Already Affecting UK Businesses — Here’s How. (Harvard: Harvard Business Review, 2019, https://hbr.org/2019/03/brexit-is-already-affecting-uk-businesses-heres-how, Viewed 5 May 2019) KPMG Enterprise. Venture Pulse Q4 2018. (Zurich: KPMG International Cooperative, 2019, https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/01/kpmg-venture-pulse-q4-2018.pdf, Viewed 5 May 2019). Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) European Commission. COSME. (Brussels: The EU programme for the Competitiveness of Small and Medium-Sized Enterprises (SMEs)), 2019, https://ec.europa.eu/easme/en/cosme-0, Viewed 5 May 2019) COSME. The EU programme for the Competitiveness of Small and Medium-Sized Enterprises (SMEs). (Brussels: European Commission, 2019, https://ec.europa.eu/easme/en/cosme-0, Viewed 5 May 2019) EIC Accelerator. European Innovation Council (EIC) pilot, 2019. (Brussels: European Commission, https://ec.europa.eu/easme/en/eic-accelerator, viewed 16 March 2021) EASME INNOSUP. Blockchain and distributed ledger technologies for SMEs. (Brussels: European Commission, https://ec.europa.eu/easme/en/section/innosup/blockchain-and-distributed-ledger- technologies-smes, Viewed 5 May 2019) European Investment Fund. (Luxembourg: Western Balkans Enterprise Development & Innovation Facility (WB EDIF)), 2019, https://www.eif.org/what_we_do/resources/wbedif/index.htm, Viewed 5 May 2019) Lightizer, R. E. 2018 National Trade Estimate Report on Foreign Trade Barriers. (Washington: United States House of Representatives, 2019, https://ustr.gov/sites/default/files/files/Press/Reports/2018%20National%20Trade%20Estimate %20Report.pdf, Viewed 5 May 2019) Leng, K.Y., Commentary: Johor-Singapore tolls and the impact on commuters on both sides of the Causeway. (Singapore: Channel News Asia, 2017, https://www.channelnewsasia.com/news/commentary/commentary-johor-singapore-tolls-and- the-impact-on-commuters-on-9376738, Viewed 5 May 2019) CFTA - Continental Free Trade Area. (Addis Ababa, African Union Headquarters, 2019, https://au.int/en/ti/cfta/about, Viewed 5 May 2019) Muchang, A., Creating one market under the African Free Trade Area: Progress and challenges. (Washington: The Brookings Institution, 2019, https://www.brookings.edu/blog/africa-in- focus/2019/01/16/creating-one-market-under-the-african-free-trade-area-progress-and-challenges/, Viewed 5 May 2019). Internal Market, Industry, Entrepreneurship and SMEs. (a) The European Single Market. (Brussels: European Commission, https://ec.europa.eu/growth/single-market_en, Viewed 5 May 2019) Internal Market, Industry, Entrepreneurship and SMEs. (b) The Entrepreneurship 2020 Action Plan. (Brussels: European Commission, https://ec.europa.eu/growth/smes/promoting- entrepreneurship/action-plan_en, Viewed 5 May 2019) Anosike, P., Entrepreneurship education as human capital: Implications for youth self-employment and conflict mitigation in Sub-Saharan Africa. (Wolverhampton: Industry and Higher Education, 2018, https://www.researchgate.net/publication/328997216_Entrepreneurship_education_as_human_c apital_Implications_for_youth_self-employment_and_conflict_mitigation_in_Sub- Saharan_Africa/stats, Viewed 5 May 2019). The World Bank Group. DOING BUSINESS 2019. (Washington: The World Bank Group, 2019, http://www.doingbusiness.org/en/reports/global-reports/doing-business-2019, Viewed 5 May 2019) Startup Genome. Global Startup Ecosystem Report 2019. (San Francisco: Startup Genome LLC, 2019, https://startupgenome.com/gser2019, Viewed 5 May 2019). HM Revenue & Customs. Use the Seed Enterprise Investment Scheme to raise money for your company. (London: HM Revenue & Customs, 2019, https://www.gov.uk/guidance/venture-capital- schemes-apply-to-use-the-seed-enterprise-investment-scheme, Viewed 5 May 2019) Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) HM Revenue & Customs. Seed Enterprise Investment Scheme and Social Investment Tax Relief May 2018. (London: HM Revenue & Customs, 2018, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/fi le/710986/May_2018_Commentary_EIS_SEIS_SITR_National_Statistics.pdf, Viewed 5 May 2019) E-Residency. E-residency 2.0 White Paper. (Tallinn: Government of Estonia, 2018, https://s3.eu- central-1.amazonaws.com/ereswhitepaper/e-Residency+2.0+white+paper+English.pdf, Viewed 5 May 2019) Y Combinator. Top Companies List - 2018. (Mountain View: Y Combinator, 2019, https://www.ycombinator.com/topcompanies/, Viewed 5 May 2019). Startupbootcamp. Our Impact. (London: Startupbootcamp, 2019, https://www.startupbootcamp.org/stats/, Viewed 5 May 2019) Enterprising Oxford. Matt Kuppers - Founder and CEO of Startup Manufactory. (Oxford: University of Oxford, 2017, https://www.eship.ox.ac.uk/matt-kuppers-founder-and-ceo-startup-manufactory, Viewed 5 May 2019). Koltai, S. and Muspratt, M. Peace through Entrepreneurship: Investing in a Startup Culture for Security and Development. (Washington D.C.: Brookings Institute Press, 2016) [ISBN: 9780815729235] Lewis-Kraus, G. The Rise of The WeWorking Class. (New York: The NEw York Times, 2019, https://www.nytimes.com/interactive/2019/02/21/magazine/wework-coworking-office- space.html, Viewed 5 May 2019). Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) Introduction Entrepreneurship ecosystems are a global economic force. They create jobs, drive innovation, prosperity, and generate tax income for governments. This is why supranational and national governments put policies in place to foster entrepreneurship. In this block we look into the core elements of entrepreneurship ecosystems. We analyse the economic and political conditions required for entrepreneurs to set up businesses and also what deters entrepreneurship. We also have a look at different policies governments have successfully implemented in various countries to foster entrepreneurship. We also touch on entrepreneurial culture and take a look at why venture capital and public sector financing are important factors. In this chapter we use the term new business, venture, and startup interchangeably. They all refer to a newly started business. The entrepreneurship ecosystem 1. What is an entrepreneurship ecosystem? An entrepreneurship ecosystem is an economic, social, and cultural environment comprising multiple stakeholders involved in or benefitting from concentrated activities related to entrepreneurship. These stakeholders are individuals, organisations and institutions across the private and the public sector such as entrepreneurs, investors, government, military, aid agencies, universities, research centres, professional services firms, local communities, and many more. The activities carried out by the stakeholders are largely geared towards facilitating entrepreneurship in a wider sense. Although these activities are not following a concerted approach they are interrelated. Entrepreneurs and investors represent the nucleus of an entrepreneurship ecosystem around which everything revolves. 2. Stability Although this is the most obvious one, many people overlook stability as an important factor for entrepreneurship. A country or a region needs to provide a certain level of political and economic stability in order for businesses to grow. For a company the most common method to evaluate, organize, and track macro-economic factors of an ecosystem that may impact the business is conducting a PEST analysis developed by GroupMap Technology Pty (2019). The outcome of the analysis provides more factual data on which basis strategic planning processes can be designed and informed decisions can be taken. In short, this tool allows for assessing the potential risk associated with launching a new venture or a new branch of an existing business in a new location. As an example, the referendum in the United Kingdom held on 23 June 2016 where 51.6% of the British voters voted in favour for the UK to withdraw its membership from the European Union caused a higher level of uncertainty amongst UK business executives. A Harvard Business Review article by Nicholas Bloom et al (2019) titled Brexit Is Already Affecting UK Businesses — Here’s How the authors present the results of around 7,500 surveyed business executives across the UK. The executives were surveyed on the question how they think Brexit would impact their business. The survey found that Brexit is thought to have a negative impact on sales, exports, and costs. The study further reveals that businesses expected Brexit to reduce their sales by around 3% on average. In line with that the effects on exports were expected to be negative as well, whilst labour costs, unit costs, and financing costs were expected to rise. The study confirms that political and economic stability is a major concern for businesses. The study represents the general sentiment of Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) business executives across the United Kingdom towards the levels of political and economic stability in the UK as a result of the referendum. 3. Activity 3.1 Read the article Bloom, N. et al. Brexit Is Already Affecting UK Businesses — Here’s How. (Harvard: Harvard Business Review, 2019 and: 1. Search for local venture capital firms in your home area and list the top 5 2. What public grants and funds are available for entrepreneurship on national level and on municipality level in your country? Solution 1. Students are asked to listed the top 5 venture capital firms in their area/city. For example: “Nigeria: Ventures platforms, EchoVC, Spark, Microtraction, IFC Capital”. 2. Students are asked to provide an overview about public funds available in their location on municipality level and municipality level. Example: “Malaysia: Temanita Financing Scheme, Tekun Nasional, National Entrepreneurship Institute (INSKEN), Global Accelerator Programme, MAGIC, Cradle Investment Programme, Cradle Fund Sdn Bhd” 4. Entrepreneurs Entrepreneurs are at the very core of any entrepreneurship ecosystem. They create value, provide jobs, pay taxes, and take risks. Entrepreneurs innovate and disrupt. They are the reason why entrepreneurship ecosystems exist. Funding and market access in The Entrepreneurship Ecosystem 1. Venture capital Access to capital is a main concern for entrepreneurs. Starting and scaling a business requires capital. Especially in the technology space where competition is fierce one needs to capture market share as fast as possible. In many cases, during the first years of its existence a tech businesses is more Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) concerned about expansion and market domination rather than profitability. Therefore, it is paramount that the market provides liquidity through a healthy venture capital sector. When it comes to raising capital for a new or an existing venture, there are usually multiple sources available depending on the stage of the venture. However, we will look into this in more detail in a different Chapter. At this point, we look into venture capital as a global industry and as a vital element of an entrepreneurship ecosystem. Many global venture capital firms provide a wide range of support to entrepreneurs. Access to capital, knowledge, expertise, industries, and other geographies are only some of the additional benefits that come with venture capital. Venture capital is equity-based financing. That means the entrepreneur receives financing from a venture capital firm through the sales of shares of his company. This makes the venture capital firm legally a co-owner of the firm. In addition to the shares representatives of venture capital firms also receive a seat on the board and in some cases also get involved in the business’ operations. Naturally, venture capital firms have a vested interest in the companies’ health as they ‘bought’ a part of it, thus, they want to create a return on their investment. A founder starts a business in the German startup hotspot Berlin and is able to capture the entire DACH region (Deutschland, Austria, Switzerland) covering about 100 Million German speaking people. Now he is looking to scale his business into the US market with a population of about 327 Million. As scaling requires capital, he decides to raise venture capital in Berlin through a German branch of a US-based venture capital firm. The firm provides him with capital, expertise, access to senior-level executives, access to their partner network, and, most importantly, an entry point into the US market. n areas with no venture capital available entrepreneurs have to rely either on revenues or on public funding sources if available. Relying on revenues inhibits fast scaling and leaves them with the only option of growing organically. In Europe, some Central Eastern European (CEE) and Balkan-based entrepreneurs move their businesses to European venture capital hotspots such as London and Berlin because there is a lack of local venture capital. According to KPMG International (2019) the global venture capital industry has evolved over the past decade since the recession in 2008. In 2018 global venture capital reached its peak with $254 billion raised globally. A significant increase from 2017 where $174 billion was raised. The USA is leading the global industry and Asia comes in second. Despite the uncertainty around Brexit, Europe is still going strong with London being the European hotspot for venture capital. Globally, transportation, autonomous driving, ride hailing, and alternative energy vehicles were the market’s hottest investment sectors during 2018 (KPMG International 2019). In 2019, the global venture capital industry has been rising for the sixth straight year. You can read the article here, paying particular attention to page 10. 2. Public sector financing In contrast to venture capital, public sector funding is not equity-based financing which means the organisation that provides the funding does not receive any shares in return and does not become a co- owner of the venture. The key objective is fostering the entrepreneurship ecosystem which is called private sector development. Grants are typically made available for early-stage startups, innovative projects, university-based research projects, community-focussed projects, development aid, procuring, or for calls for tenders. The capital is usually being ‘granted’ on the basis of competitive bidding or by direct application. Public funds are not presents but bound to certain legal terms and conditions so that the proceeds create a measurable impact. Due to the public sector’s objectives they usually take a more holistic and long-term view. In Europe, there are a multitude of funding options available ranging from EU-level to national level down to municipality level. For the sake of this course we look only into a few examples on EU-level. Name Description Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) COSME The EU programme for the Competitiveness of Small and Medium-Sized Enterprises (SMEs). Ran 2014 to 2020. Planned budget €2.3 billion. (COSME 2019). EIC Accelerator Previously EIC SME Instrument, this provides funding opportunities and acceleration services to innovators, entrepreneurs and small companies. Focussed on innovations that create new markets and jobs and generate growth and higher standards of living. Entrepreneurs can apply for about €2.5 Million (EIC Accelerator 2021). EASME - Blockchain Offers grants of up to €1.5 Million to promote the use of distributed and distributed ledger ledger technologies by SMEs. Promoted to consortia, offering the technologies for SMEs opportunity to collaborate with international partners (EASME INNOSUP 2019). Western Balkans An initiative of the European Commission, the EIF, the European Bank Enterprise for Reconstruction and Development (EBRD), and the European Development & Investment Bank (EIB). Provides €145 million of initial capital, Innovation Facility translating to about €300 million of finance benefitting SMEs in the (WB EDIF) Western Balkan region. (European Investment Fund 2019). 3. Activity 3.2 Search for local venture capital firms in your home area and list the top 5 What public grants and funds are available for entrepreneurship on national level and on municipality level in your country? 4. Market access Market access is the ability for businesses to sell services and goods across borders. All international trade is reliant on cross-border trade. In most cases, cross-border trade is accompanied by customs, tariffs, restrictions or quotas. Market access is often times a result of trade policies and foreign policies. Sanctions and embargoes imposed on certain goods or on countries altogether such as Iran, Cuba, or North Korea are products of international trade policies. Market access can also be restricted due to cultural or language barriers. Pork-based food products don’t sell well in countries with a majority Muslim population. Heaters and radiators would see little demand in countries along the equator. Alongside the movement of physical goods, online services can also be restricted. In China, the so-called Great Firewall of China (GFW) blocks access to foreign information and services such as Facebook and Google. Iran also blocks US-based services such as Facebook and some Western news outlets. These measures are based on legislative actions to regulate access to information which in turn restricts access to customers. The 2018 National Trade Estimate Report on Foreign Trade Barriers by the Office of the United States Trade Representative (Lightizer 2019) lists 63 countries and markets with trade barriers of any kind for US-based companies. Free trade means cross-border trade without these restrictions. Although many governments act still very territorial and view the flow of goods across their borders as a source of revenue they increasingly realise there is also an economic trade-off. Businesses and economies need free access to markets. And not only businesses but also people and money. Everyday millions of people cross borders to go to work. For example, the Johor Causeway, the land crossing between Malaysia and Singapore, is one of the busiest borders in the world. According to Channel News Asia about 250,000 commuters cross the border each day (Leng 2017). With an average waiting time of 1.5 hours each way, that’s 750,000 hours of human life spent in queues every single day (Leng 2017). Popular examples of governments opening up market access are the African Union and the European Union. Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) 4.1. African Union | Continental Free Trade Area (CFTA) One of the cornerstones of the African Union are the creation of the Continental Free Trade Area (CFTA) with the following objectives (taken from https://au.int/en/ti/cfta/about ): Create a single continental market for goods and services, with free movement of business persons and investments, thus, pave the way for accelerating the establishment of the Continental Customs Union and the African customs union. Expand intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation regimes and instruments across RECs and across Africa in general. Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes. Enhance competitiveness at industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources (African Union 2019). Following H.E. Albert Muchanga (2019), Commissioner for Trade and Industry of the African Union Commission, the decision to establish the CFTA was adopted in January 2012. As of April 2019, 22 countries had ratified the agreement after Gambia became the 22nd country to ratify it. With a minimum of 22 ratifications required for the agreement to enter into force the process is well underway. Africa is a continent on the rise and will become the next continental economic powerhouse. 4.2. European Union | European Single Market The Single Market of the European Union (EU) refers to the combined territory of all 28 EU member states (with Great Britain expected to leave in 2019) without any internal borders or other regulatory obstacles the EU allows the free movement of people, goods, and services between its member states. The Single Market is based on the four freedoms of the EU to guarantee the free movement of goods, capital, services, and labour (Internal Market, Industry, Entrepreneurship and SMEs. (a) 2019). Any EU citizen can travel to, move to, work in, live in, buy from, or sell to any EU member state with no restrictions. The European Single Market is one of the EU’s greatest achievements. It has fuelled economic growth, maintained peace for over 70 years (on continent level) and made the everyday life of European businesses and consumers easier. With the Euro being the official currency of the EU and used by 19 of the 28 member states it is used by 343 million EU citizens as of 2019. 5. Activity 3.3 Read: CFTA - Continental Free Trade Area. (Addis Ababa, African Union Headquarters, 2019, https://au.int/en/ti/cfta/about Answer the following questions: Why is free trade important? With what countries does your home country have free trade agreements? Solution 1. Free trade spurs economic growth and the free movement of goods and services. Free trade enhances trade relations between countries, thus, creates economic stability and enhances competitiveness at industry and enterprise level which boosts innovation. 2. Students are asked to list a few countries (no more than 5) with which their home country has free trade agreements. Example: “France: Canada, Japan, South Korea, Through EU: The EU- Vietnam agreement, EU-Australia Trade Agreement. Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) Human capital 1. Human capital and entrepreneurship education Human capital is a further important factor when it comes to entrepreneurship ecosystems. Companies are founded by people and run by people. And people need to be trained in entrepreneurship. Although there is an ongoing debate whether entrepreneurship can be taught or not, people can certainly be trained in entrepreneurship. Following the economic downturn in 2008, many business schools and universities adopted entrepreneurship education as part of their curriculum. Also, many supranational organisations such as the European Commission made entrepreneurship education part of their policy in the form of the The Entrepreneurship 2020 Action Plan (Internal Market, Industry, Entrepreneurship and SMEs. (b) 2019). According to the European Commission, up to 20% of young people who received entrepreneurship education through a “mini-company programme” in secondary school are going to start their own business. This is five times more than people who did not receive any entrepreneurship education. Prof Paschal Anosike from the University of Wolverhampton, UK, conducted a study in Nigeria that looked into the question whether the provision of entrepreneurship education at secondary education level could help to facilitate human capital development and assist efforts to curb youth unemployment (2018). The findings confirm the assumption that entrepreneurship education increases the ability to identify and exploit opportunities, particularly for young people. This also resulted in reducing their vulnerability to poverty and involvement in armed conflicts. Globally, there is a myriad of educational programmes available. In addition to public sector education many private sector organisations such as accelerators, private training providers, consultancies, and private entrepreneurship schools also provide training. These providers fulfil a very important role in educating people about the opportunities of entrepreneurship and are therefore elementary to an ecosystem. 2. Accommodative policy and regulations Entrepreneurship is reliant on accommodative policies and entrepreneurship friendly regulations. These can range from passive support such as certain policies, visa regulations, tax breaks for entrepreneurs and investors, as well as regulatory frameworks as discussed in Chapter 2. As Steven Koltai highlights (2016), public policy must be conducive to entrepreneurship and startups need to be enabled rather than hindered by the regulatory environment. In order to measure how easy it is to conduct business in a country the Ease of doing Business Index has been created by Simeon Djankov at the World Bank Group. The former Deputy Prime Minister and Minister of Finance of Bulgaria who is now the policy director of the Financial Markets Group at the London School of Economics developed the framework in collaboration with professors Oliver Hart and Andrei Shleifer both from Harvard University. The 2019 World Bank Group flagship publication is the 16th in a series of annual reports. It measures the regulations that enhance business activity and those that constrain it (The World Bank Group 2019). Doing Business measures regulations affecting 11 areas of the life of a business of which 10 are included in the 2019 edition: Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting minority investors Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) Paying taxes Trading across borders Enforcing contracts Resolving insolvency The Doing Business 2019 report captured 314 regulatory reforms between June 2, 2017 and May 1, 2018. Globally, 128 economies introduced substantial regulatory improvements making it easier to do business in all areas listed above. According to the Global Startup Ecosystem Report 2019 (Startup Genome) countries with higher startup policy adoption rates tend to have higher performing startup ecosystems. (Figure 5: Counties with higher startup policy adoption rates. Source: Startup Genome) A few examples of successfully implemented entrepreneur-friendly regulations and policies are set out in the next few sections. 2.1. United Kingdom | Seed Enterprise Investment Scheme (SEIS) Following the economic downturn in 2008 and as part of its policy to foster entrepreneurship and to encourage investors to finance qualifying startups the UK Government launched the Seed Enterprise Investment Scheme (SEIS) back in 2012 (HM Revenue & Customs 2019). SEIS provides UK-based investors with significant tax breaks on returns generated from investing into startups. This resulted in an increased amount of startup investment by private investors. A report issued by Her Majesty's Revenue and Customs (HM Revenue & Customs 2018) highlights that since SEIS was launched 8,440 individual companies have received investment through the scheme and £799 Million in investment has been raised (up to the tax year 2017). Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) (Figure 6: Companies raising funds and subsequent rounds. Source: SEIS1 Returns/HMRC) 2.2. Estonia | E-Residency Scheme Over the last 20 years, Estonia moved most of its public services online. One of the main objectives of the action was to allow people to access public services from anywhere in the world. Services such as voting, filing tax returns, authentication, registering a car, and dozens of other services are now available online. By using a unique digital identifier people can further access a growing number of private sector services such as banking, accounting and similar. This is not only cost efficient but also time efficient. In addition to that, Estonia launched an E-Residency scheme in 2014. The scheme allows people from anywhere in the world to obtain a digital form of citizenship as a prerequisite for setting up a business entirely online under Estonian law. After picking up the E-Residency card from any Estonian Embassy in the world, there is no need to travel to Estonia for setting up the business or for opening up a business bank account. Everything can be managed online. Further, documents can be signed digitally online, tax returns can be made online, etc. The company is a fully legitimate entity based in the Eurozone with the Euro being the principal currency. The E-Residency scheme proved to be a massive success. Since its conception the scheme has added approximately 48,000 e-residents who created around 6,000 companies. This proved to be profitable for the Estonian government as the government spent €7.4 Million on costs for setting up the scheme whilst generating a tax revenue of €17.8 Million (E-Residency 2018). Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) (Figure 7: Cumulative growth of e-residents in Estonia. Companies established by non residents. Source: Estonian Government) Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) 3. Accelerators and incubators There are a lot of businesses supporting the inception and growth of other businesses. The most popular forms are accelerators and incubators. Following a study by Jonathan Bone et al from Nesta (2017) the UK has 205 incubators and 163 accelerators. More than half of the accelerators are based in London whilst the incubators are spread evenly throughout the UK. Both organisations provide business support and office space. One of the key differences is that accelerators are mainly privately owned and for-profit organisations whereas incubators are publicly held or associated with a public sector organisation such as a university. Although the models vary, Bone suggests the following definition of an incubator: Open-ended duration (exit based on the stage of the company) Typically rent/fee-based Focus on physical space over services Admissions on ad-hoc basis (not cohort-based) Provision of services including mentorship, entrepreneurial training Provision of technical facilities such as laboratories Selective admission (but less than accelerators) Accelerators are a more recent phenomenon. They initially have been founded and funded by venture capital firms as almost all accelerators provide venture capital in the form of seed funding in return for shares of a company. In contrast with incubators, accelerators are highly selective and provide numerous business acceleration services to early stage businesses during a cohort-based programme. These last three to nine months on average. Services include support for early stage ventures or startups, developing the business model, legal and accounting, sales, market validation, and introduction to other investors, and fundraising support. In his article How to build a Seed Accelerator startup consultant Matt Kuppers (2016) argues that accelerators are nothing more than investment vehicles. Most accelerator programmes culminate in a final pitch day where the startups present their businesses to an audience comprising investors and potential partners. The goal for the startups is to secure follow-up investment from third party investors. After a couple of years, the accelerator sells the shares they collected initially from the startups and turn a profit. Bone (2017) characterizes an accelerator as follows : Fixed duration programmes (time frame varies) Typically growth-based Often provide seed funding Focus on services over physical space Admission in cohorts (usually about 10 startups at one time) Provision of startup services Highly selective Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) (Figure 8: Incubators versus Accelerators. Source: Nesta) The most famous accelerator programme is Y Combinator in the US started in 2005 by Paul Graham and his colleagues. The startup acceleration programme is a pioneer and led the way for the startup accelerator industry. Since inception Y Combinator helped over 2,000 startups. According to their Top Companies List - 2018 the top 100 companies have a cumulative valuation of over $100 Billion and created over 28,000 jobs. 93 of these companies are valued at $100 Million (2019). Further prominent accelerators are Techstars, 500 Startups, AngelPad, Seedcamp, Founders Factory, and Startupbootcamp. A portfolio overview presented on the website of Startupbootcamp (2019) unveils the survival rates of their startups across all global programmes. In total, there are 727 startups in their portfolio of which 70% are listed as still being active. In total, they created 2,960 jobs and received a total of €501 Million in venture capital. There is no doubt accelerators add tremendous value to entrepreneurship ecosystems. 4. Activity 3.4 Find out the three latest entrepreneurship government policies in your home country What is the difference between an incubator and an accelerator? How many accelerators are in your city? Secondary ecosystem 1. Introduction Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) Alongside the many aforementioned organisations and measures there is an entire secondary ecosystem of organisations that benefit from an entrepreneurship ecosystem. These organisations are consultancies, accounting firms, law firms, app developers, programmers, graphic designers, co- working and event space providers, and many more. “There is an entire shadow economy supplementing the global entrepreneurship ecosystem. Without these firms the ecosystem would not exist.” opines Letitia Seglah, COO of the London-based startup consulting firm Startup Manufactory Ltd (2019). The company provides consulting to early-stage startups and SMEs in London and has been nicknamed McKinsey for Startups by the University of Oxford (Enterprising Oxford 2017). Another example is the co-working space provider WeWork who built their entire business model on early-stage entrepreneurs, freelancers, and the self-employed. A WeWork membership makes people part of a global and loosely connected peer group of entrepreneurs and freelancers. The company provides access to over 290 stylish decorated co-working spaces globally. In addition to that they created a new form of an independent work culture as a lifestyle. Co-working and freelancing has become the new norm for many as discussed by Gideon Lewis-Kraus in his New York Times article The Rise of The WeWorking Class (2019). 2. Entrepreneurial culture A further important element of an entrepreneurship ecosystem is a healthy entrepreneurial culture. TV programmes such as The Tigers of Money (マネーの虎) in Japan and its many local variations such as Shark Tank in the US, El Mashrou3 ( ‫ )المشروع‬in Egypt, or Dragon’s Den in the UK are emblematic. It is very important to nurture an entrepreneurial culture as it reflects a society that values entrepreneurship. It serves as a beacon of light for new entrants and as an affirmative framework for its stakeholders. Entrepreneurial culture can be fostered through conferences and similar events, TV shows, public recognition, and in many more ways. The key objective is to raise the awareness for entrepreneurship as a career path just like any other profession. In the US entrepreneurial culture is very much at the core of its meritocratic society which is reflected in the popular American Dream allegory. ‘Work hard and you will make it!’ is the mantra. Although this can be applied to corporate America as well entrepreneurial success is widely glorified in US. Famous names are Jeff Bezos, Mark Zuckerberg, Bill Gates, Oprah Winfrey, and John D. Rockefeller. Business success equals upward social mobility and a higher socioeconomic status. In the United Kingdom the monarchy has been in existence for over 1,500 years. Although, the traditional peerage is still intact with its many hereditary titles successful commoners can also bestowed on the titles of a Lord, Sir, or a Baroness. Popular examples are Sir Richard Branson, the founder of the Virgin Group, Lord Bilimoria, the founder of Cobra Beer, and Baroness Lane-Fox of Soho, the co-founder of lastminute.com. These individuals are a perfect example how society, and especially the upper echelons thereof, value entrepreneurial success. 3. The top global entrepreneurship ecosystems The Startup Genome tracks over a million companies across 150 cities. Working with over 300 partner organisations their annual Global Startup Ecosystem Report is one of the foremost and comprehensive publications about entrepreneurship ecosystem performance and startup success. The Global Startup Ecosystem Report 2019 lists New York City, London, Beijing, Boston, Shanghai as the top ecosystems in the world. North America continues to dominate, being home to 14 of the top 30 top startup ecosystems, with 12 of those based in the US. Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) (Figure 9: The top 30 global Startup ecosystems. Source: The Startup Genome) These ecosystems create unprecedented levels of wealth. The global startup economy keeps growing at a fast pace creating $2.8 trillion in value between 2016 and 2018. This is a 20.6% increase from the previous period and more than double what it was just five years ago. This value creation is on par with a G7 economy and bigger than the annual GDP of the United Kingdom. Relatedly, 2018 saw a decade-high $220 billion in total VC investments (Startup Genome 2019). According to the report Advanced Manufacturing, Blockchain, Agtech, AI & Big Data, are the fastest growing Startup Sub- Sectors in the world. Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) (Figure 10: Startup sub-sector lifecycle. Source: The Startup Genome) 4. Activity 3.5 Read the Global Startup Ecosystem Report and answer the following questions: 1. Which are the top 3 startup ecosystems? 2. What are the fastest developing sub-sectors? 3. Which are the declining sub-sectors? 4. Is your city also listed in the report? Solution 1. A list of the top three startup ecosystems 2. A paragraph about the fastest developing sub sectors in the report (pp. 45) Example: “Deep Tech startups — those relying heavily on tech breakthroughs and tangible IP — are the fastest-growing group globally. The top 4 startup sub-sectors with highest growth are Advanced Manufacturing & Robotics (#1), Blockchain (#2), Agtech & New Food (#3), and Artificial Intelligence (#4). 3. A paragraph or list about declining startup sub-sectors. Example (pp 46): Adtech (47.9%), Gaming (40.4%), Digital Media (38.9%), Edtech (15.8%). 4.. Students should look up their city and respond either “Yes” or “No”. An extension to the question could be: “Please list the top three startup ecosystem sub sectors in your country.” Version 1.1 Last updated 17/09/19 MN3194 Entrepreneurship (online) Test your knowledge and understanding What supranational organisations create entrepreneurship policies in Europe and Africa? How many startup ecosystems are listed in the Global Startup Ecosystem Report? Who are the three most famous entrepreneurs in your home country? Sample examination question What are the key elements of an entrepreneurship ecosystem? Why is entrepreneurship education important? How many countries does the Continental Free Trade Area include? Version 1.1 Last updated 17/09/19