Executive Master of Public Administration 2017/2018 Master Thesis

Transcription

1 Executive Master of Public Administration 2017/2018 Master Thesis How can national governments in Europe build scale-up ecosystems? A case study of the United Kingdom, Sweden & the Netherlands In cooperation with the Ministry of Economic Affairs & Climate Policy of the Netherlands Contact person: Myrthe Hooijman April 2018 Thesis Advisor: Professor Johanna Mair Author: Pieter Guldemond MSc Student ID: EMPA 2017/2018 p.guldemond@empa.hertie-school.org Warmoesstraat 15E, 1012HT Amsterdam, The Netherlands

2 Acknowledgements I would like to thank the Hertie School of Governance for the opportunity to spend a full year on my Executive Master of Public Administration in Berlin. I am also grateful to my thesis advisor professor Johanna Mair. She was very helpful in choosing this topic and supportive when I proposed changes to the original research setup. Next, I want to express my appreciation for the Ministry of Economic Affairs & Climate Policy of the Netherlands. Their commitment to this research opened doors and made it possible to interview leading researchers and policy makers in the European field of scale-ups. Myrthe Hooijman, Robert- Jan Brooijmans, Joost Dieleman and Lucien Vijverberg dedicated a significant amount of time to this research. Without Wilco Schuttelaar and Lieke Conijn, I would not have been able to meet so many interesting people in Stockholm and London. Lastly, Pieter Waasdorp (director Entrepreneurship) was very committed to this topic, so I am convinced the recommendations I presented to the Ministry will be implemented in the Netherlands. I am thankful to the 31 people I interviewed in the UK, Sweden and the Netherlands. It was a privilege to travel to these countries and in addition attend the world leading startup event SLUSH in Helsinki. In London I even had the chance to ask UK s Scale-Up Minister Margot James a question. Her response that government picking winners often leads to losers picking government was a rather cynical comment, but it motivated me to substantiate my recommendation for government involvement in selecting scale-ups even better. Last but not least, I want to thank my dear family, friends and Hertie Heroes for their loving support. 2

3 Executive summary This thesis analyses how national governments in Europe with a well-developed startup ecosystem can support the development of a scale-up ecosystem, by comparing practices in the United Kingdom, Sweden and the Netherlands. The case studies reveal that in these countries there is a focus shift from startups to scale-ups. Access to talent and access to markets are the two biggest scale-up issues. Surprisingly, there are no clear policies in place to improve these issues. Some political developments are expected to even worsen these issues, like Brexit. Compared to the number of programs for startups, the offer of scale-up programs is limited. Current scale-up programs use a time-consuming selection procedure in which participants are handpicked. The UK is ahead of Sweden and The Netherlands regarding scale-up policies. It has been experimenting for years and even has a dedicated Scale-Up Minister. TechCity UK offers a highly appreciated scale-up program: Future Fifty. Sweden has a thriving, well-funded startup ecosystem but no strong policy focus on scale-ups yet. The startup ecosystem in the Netherlands is not as developed as those in the UK and Sweden, but in formulating scale-up policies the Netherlands is ahead of Sweden. Based on this research, a proposal for an ex ante scale-up definition is presented, targeting highpotential startups and SMEs aiming for growth. In addition, four steps for national governments are proposed. First, by combining information sources and experimenting with the development of algorithms, high-potential scale-ups should be identified proactively. Second, coherent policies concerning access to talent and access to markets should be developed. Third, experiments with dedicated scale-up support should be executed. Fourth, these efforts should be evaluated to improve the policies to develop a scale-up ecosystem. Key words: scale-up, high-growth firm, SME, entrepreneurial ecosystem, innovation policy 3

4 Content 1. Introduction... 6 PART I: LITERATURE & METHODOLOGY Literature study History of entrepreneurship policy From startups to scale-ups Scale-up definition Limitations OECD definition Myths about HGFs Supporting HGFs Interviews with scale-up experts Methodology Demarcation: top performing European countries Combining rankings Exploratory interviews PART II: CASE STUDIES & CONCLUSIONS United Kingdom (UK) Government of Scotland Ministry of Business, Energy & Industrial Strategy (BEIS) Simon Devonshire, serial entrepreneur & scale-up entrepreneur in residence Nesta TechCity UK Summary UK Sweden Stockholm, capital of unicorns Ministry of Enterprise Aggregated results other interviews Sweden The Netherlands Ministry of Economic Affairs & Climate Policy Aggregated results other interviews the Netherlands Comparison UK, Sweden & NL Similarities Countries at different speed

5 8. Conclusions & recommendations Proposal for an ex ante scale-up definition Generic and dedicated governmental support Summary: four steps Further research APPENDIX Appendix A: List of interviewees Appendix B: Interview protocol Appendix C: Slides final presentation Ministry of Economic Affairs

6 1. Introduction In search for opportunities to strengthen their economies, national governments in Europe started to develop startup ecosystems the past decades. There is an ongoing competition between countries to become Europe s leading startup hub. Startup Genome (2017) collects data of over startups globally and compares cities and countries based on this data. However, investing in startup ecosystems is heavily debated in scientific publications. Shane (2009) stated that encouraging more people to become entrepreneurs is bad policy. According to his publication, startups are not innovative, create few jobs, and generate little wealth. Therefore, he argues that policy makers should stop subsidizing the formation of the typical startup and focus on the subset of business with growth potential. Although this is a rather negative and heavily criticized way of looking at startup ecosystems, he does introduce an interesting new focus, namely businesses with growth potential. Numerous labels are used for this group: gazelles, high-growth firms and scale-ups. Regardless the exact definition, these labels are used to describe businesses where growth in terms of jobs or revenue is expected or happening. National governments have a growing interest in this group as they contribute to economic growth. In 1987 the first big study concerning scale-ups was performed. This study showed that 4% of the US companies are responsible for 70% of all new jobs (Birch, 1987). Another influential study on scale-ups was published by the British innovation foundation Nesta in This study concluded that 6% of the UK businesses with the highest growth rates generated half of the new jobs created by existing businesses between 2002 and Both studies show that scale-ups are an important driver for job creation. They fuelled the debate about if and what national governments can do to support scale-up ecosystems. This research aims to answer the question how national governments with a well-developed startup ecosystem can support the development of scale-up ecosystems, by comparing practices in the United Kingdom, Sweden and the Netherlands. It is a qualitative research that shows how these countries deal with scale-ups, based on 31 interviews. This research is not about individual scale-up needs and does not deliver quantitative insights in scale-up policies. 6

7 The structure of this thesis is the following. In the first part, a literature study on scale-ups is performed (chapter 2) and the methodology for this research is explained (chapter 3). In the second part, the case studies and conclusions are provided. Chapter 4, 5 and 6 display the results of the interviews in the United Kingdom, Sweden and the Netherlands. A comparison of these case studies is made in chapter 7. Finally, in chapter 8 the conclusions and recommendations are presented. The research is executed in cooperation with the Ministry of Economic Affairs and Climate Policy of the Netherlands. The Ministry invests heavily in entrepreneurial policies and founded an organisation to strengthen the position of the Netherlands as a startup nation in 2014: Startup Delta. One of the current interests of the Ministry and Startup Delta is how to effectively address the needs of scale-ups in addition to the startups services they deliver. The Ministry is eager to learn from other countries and therefore welcomed an international comparison of scale-up policies. 7

8 PART I: LITERATURE & METHODOLOGY 8

9 2. Literature study When writing about entrepreneurship, small-to-medium enterprises (SMEs), startups, scale-ups and innovation ecosystems, it is rather easy to lose yourself in discussions on definitions. As the goal of this research is to study how national governments deal with scale-ups in practice, an effort is made to limit the literature study to elements that will be relevant for the interviews. First, a short history of entrepreneurship policy is presented. Second, the recent shift towards building scale-up ecosystems is described. Third, attention is paid to the different definitions of scale-ups and high-growth firms. Fourth, limitations of the most used definition are listed. Fifth, persistent myths regarding high-growth firms are presented. Sixth, different views on how to select high potential firms and common scale-up issues are described. Lastly, additional insights gathered by interviewing four leading scale-up researchers are presented in this chapter. 2.1 History of entrepreneurship policy The importance of entrepreneurship has radically changed the past decades. In post-world War II literature, the main insights about the role of SMEs during the post-war economies in the western world were that SMEs are generally less efficient than their larger counterparts, provide lower level of employee compensation, are only marginally involved in innovative activity and their importance is declining over time (Audretsch, 2003). It was only in the late 80s and early 90s that studies like Loveman & Sengenberger (1991) and Acs & Audretsch (1993) showed the growing importance of SMEs again. There are numerous theories explaining this change, but those are less relevant for this thesis. The relevant implication is that governments rediscovered SME policies at the end of the previous century. A distinction should be made between public policy towards SMEs on the one hand and entrepreneurship policy on the other hand. SME policy typically refers to policies implemented by a Ministry charged with the mandate to promote SMEs, focusing on promoting the viability of existing enterprises (Audretsch, 2003). On the contrary, entrepreneurship policy consists of measures taken to stimulate more entrepreneurial behaviour in a region or country (Lundstrom & Stevenson, 2001). From 2000 onwards, multiple publications on entrepreneurial ecosystems were published. Stam & Spigel (2016) define them as a set of interdependent actors and factors coordinated in such a way that they enable productive entrepreneurship within a particular territory. 9

10 Brad Feld (2012) wrote a highly popular book on Startup Communities and Daniel Isenberg (2010 & 2012) wrote famous articles in Harvard Business Review on how to start an entrepreneurial revolution, describing nine prescriptions for creating an entrepreneurship ecosystem. These publications fuelled policy making in the field of entrepreneurship on all levels. The European Union runs a huge program called Startup Europe and spends billions of euros on startups and scale-ups in the European Institute of Technology programs. National governments keep launching entrepreneurship policies, varying from favourable tax measures till startup visa. And local governments invest in incubators and accelerators, leading to an ever-growing landscape of innovation hubs. 2.2 From startups to scale-ups Shane (2006) wrote a critical article mentioned earlier on why encouraging more people to become entrepreneurs is bad policy. He states that the typical startup is not innovative, creates few jobs and generates little wealth. Therefore, policy makers should stop subsidizing the formation of the typical startup and focus on the subset of businesses with growth potential. An important counter argument is that in order to have a subset of high potential scale-ups, a broad base of startups is needed. Brown & Mason (2017) introduce the concept of an entrepreneurial ecosystem and show that scale-up ecosystems build on embryonic ecosystems. The implication is that there is no short-cut to building a scale-up ecosystem, a basic level of startup activities and an entrepreneurial ecosystem is needed first. Embryonic ecosystem Scale-up ecosystem Dominant actors Limited number of startups High numbers of growth-oriented startups Levels of entrepreneurial orientation Availability of funding Fluidity and diversity of ecosystem actors Nature of entrepreneurial recycling Importance and focus of public policy Low. Startups focus on early and/or premature exits Good sources of seed and early stage funding, often publicly funded through co-investment schemes Low level of transnational entrepreneurs Small number of major exits Strong role for policy, typically focuses on increasing resources and new-technology based firms High. Strong growth focus on generating new blockbuster firms Full range of funding sources across the entire funding escalator. Nearly all privately funded Large number of entrepreneurs are nonnative, immigration of transnational entrepreneurs is high Large number of blockbuster exits. Large number of high net worth individuals who become angels Limited role for policy, many initiatives are industry-led and focus on building vertical network connectivity Archetypical examples Scotland, Ireland, Finland, Portugal Silicon Valley, TechCity London, Berlin Table 1. A basic typology of entrepreneurial ecosystems (Brown & Mason, 2017) shortened version 10

11 2.3 Scale-up definition When startups are discussed, there seem to be consensus about the definition. This is not the case for scale-ups. The terms scale-up, high-growth firm and gazelle are used interchangeably. In literature the most used term to describe firms with a high growth potential is high-growth firm (HGF). However, in policy initiatives the term scale-up is used more often lately. The launch of the Scale-Up Report on UK Economic Growth from the Scale-Up Institute in 2014 contributed to the popularity of this label. Below a selection of the definitions currently used is presented. Two definitions of a high-growth firm (HGF) OECD European Commission (2017) & Eurostat An enterprise with average annual growth in employees or turnover greater than 20% per annum over a three-year period, and with more than 10 employees at the beginning of the period An enterprise with average annual growth in employees or turnover greater than 10% per annum over a three-year period, and with more than 10 employees at the beginning of the period Four definitions of a scale-up Scale-Up Institute (2014) Startup Europe Partnership (2014) Startup Amsterdam (2017) Bruegel (Duruflé, Hellmann & Wilson, 2017) An enterprise with average annual growth in employees or turnover greater than 20 percent per annum over a three-year period, and with more than 10 employees at the beginning of the period (= similar to OECD definition of a high-growth firm) A development-stage business, specific to high-technology markets, that is looking to grow in terms of market access, revenues, and number of employees, adding value by identifying and realizing win-win opportunities for collaboration with established companies. A scale-up is past the search phase and rather in the execution phase of the business model. Scale-ups exists on top of a solid startup ecosystem. Tech-centric companies with employees Entrepreneurial companies that are past their initial exploratory phase, have found their initial product/service offering and market segment, and are entering a growth phase where they seek significant market penetration. The term scale-up is reserved for companies that are aiming for fast growth, possibly seeking to become so called gazelles. 11

12 Two definitions of a gazelle Birch (1987) European Commission (2017) A company that doubles its sales every four years. Gazelles are a specific, less than five years old subset of high growth firms as defined by the OECD This overview shows there is no consensus on which definition to use. For some, high-growth firms are similar to scale-ups but for others, scale-ups are focussed on technology and driven by innovation. There are quantitative and qualitative definitions. Some are convinced that scale-ups have to be a startup first, others think every SME can turn into a scale-up. The only common ground is the focus on companies that experience growth, have growth potential or growth ambition. 2.4 Limitations OECD definition In literature, most researchers stick to the OECD definition as it is clearly defined and relatively easy to measure. However, there are limitations to this definition. First, this definition omits firms which may be growing rapidly but fall just outside this exacting growth threshold (Anyadike-Danes, Hart & Du, 2015). Second, turnover and employment growth do not necessarily reflect how entrepreneurs themselves conceptualize growth (Achtenhagen, Naldi & Melin, 2010). Third, this definition might lead to noisy data. For example, when independent companies start to merge into one company, this leads to spectacular growth numbers on paper. However, in reality the economic activities of the new entity might not have been growing compared to the combined activities of the separate activities. Fourth, as the measurements can only be done ex post, a huge delay occurs. For policy makers this is a disadvantage, as they will only know whether a certain company was a high-growth firm after the growth occurred. Lastly, the definition does not take capricious growth into account. Companies that have a spectacular growth for two years, are stable for a third year, and have high growth in the fourth year again, are not identified as a high growth firm according to this definition. As growth is highly episodic in nature (Garnsey, Stam & Heffernan, 2006), this is a serious drawback of the definition. Mason & Brown (2011) describe high-growth not as a characteristic of a subset of firms, but rather a state that some firms temporarily experience. This means that HGFs are effectively a moving target, making them a difficult cohort of businesses for researchers and policy makers to target. These shortcomings of the HGF definition explain why policy makers often decide to use their own definition when discussing entrepreneurial policies. In section 8.1 a proposal for a definition on scale-ups for policy makers is proposed. 12

13 2.5 Myths about HGFs To get a better picture of what kind of companies are (potential) HGFs, Brown, Mawson & Mason (2017) identified a number of HGF myths. Myth 1: HGFs are young and small In the UK, 70% of the HGFs are at least five years old (Nesta, 2009) Myth 2: HGFS are predominantly high tech Again, in the UK only 15% of HGF are operating in the high-tech sector. However, the majority is highly innovative, irrespective of their industrial sector (O Regan, Ghobadian, and Gallear 2006; Segarra and Teruel 2014) Myth 3: Universities are a major source of HGFs However, universities do play a key role in shaping the overall entrepreneurial ecosystem Myth 4: HGFs undertake steady linear growth and grow organically This myth was already pointed out in the previous paragraph Myth 5: HGFs are mostly VC backed This relates to the first and second myth Consequently, policymakers should not limit themselves to startups turning into scale-ups when targeting (potential) HGFs but include high potential SMEs in various sectors. However, the population HGFs Brown, Mawson & Mason studied for their research are defined on an ex post base, so a critic to this research can be that these myths are correct for HGFs of the past but might be less relevant for HGFs of the future. It is for example very likely that the importance of technology will grow in the scaling of future businesses (not necessarily high tech). 2.6 Supporting HGFs Shane s (2006) proposal to zoom in on businesses with growth potential deserves closer attention. Again, there is no consensus whether generic or selective business support is preferred. OECD (2010) states that as it is difficult to identify firms that will grow faster based on a list of common 13

14 characteristics, an appropriate strategy would be to create the conditions for any firm to become high growth. However, programmes that specifically target firms with growth potential can be important, provided that they are not the only policy tool. Nesta (2009) proposes a more targeted approach. According to them, economic policy should focus on promoting innovation and on the small number of companies with high growth potential, rather than broadly based business support programmes for new startups and SMEs. Daniel Isenberg (2010) is a strong proponent of favouring the high potentials as well. He states that if resources are limited, programs should try to focus first on ambitious, growth-oriented entrepreneurs who address large potential markets. According to him wealth creation and labour force enrichment of one rapidly globalizing 500-person operation is much greater than 500 micro financed sole proprietorships. He adds that in selecting high potentials, governments should remain sector neutral and unleash rather than harness people s entrepreneurial energies. They should observe which direction entrepreneurs take and gently encourage supportive economic activity to form around already successful ventures. Brown, Mawson & Mason (2017) also state that instead of supporting a large number of high potential scale-ups, short periods of in-depth engagement with a small number of firms on the cusp of significant growth is needed. But how can the right high potential HGFs be selected? First, existing market knowledge can be used. According to Stam & Bosma (2015) truly high potential ventures tend to be well known in a limited industry circle, so it may be worth involving business angels, industry experts and incumbent suppliers and/or customers to help identify ambitious entrepreneurs and connect them to each other. Second, the ambition to grow is an important factor. Growth orientation cannot guarantee growth, but growth in the absence of aspiration is extremely rare (Stam & Bosma, 2015). Determining an entrepreneur s ambition is not an easy task, as it takes little effort to simply state one is ambitious. Amongst entrepreneurs it is highly encouraged to have an ambitious attitude, but this is not automatically translated into the execution of an ambitious growth strategy. One potential indicator of growth ambition is the desire to grow internationally. Third, Mason & Brown (2011) stress the importance of account management in order to identify the growth trigger points (like the introduction of a new product) and to be able to deliver customized, well timed support. There a only a few quantitative studies that evaluate HGF support programs. One large OECD study (2013) compared six European support programs and unsurprisingly concluded that there are big differences in structure, delivery arrangements, intensity and forms of support and outcomes. None of the programs had a specific sector focus, which reflects the finding that HGFs are found in all sectors. 14

15 In order to determine how to support HGFs best, an understanding of their most pressing issues is needed. The Scale Up Institute (2017) published a top five of scaling issues: access to talent and skills, access to customers, development of leadership capacity, access to the right combination of finance and navigating infrastructure. Although these issues are framed rather broad, this seems to be a good summary of common scale-up issues. These issues will be validated later on in this research. 2.7 Interviews with scale-up experts This literature study revealed there is a small number of experts in the field of HGFs. To get a better understanding of the latest developments in this field, interviews have been performed with four of these experts: Daniel Isenberg (Harvard University, USA), Colin Mason (University of Glasgow, UK), Ross Brown (St Andrews, UK) and Erik Stam (University of Utrecht, the Netherlands). Except for the interview with professor Isenberg, the interviews were held in person. Four topics were addressed in these interviews: focus, governance, programs and selection. The most relevant insights on these topics following from the interviews are shared here. Focus First, the importance of entrepreneurial recycling was stressed. Bringing experienced people and money back into the ecosystem is of great value to grow that ecosystem. Governments should observe the ecosystem closely and come into action when a big exit takes place to ensure an ongoing commitment of the people involved afterwards. Second, scale-ups will not easily come from university spinouts, but ambitious people who can become great entrepreneurs can be recruited here. Third, entrepreneurship policy should not be focussing on one specific sector. Innovation is likely to happen cross sectorial, so make sure you create the circumstances that stimulate cross sectoral cooperation. Fourth, governments should play a bigger role in innovative procurement. The involvement of scaleups in public tenders can be of great value. Governance There is consensus among the researchers that involvement of the private sector is very important. The government needs to set the table, but the private sector should run it eventually. Isenberg formulated this as light touch policy, where you nudge the private sector as a government. This can be done by starting where the biggest energy is. There are serious concerns about the influence of Brexit. Brown (2018) is working on a regression analysis that suggests Brexit could potentially result in 15

16 weaker growth, lower levels of innovation, reduced capital investment and lower access to external finance, especially for innovative and export-oriented SMEs. Programs Although there are several best practice programs, it is highly discouraged to simply copy models. Adaptation to the local context is always needed, as there are big differences in terms of culture, regulation, market access, etcetera. Another common mistake is to push certain technologies and sectors. An often-cited best practice is the case of the UK Future Fifty program (which will be described in chapter 4). A last observed element in strong programs is the move from grant-based support to peer-based support. Entrepreneurs tend to listen better to their peers, especially when they are slightly ahead of them. Selection of scale-ups Despite the focus on ex post identified HGFs in research, a shift towards ex ante identification of HGFs was advocated. It is a very complex and perhaps even impossible task to pick winners, but if you had to, the focus should be on entrepreneurs with growth ambition and growth experience. At the same time a warning was articulated to focus not solely on high growth, but to include a way to judge the sustainability of that growth. 16

17 3. Methodology The literature study provided valuable insights in entrepreneurial ecosystems in general and the position of HGFs specifically. But to get a deeper understanding of why certain choices are made and what their effects are, desk research will not be sufficient. Therefore, research is performed on how national governments deal with this topic in practice by executing three case studies. This chapter elaborates on the methodology of this research. First, it is explained why the choice is made to use top performing countries for the case studies. Second, rankings are compared to pick the three best performing European countries. Third, an explanation of the type of interviews that will be performed is presented. 3.1 Demarcation: top performing European countries For these case studies two demarcation choices are made. The first concerns the geographical focus. Scale-up policies are mostly debated in the USA and in Europe. The challenges of scale-up policies in the USA differ from those in Europe. The topics of access to markets and regulation for example are more complex in Europe, due to the institutional arrangements. It is interesting to see how national governments deal with these complexities, therefore the decision is made to focus on European countries. The second demarcation is about the choice to compare top performing countries, countries that lag behind or a combination of those. As the topic of scale-up policies is relatively new, some European countries have little to no experience in this field. From the examples often used in literature it is clear that the western European and Scandinavian countries are pioneers in this field. As the focus is on lessons learned and collecting best practices, the decision is made to focus on front runners only. 3.2 Combining rankings A clear measure to determine who are these European front runners does not exist, but with combining key rankings and performances a selection of top performing countries can be made. One of the leading rankings is the Startup Genome ranking (2017), in which global ecosystems are ranked on five factors: performance, funding, market research, talent and startup experience. Their 2017 ranking is displayed in figure 1. It shows that London, Berlin, Paris, Stockholm and Amsterdam are the five best performing European ecosystems. 17

18 Figure 1. Global Startup Ecosystem Ranking (Startup Genome, 2017) Nesta (2016) produced a digital city scale-up index, leading to the European top 15 displayed in figure 2. London, Stockholm, Paris and Amsterdam are again part of the five best performers. Berlin only comes at the 7 th position here and is replaced by Helsinki. Figure 2. European Digital City Index (Nesta, 2016) Another relevant measure is the share of HGFs in a country of the total amount of companies with more than 10 employees. Figure 3 shows that the UK, Sweden, the Netherlands, France and Germany are top performers in Europe (European Commission, 2017). 18

19 Figure 3. Share of HGFs in Europe (% HGFs of total companies with >10 employees) (European Commission, 2017) Lastly, the number of so called unicorns (companies with a valuation >1 billion euros) of European countries is compared in figure 4 (GP. Bullhound, 2017). Figure 4. Number of unicorns in Europe (GP. Bullhound, 2017) These four figures reveal the UK and Sweden score consistently high. The Netherlands, Germany and France come in changing orders right after these two countries. Ideally, five case studies would be performed. However, due to time constraints the decision is made to focus on three countries in this research. As the Dutch Ministry is highly motivated to share their insights, the decision is made to make a comparison of the UK, Sweden and The Netherlands. 3.3 Exploratory interviews In total, 31 exploratory interviews with policy makers, entrepreneurs, researchers and other representatives of the entrepreneurial ecosystem took place. The Dutch Ministry has an extensive network, which made it possible to approach key persons at ministries in the UK and Sweden. Next, these persons were very helpful in making links to other relevant actors in their entrepreneurial 19

20 ecosystem. Researchers were happy to contribute as well. The only actor not able to participate was the Scale Up Institute in the UK. I did attend their annual event, shortly spoke to the director and used their reports, but they were unable to schedule a full interview. To get as much information as possible out of the interviews, the preference was to have in person interviews. Only two interviews were held using Skype. An overview of all interviewees is displayed in appendix A. For the interviews, an interview protocol with semi structured questions was used, focusing on a limited number of topics that followed from the literature research: scale-up definition and focus, governance, scale-up issues and programs. The protocol is displayed in appendix B. This protocol was sent to the interviewees in advance, so they had time to prepare themselves. Using semi structured questions made it possible to incorporate new insights and if needed to change focus based on insights gained during interviews. In the second part of the thesis, the results of the interviews are summarised. The text is as close as possible to the formulations the interviewees used. First, the UK interviews are displayed. As these interviewees had deep knowledge and visions on scale-ups, every interview is presented separately. Next, the results of Sweden and the Netherlands are presented. In these countries, only the interview with the responsible Ministry is shown separately. The findings of the interviews with other organisations in these countries are presented as aggregated results. After presenting the case studies in chapter 4, 5 and 6, the similarities and differences between the countries are shown in chapter 7. 20

21 PART II: CASE STUDIES & CONCLUSIONS 21

22 4. United Kingdom (UK) In this chapter the results of the interviews with consecutively the Government of Scotland, the Ministry of BEIS, a scale-up entrepreneur in residence, innovation foundation Nesta and TechCity UK will be presented. Lastly, the main findings are summarised. 4.1 Government of Scotland Focus In order to improve their entrepreneurial ecosystem, Scotland participated in a MIT study in 2014, using the regional entrepreneurship acceleration program (REAP) methodology (MIT REAP, 2014). The main conclusion was to use a collective impact approach which involves all players in in Scotland s entrepreneurial ecosystem in order to implement actions on five themes: - Improve networking linkages between innovation capacity and entrepreneurial activity - Improve skills for growth - Improve access to growth finance - Leverage the role of universities to improve entrepreneurship - Promote innovation driven entrepreneurship to individuals of all ages As a response, the Scotland Can Do ( campaign was developed. It is a broad program with activities that serve a huge range of actors: from primary schools to scale-ups. Their definition of a scale-up is a company with the potential to reach a turnover of 100+ million pounds. However, global impact is more important than the exact number. Although literature says scale-ups not only come from the tech sector, they believe future growth will come from digital companies. Even a classical company like Swiss Post invests now in setting up a drone network. Entrepreneurial Scotland is hosting sessions about Scottish scale-ups in which they invite people of the ecosystem to contribute, varying from the Scottish unicorn founder Tom Hunter till representatives from the London Stock Exchange. Ranking scale-up issues - Access to talent. It is especially hard to find good computer science students. Although this is the most pressing issue, there is no real policy in place to address this - Leadership (skills) - Access to markets. If people have a growth mind set, this is less of a problem - Finance. Bank debt is still an issue 22

23 Governance Scotland CAN DO is currently run by a public organisation, but it will be transferred soon to Entrepreneurial Scotland (public-private), including a public budget of approximately 3 million pounds per year. It has always been the vision to hand the organisation over to the ecosystem. In order to realize this ambition, civil servants are trained to have an open, external attitude and spend time in the ecosystem. There is strong political support for scale-up policies in Scotland. As people want economic growth, this policy is not heavily debated. The previous Minister who started the CAN DO program was a strong defender of it. Results of the program are communicated using an online dashboard. This reveals some specific issues, like the huge gender gap. Programs The CAN DO program includes some scale-up activities. One is a summer school program of MIT entrepreneurship professor Bill Aulet, hosted by the University of Stirling. This program is not sector specific and focuses on developing a growth mind set. In general, it is relatively easy to convince tech companies to participate in programs like these as they are networked, and it is part of their culture. Companies with a turnover of 1 to 5 million pounds who are in business for a longer time are much harder to convince. They often need a trigger event (like the loss of the senior leader) before they start thinking about scaling up and dedicate time to it. 4.2 Ministry of Business, Energy & Industrial Strategy (BEIS) Focus The Ministry just launched their new industrial policy, which includes many entrepreneurship measures. They identified four grand challenges: growing artificial intelligence and data-driven economy, clean growth, the future of mobility and ageing society. Investments of 725 million pounds in an Industry Strategy Challenge Fund and 2,5 billion pounds in an investment fund are planned. They will also invest in mathematics, digital and technical education to boost STEM skills. The policy explicitly mentions to invest in identifying business with scale-up potential and encourage them to access the support available (Ministry of BEIS, 2017). It also highlights the prioritised four areas as defined by the Scale-Up Taskforce: 23

24 - Better use of government and private held business data to identify and target growing businesses when they need support - Enhanced leadership and management capability and access to talent - Greater awareness, and more take up, of equity finance and capital to help founders invest in business growth - Improved access to markets; through international trade, opportunities for government procurement and better supply chain support Lastly, the national network of Local Enterprise Partnerships and growth hubs will be continued. There is no clear definition of scale-ups. Scale-ups can be found in any sector and are not only tech companies. The local enterprise partnerships have their own approach to identify companies with high growth potential, so the selection can vary across the country. Although there are non-tech companies that can scale, most efforts are put into the development of tech clusters (see also TechCity UK interview). Ranking scale-up issues - Access to talent - Access to markets: industrial policy addresses need for better chances for scale-ups in public procurement - Leadership - Finance Governance A very interesting approach the Ministry uses is to appoint a scale-up entrepreneur in residence to help the government in its mission to help small businesses grow. Simon Devonshire, serial entrepreneur, was appointed in 2014 (interview with him is displayed in next section). The benefits of the involvement of an external person is that she or he has specific knowledge, brings in new networks and can serve as an ambassador. In addition, one of the ministers is appointed as Scale-up Champion: Margot James. Both appointments show the dedication of the UK government to grow more scaleups. Programs A highly popular program called Growth Accelerator was stopped in 2016, as a result of changing political priorities. In four years it supported businesses with the potential to have 50% turnover growth in three years. Participants were advised by experienced people from the private sector. 24

25 Participation helped founders to step back and think, as this is often the most difficult job as an entrepreneur. 4.3 Simon Devonshire, serial entrepreneur & scale-up entrepreneur in residence Focus Scaling a company from 2 to 10 people is a difficult as scaling from 1000 to 2000 employees. Therefore, it makes no sense to have a strict, number-based definition of scale-ups. In future businesses can only scale successfully if they go online and access international markets as quickly as possible. High potential scale-ups can be selected by zooming in on their ambition and their potential to grow. For the latter, there are promising developments in the field of machine learning that can support this selection. Basic algorithms looking at websites to identify the growth potential already exist and they will become more sophisticated. Ranking scale up issues - Access to markets. Entrepreneurs should learn how to become better in sales, this requires a growth mind set. Entrepreneurs with a small local market are better in this, as they have to think global from the very beginning - Finance. With paying customers and finance, it should be possible to find the right talent - Access to talent. UK should make better use of a hidden force: top students from all over the world come here to study, but few efforts are made to keep them Governance Governments should not be hesitant to intervene in an entrepreneurial ecosystem. Entrepreneurs want and need positive interventions. They can for example organize more competitions for societal challenges and connect procurement to these solutions. By doing so, more relevant entrepreneurs will arise ( Medtech instead of Adwords ). The UK growth hubs are inconsistent in their approaches and are underperforming. Future Fifty is an example of a successful program celebrating and supporting scale-ups (see next section). 4.4 Nesta Focus Nesta is an innovation foundation, focusing on policy and research, investments and the formation of partnerships to promote innovation across a broad range of sectors. They produced the digital scale- 25

26 up index that was displayed in chapter 3. They also published an idea bank for local policy makers on digital entrepreneurship (Nesta, 2016). The definition for scale-ups is not very clear but is a waste of time to spend too much time on that. In general, scale-up companies often use business model innovation, enabled by (internet)technology. Tech companies in the UK have grown faster than nontech companies. The industrial strategy of the Ministry of BEIS justly focuses on artificial intelligence, machine learning and other digitalization opportunities for future businesses. The economy needs productivity growth, this is closely related to digitalization. Governments should also realize which companies not to support, like small businesses with no ambition or potential to scale. As ambition is such a strong predictor, better tools need to be developed to determine what the real ambition of an entrepreneur is. Positive flags are international sales. Proxies for negative ambition or for example the founders name in the name of the company, but more research is needed to deliver a full picture on the ambition of an entrepreneur. Ranking scale-up issues - Access to talent - Access to markets - Leadership (skills) - Finance Governance To support scale-ups better action is needed on a European, national and local level. On a European level the Scale Up Manifesto (2016) sums up most important actions. On a national level, efforts are needed on mid-career training, export vouchers and landing pads. On a local level, more results can be obtained by using cities as a testbed and involve startups and scale-ups better in procurement. Nesta is a strong proponent of experimental policies in combination with data collection, which will provide you with valuable insights on the short-term and long-term results of a policy. It is highly recommended to involve alumni entrepreneurs and their network. If you just ask, the chance is high you will get their support. The UK honours system is a relevant factor in this regard, as it stimulates successful people to give back to society. Programs Incubators and accelerators seem to work for startups but offering a relevant program for scale-ups is more difficult. Scale-ups survived the first phase and already have a specific position in a certain industry or vertical. The question is whether there are enough similarities if you put scale-ups together 26

27 in one program to have a significant learning effect. Often scale-ups are too busy to participate. However, if founders manage to step back and zoom out, they often enjoy this moment of reflection. Team support is needed to realise this. 4.5 TechCity UK Focus TechCity UK was founded after the financial crisis in Overnight people lost their job and therefore new initiatives for job creation were designed. The central idea was to use technology to drive economic progress. TechCity UK supports the tech sector in general, but invests extra in fintech, artificial intelligence and robotics. The geographical focus at the start was East London, but the UK government recently decided to scale up TechCity UK to a national organisation: TechNation. The majority of the TechCity UK team members comes from the tech sector. Currently they focus on three tasks: advocacy, digital skills programs and life cycle programs for startups & scale-ups. Ranking scale-up issues - Access to markets. There should be better European cooperation to solve issues on Value Added Tax (VAT) and visa constraints - Access to talent. Brexit is a big threat that will worsen this issue. The UK has an extensive visa program, but it is not sufficient. An entrepreneurial visa scheme should be developed - Leadership (skills) - Finance Governance TechCity UK is 80% funded by the UK government. As it is a separate entity, the direct political interference is limited. TechCity UK publishes an insightful annual report online, which both serves as a marketing tool and an instrument to adapt actions. Programs The lifecycle programs offered by TechCity UK make it possible to keep good track of high potential scale-ups. A lot of effort is put in identifying and supporting them. There are two programs specifically for scale-ups: Upscale and Future Fifty (see box below). Upscale focuses on companies looking for series A funding, a growth rate of 30% per month, a scalable digital component and an age of 2-3 years. Future Fifty comes next and focuses on companies looking for series B funding, a growth rate of 30% per month, and 5 million+ pounds revenue. 27

28 Best practice: Future Fifty Future Fifty was launched in 2013 by the UK government. It aims to promote and support 50 of UK s most rapidly growing digital tech companies. These companies are supported by a larger community of institutional investors, entrepreneurs, government officials and professional services companies. They connect them to key sources of funding, provide entrepreneurial mentoring and give access to government departments (like the Ministry of BEIS). The focus is on how to approach a public listing or undertake a big expansion. It is aimed at founders, but there are underlying workshops for e.g. CMO s too. The foundations of the program are: - Peer-to-peer support - Active scouting and selection of participants (who often come from earlier stage programs like Upscale) - Learning from entrepreneurs who are just ahead of the participants - Key insights in common scale up issues, like scaling HR processes, leadership issues and International market expansion - Connection to relevant government departments As a result, the Net Promotor Score of participants is 60-70, which is considered excellent. 4.6 Summary UK Focus Although there is no unambiguous definition of what a scale-up is, the topic is high on the political agenda. In addition to the Scale-up Institute, there is a Scale-up Taskforce and a Minister is appointed as scale-up champion. The visions on which companies to focus on differ. Some organisations focus on tech & digitalization, others think the focus should be completely sector agnostic. With the new industrial strategy, the Ministry of BEIS made a clear choice to focus on solving societal challenges with tech solutions. According to them scale-ups can play an important role in realizing this ambition. Ranking scale-up issues Most of the interviewees consider access to talent the most pressing scale-up issue. Brexit brings lots of undesired uncertainties and it is expected that it will worsen this issue. Most organisations plead for more visa schemes to attract talent and extra efforts to maintain top talent from universities. 28

29 Governance The Ministry has many interactions with the private sector, amongst others by inviting experienced entrepreneurs from the field to spend time at the Ministry and advise them. In general, influential persons from the private sector are actively involved in societal challenges, like creating more jobs via scale-ups. This seems to be deeply rooted in the British culture. TechCity UK is considered a strong and successful organisation in the entrepreneurial ecosystem. In combination with the excellent research of Nesta, they play a positive role in building the entrepreneurial ecosystem in the UK. 29

30 5. Sweden Before the results of the interviews are presented, an eye-catching element of the Swedish entrepreneurial ecosystem is discussed: the high number of so called unicorns in the capital Stockholm. Next, the efforts of the Ministry of Enterprise are displayed. Lastly, the aggregated results of the interviews are presented. 5.1 Stockholm, capital of unicorns Stockholm is considered the capital of unicorns. A total of seven unicorns in a city of less than 1 million inhabitants is a rate that can only be found in Silicon Valley (Cole, 2016). Skype and Spotify are the most famous examples. Numerous scientific and news articles try to explain this phenomenon. The most comprehensive analysis is done by the Stockholm School of Economics (Skog et al, 2016). One factor that is repeated in almost every analysis is the governmental subsidy scheme on buying Personal Computers in the nineties. This led to highly developed technical infrastructure, enabling an early adoption of IT. Another explanation can be the dependence of imported media, leading to excellent English language skills. However, there are more countries that fit these requirements. In addition, these explanations are presented: - Entrepreneurs, business people, politicians and university researchers are highly connected in formal and informal networks - A strong presence of engineers in Sweden led to a focus on problem-solving through informal networks - The state offers a social safety net that reduces the risks faced by entrepreneurs - Higher education is free, so students have time to devote to entrepreneurial endeavours - Presence of a well-developed startup ecosystem (incubators, startup loans, investors, state agencies, etcetera) - Pay it forward culture: serial entrepreneurs share their expertise - Strong international connections and global approach due to the size limitations of the Swedish domestic market 5.2 Ministry of Enterprise Focus The Swedish Ministry actively works on the topic of scale-ups, although they do not use a clear definition. One of their drivers is to grow companies longer in Sweden, instead of being bought by 30

31 American companies. Another driver is to diminish the big gap between traditional SMEs and startups. Traditional SMEs should benefit more from the thriving startup ecosystem in Sweden and get infused by these tech and innovation companies. In order to support traditional SMEs with digitalization, a dedicated program is set up, called Digilift. Tech companies should be involved more in solving societal issues. The Ministry defined five innovation partnership programs to meet societal challenges: next generation transport, smart cities, circular and bio-based economy, life sciences and a connected industry. Ranking scale up issues - Access to talent. Tax incentives for specialists are in place. From 2018 an employee stock option program is introduced too - Access to markets - Finance. A more dynamic IPO culture is desired - Leadership skills Governance There are limitations to what the government can do due to state aid regulations. On topics like sustainability and promoting deep tech, the Ministry would like to do more but this is not always allowed. In general, national governments should cooperate more to address scale-up issues on a European level, for example at the European Innovation Council. The Ministry is very open to team up on this topic with other governments. Programs High potential scale-ups like battery company Northvolt are very good in gaining attention from government, media and investors and do not need extra support. The existing infrastructure of public support organisations should be sufficient. A good way to support scale-ups is by offering peer-to-peer programs. 5.3 Aggregated results other interviews Sweden Focus Sweden has a well-funded, mature startup ecosystem. The next challenge is to produce more scaleups. Although there is a high number of unicorns, there does not seem to be a specific policy focus nowadays on producing them. Most unicorns used mobile technology as enabler to scale. It is unclear what might be a next enabling technology. The development of home systems like Siri and Alexa might 31

32 play a role in this. According to most interviewees, the number of unicorns is not a satisfying measure, instead the focus should be more on profitable growth. The topic of scale-ups is not intensely discussed and defined yet, but there are some signs of shifting focus towards this topic (like supporting SMEs with internationalisation and digitalisation). Ranking scale up issues - Access to talent. To create better access to talent, more foreign people need to be attracted. Visa schemes need to be extended, but this is politically heavily debated. Another problem to attract talent is the limited and expensive housing in Stockholm. - Access to markets - Leadership (skills) - Finance Governance The Swedish government plays an active role in the development of the entrepreneurial ecosystem. There is a range of public bodies who support them: Almi (funding and advice for entrepreneurs), Vinnova (funding for research and development), Tillväxverket (Swedish Agency for Economic and Regional Growth) and Startup Stockholm. There is a high level of cooperation between the players in the startup ecosystem, by some explained by the Swedish phenomenon lagom : literally translated it means just enough and it is often interpreted as embracing a middle ground in life (McHugh, 2017). The centre of gravity in the Swedish startup ecosystem is clearly Stockholm, but there is a strong tendency to involve all regions in governmental policies. Corporate involvement is increasing, but only recently. Programs There are no dedicated scale-up programs comparable to programs in the UK. There is a program to support companies with accessing international markets (Going Global, offered by Business Sweden) but they do not specifically focus on scale-ups. The culture in Sweden is to support everyone, so selecting a small number of companies to support does not fit this culture well. However, some agencies tend to move more towards selection in order to give targeted support. The experience of account managers is needed to make a good selection. Furthermore, traction (customers and sales in multiple markets) and the willingness to grow are relevant factors to identify high potential scale-ups. The Swedish Agency for Economic and Regional Growth (2017) published a research that shows the ambition of SMEs to grow in Sweden is high: 7 out of 10 want to grow. In the next chapter it will become clear that this number can vary greatly in Europe. 32

33 6. The Netherlands First, the results of the interview with the Ministry of Economic Affairs & Climate Policy are presented. Second, like in the case study of Sweden, the aggregated results of the remaining interviews are displayed. 6.1 Ministry of Economic Affairs & Climate Policy Focus The Ministry is heavily involved in developing the Dutch startup ecosystem. In 2014 they supported the foundation of a new organisation: Startup Delta. It is their mission to merge the Dutch startup ecosystem into one single connected hub, by improving access to talent, capital, networks, knowledge and markets (Startup Delta, 2018). There is awareness at the Ministry that the next challenge for the Dutch startup ecosystem is to move more startups to the scale-up phase. Although the name Startup Delta seems to exclude scale-ups, it is part of their mission to support them too. There is no clear scale-up definition in place, but a range of options is currently discussed at the Ministry. Next to giving better support to scale-ups, another priority is to connect startups and scale-ups to societal challenges. Ranking scale-up issues - Access to talent. A separate policy is developed to address exactly this issue. The program is called warm welcome to talent and consists of a range of measures, varying from acquisition and branding of the Netherlands for skilled people to visa schemes better tailored to the need of startups and scale-ups (Werkgroep Warm Welkom Talent, 2017). A serious problem in attracting international talent is the tight and therefore expansive housing market in Amsterdam. One of the specific policies that is highly rewarded by international talent is the so called 30% facility : employers can grant highly skilled migrants moving to the Netherlands a tax free allowance equivalent to 30% of the gross salary subject to Dutch payroll tax (Gemeente Amsterdam, 2018) - Access to markets. The Netherlands scores relatively low on this criterion in the Startup Genome ranking. The networks in both Sweden and the UK seem to be stronger - Finance. Multiple new initiatives to improve the funding situation in the Netherlands have been launched over the years. The most recent one is the setup of the national fund InvestNL. This fund of 2.5bln euros aims to support startups and scale-ups. Despite the efforts in this field, the Netherlands is not a top performer on this issue 33

34 - Leadership skills Governance The National Foreign Investment Agency (NFIA) focuses on corporate support. The State Agency for Entrepreneurship (RVO) supports entrepreneurs in general. Startup Delta focuses on tech startups. But there seems to be an institutional gap for supporting scale-ups. However, there is willingness at all these organisations to support them more. RVO and Startup Delta started an experiment to support entrepreneurs directly using Whatsapp. These types of hands-on support from a national government (although indirectly via governmental organisations RVO and Startup Delta) are rather unique. Startup Delta wants to serve scale-ups better and even considered to change their name, as the current name might put off scale-ups. Programs The Ministry invested in a dedicated mentoring program for companies with a revenue of 1 million+ euros, called NL Groeit. It is accessible for both startups and SMEs, but in practice is it mostly used by traditional SMEs. They also co-funded a dedicated scale-up program, called Scale-Up Nation (see box in section 6.2). On a local level there are other scale-up initiatives, like Startup City Alliance Europe (SCALE). It is initiated by Startup Amsterdam and aims to create a connected European city-to-city startup ecosystem. Lastly, the Ministry co-funds Ideas for Europe, an event that collects ideas that have the potential to scale and by doing so solve global challenges. In a recent study it was revealed that 90% of the entrepreneurs in the Netherlands do not have the ambition to grow (Ministerie van Economische Zaken & Klimaat, 2017). The contrast with Sweden (70% has the ambition to grow) is remarkable. A possible explanation can be that in the Netherlands many workers have to register themselves as entrepreneur (like general practitioners) although one can question whether these independent workers without personnel are real entrepreneurs. But even if this group is left out, the number is still very low. There is no tradition of selecting high potential startups are scale-ups proactively. Only recently Startup Delta organised a competition for startups and scale-ups who want to join the Dutch mission to consumer electronics event CES in Las Vegas. 34

35 6.2 Aggregated results other interviews the Netherlands Focus Again, there is no clear definition of scale-ups in the Netherlands. Innovation hubs in the country articulated their desire to let the Ministry decide on one. A perfect definition does not exist, but clarity is needed to understand what the country is aiming for. Only then it will be possible for the innovation hubs to contribute to that goal. The topic of scale-ups is high on the political agenda in the Netherlands. Despite the fact there are no extensive scale-up policies in place yet, all interviewees were aware of the importance and opportunities of this group. Ranking scale-up issues - Access to talent - Access to markets - Finance. There are different views on whether funding is still an issue for Dutch startups and scale-ups, but there is consensus that the situation in London and Stockholm is significantly better - Leadership skills Programs There should be a much stronger focus on companies that have the ambition and potential to grow. The Dutch Chamber of Commerce started to experiment with predicting which companies will grow fast by mining their data. The support delivered should be hands-on and on a peer-to-peer base. As there is not much experience with supporting scale-ups yet, experiments have to be setup and evaluated. That is the only way to build successful policies. 35

36 ScaleUp Nation ScaleUp Nation was launched in 2017 by THNK School of Creative Leadership, McKinsey and New Venture, supported by the Dutch government. It aims to empower entrepreneurs through the transition from starting up to rapidly scaling their 3P (people, planet, profit) enterprises (ScaleUp Nation, 2018). Eligible for the program are enterprises that focus on innovation, are not older than 10 years, have international traction and first million euros in revenue. In the Netherlands there are approximately 300 companies annually that match these criteria. The scouting of these participants is a time-consuming task, as they are handpicked. The program consists of a kick-off of four times 1,5 day and a 3-year support program. It is a mixture of plenary sessions and individual sessions. The focus is on leadership coaching, organisation of internal processes and other activities to scale successfully. Most of the participating scale-ups are found by serial entrepreneurs. The desire of ScaleUp Nation is to cluster the participants based on their sector, but participants often resist that. As the program only started recently, it is too early to report on the results. One observation of the ScaleUp Nation organisation is that working in a scale-up is very different from working in a startup. It is extremely demanding. Ambition and the willingness to work a lot of hours is crucial to be successful as a scale-up. One can question whether this fits the desires of millennials. ScaleUp Nation is working on a publication on ScaleUp DNA. According to the preliminary results these factors are important to successfully scale: - Experienced entrepreneurs need to be in the founding team and/or board - Scale-ups are more likely to be founded by a team (two or more founders) - Perseverance: walk the talk, again and again - Pick attractive markets, often B2B markets - Create irresistible products - Focus on innovation - Original CEO should stay on board during the scaling process - Clear goals and operational KPIs - On-board the best talent 36

37 7. Comparison UK, Sweden & NL In this chapter the case studies are compared with each other. First, similarities between the countries are presented. Second, the differences are described leading to a picture of countries operating at a different speed. 7.1 Similarities A common finding is there is no consensus which scale-up definition to use. Most of the interviewees are aware of the OECD definition, but criticise the value of it for policy making. Instead, they come up with different definitions, leading to a very blurry picture. It is confusing when using the term scaleup, some people think of a young, high potential, early stage, high-tech startup and other people of a well-funded, experienced, international operating family trading company. In the next chapter, a proposal for a definition of scale-ups for policy makers is presented. Without any doubts, access to talent is the most pressing scale-up issue. Interviewees identified this issue without any hesitation but surprisingly could not clearly formulate what is done to solve this issue. Moreover, in the political arena proposals that will make this issue even worse are debated. Brexit and demands for stricter migration rules are seen as a big threat to provide better access to talent in all three countries. Access to markets is the second biggest scale-up issue in all countries. But there are differences between the countries. The UK has a huge domestic market compared to the Netherlands and Sweden. According to many, this results in a global mentality at ambitious business owners in the latter countries. In all countries there is little experience in proactively selecting high potential scale-ups. Future Fifty and ScaleUp Nation are the most experienced actors in this field, but both use a rather traditional way of selecting candidates. Experiments with data mining and using artificial intelligence for selection are performed on a small scale but are believed to play a bigger role in future. A last similarity is that all governments connect societal challenges to their policies. In defining these challenges, a lot is expected of technology to solve them and a link to startups and scale-ups is often made. However, in their own spending governments struggle with providing better chances for scaleups. In all countries interviewees criticised the lack of opportunities for scale-ups in procurement procedures. 37

38 7.2 Countries at different speed The UK is clearly ahead of Sweden and the Netherlands regarding scale-up policies. From the Scottish government to Nesta, all British organisations had a good understanding of the definition struggle and the scale-up challenges ahead. They have been experimenting for years with different programs. TechCity UK is responsible for running the most prominent scale up program Future Fifty and manages to attract top scale-ups to participate. The consecutive programs they developed enables them to observe a pipeline of promising startups and scale-ups. The peer-to-peer approach contributes to a networked community. Their data driven reports contribute to a good insight in the development of their entrepreneurial ecosystem. The label scale up ecosystem that was introduced earlier clearly fits the UK situation, in which London is the focus point. In Sweden scale-up policies are a rather new phenomenon. Until now the focus has been on developing a startup ecosystem. Most of the interviewees did not have a clear picture of what scale-ups are and how they should be targeted. The word scale-up is hardly used in Swedish policies, the focus is on how to solve societal challenges by startups and on connecting startups to traditional SMEs. However, at the agency for economic growth there is awareness that digitalisation and internationalisation are priorities for economic growth. Compared to the UK, the private sector is less involved in developing the entrepreneurial ecosystem. In the Netherlands there is growing awareness at both governments and partners in the entrepreneurial ecosystem to do more to support scale-ups. The startup ecosystem is improving rapidly but is slightly behind Sweden and the UK, especially in terms of networks and funding. Private actors in the Netherlands are not as actively involved as in the UK, but more than in Sweden. Both Sweden and the Netherlands have great potential to grow more scale-ups, based on their thriving startup ecosystem. They are past the embryonic ecosystem phase and are moving towards a scale-up ecosystem. Like in the UK, capital cities Stockholm and Amsterdam are the central points of this ecosystem. Sweden has more unicorns that serve as a role model, but Amsterdam is catching up. 38

39 8. Conclusions & recommendations In this chapter conclusions and recommendations are presented. First, a scale up definition for policy makers is proposed. Second, a plea for both generic and dedicated scale-up support is stated. Third, recommendations are summarised in four steps. Lastly, suggestions for further research are presented. 8.1 Proposal for an ex ante scale-up definition The literature overview revealed scale-ups and high-growth firms are poorly defined. The interviews showed in practice even more definitions exist. Governments tend to use their own definition, as a consequence an international quantitative comparison is almost impossible. Governments tend to move away from the OECD definition, because this ex post definition gives limited policy insights. Instead they experiment with ex ante definitions in order to support high potential growth firms in an early stage with scaling up. Based on this desire and the insights gained in this research, the following definition of scale-ups for policy makers is proposed. A scale-up is a company with a minimum of 10 employees, a validated business model, paying customers, aiming for growth, in which technology plays an important role. A minimum of 10 employees is similar to the OECD definition and makes sure the companies are past the startup phase. A validated business model and paying customers means a problem-solution fit is found and people are willing to pay for it. As long as customers are not willing to pay for the product, the best problem-solution fit is not found yet. Stam & Bosma (2015) showed growth in the absence of aspiration is extremely rare. Ambition to grow is key in becoming a scale-up. Lastly, most interviewees agreed that technology will play an important role in scaling up businesses. This does not mean that every scale-up is a high-tech firm, it simply means that it is unlikely that any firm will scale internationally without using a form of technology, whether this is a certain algorithm or an online platform. Consequences of this definition First, although some of the elements might sound rather obvious, this would be a highly selective definition. When it would be applied to the 1 million companies in the Netherlands for example, only roughly of them would match this definition. This estimation is based on the insights the 39

40 Chamber of Commerce and NL Groeit shared in the interviews. Second, as age of the company is not included in this definition, a mixture of startups and SMEs would be present in this group. One might expect mostly startups, but let s take the Netherlands as an example again. Based on the insights ScaleUp Nation and NL Groeit shared in the interviews, a division of 10% startups and 90% SMEs is expected in this group of companies. This figure once again demonstrates the confusion of the term scale-up, as most people associate scale-ups with a startup reaching the next phase (and not a SME reaching a next phase). Limitations The use of this definition has its limitations. First, it contains several subjective elements. What does it mean to aim for growth? How can be determined if technology plays indeed an important role? One can only develop an understanding of these elements by applying it to a group of businesses and discussing it. Second, there will be high potential scale-ups excluded using this definition. But as shown in the literature study, this will be the case with any definition. Defining high potential growth firms is not an exercise one can execute by looking at databases only. It requires an extensive discussion in which in-depth knowledge of these companies is needed. This can only be done by combining knowledge of policy makers, investors, journalist and account managers of regional development agencies, incubators and accelerators. All of them own pieces of information. When these are put together a rich picture can arise. There are limitations to knowledge sharing due to different interests of these actors, so this process should be designed carefully. A possibility would be to organize an annual joint selection of the most promising scale-ups. Events like this already exist, but often do not include all different actors as listed before. In addition to this, artificial intelligence tools can support the process of selection. When more databases are combined and experiments with algorithms to make a selection evolve, this process could be automated partially and eventually even fully. Include societal impact? Governments can narrow this definition even further down by adding that companies should contribute to societal impact. The UK, Sweden and The Netherlands stress in their economic policies that in addition to economic growth a contribution to solving societal issues is needed. This adaptation would make the definition even more subjective. But as governments in these countries recently formulated economic policies where they added social elements, it should not be too difficult to implement this. Cristian Seelos and Johanna Mair (2017) dedicated a book on how effective social 40

41 enterprises scale and innovate. Their insights are beneficial for both governments supporting high potential social enterprises to scale and social enterprises with the ambition to scale. From reactive to proactive support The core idea of shifting focus from startups to scale-ups is to move from reactive to proactive business support, in which fewer companies are targeted who have the ambition and the potential to grow. The preciseness of the definition is not the key point. The importance lies in the fact that national governments make a conscious decision on who they see as high potential firms and communicate this clearly to their entrepreneurial ecosystem partners, so they know who to focus on. The execution of this selection is not necessarily a task of the national government. Best practice Future Fifty showed that a dedicated organisation that acts on behalf of the governments is perfectly able to execute this task. 8.2 Generic and dedicated governmental support Governments mostly focus on startups when developing an entrepreneurial ecosystem as was provocatively described by Shane (2009). This approach however makes sense from the perspective Mason & Brown described. One cannot build a scale-up ecosystem without going through the embryonic phase first. However, when moving from an embryonic ecosystem towards a scale-up ecosystem it is possible to shift focus from startups to scale-ups. The goal of narrowing down as described in the previous section is not to make a perfect analysis that is comparable with other countries, but to get a deeper understanding of who are the high potential scale-ups, what their needs are and what measures can be taken to stimulate their growth. Generic support: access to talent & access to markets The support scale-ups need differ from what startups need. As a company develops, the support needs to be more specific. This does not mean generic support has no value for scale-ups. Access to talent is identified as the most pressing scale-up issue. It is perfectly possible to develop generic policies addressing this issue, like improving the availability of housing in popular hubs or distributing more visa for international employees. Although countries realise access to talent is the most pressing scaleup issue, they lack coherent policies to tackle this issue. National governments could work together to attract or maintain talent from outside Europe. And sometimes countries will compete with each other, like they currently do in attracting software developers. Similar coherent policies should be developed for access to markets, as this is the second most pressing scale-up issue. 41

42 National political developments can frustrate the development of these policies. As shown in the interviews, people fear Brexit will have a negative influence on access to talent and access to markets. The rise of populistic political parties will also have consequences for the availability of visa, while this is an important instrument to improve access to talent. Therefore, efforts are needed to explain why scale-ups are important, not only by policy makers but also by politicians. Dedication from trusted politicians and annual reports on the economic impact can greatly contribute to ongoing support for scale-up policies. Another possibility is the appointment of an entrepreneur in residence like the Ministry of BEIS did. She or he can be very helpful to get the topic on the political agenda and to give unorthodox advice on how to improve policies. Dedicated scale-up support In addition to generic measures, specific scale-up support is needed. How this support looks like is beyond the scope of this research. The main point is that in order to give dedicated support, a proactive selection of high potential scale-ups is needed first. Dedicated support for every company is impracticable. Support can take place in programs like Future Fifty and ScaleUp Nation. The governance models of these organisation differ. Future Fifty is executed by an organisation that is mostly funded by the UK government. ScaleUp Nation is run by a private organisation and supported by the Dutch government with a subsidy. Key elements in the design of a scale up program are to include peer-to-peer support, to get inspiring serial entrepreneurs on board and to offer direct access to governments. The latter is highly appreciated by entrepreneurs, especially when there are clear links to government procurement, which increases the chance to attract top entrepreneurs. In addition to these programs the government can work with account managers to support high potential scale-ups at the right time with the right support. Lastly, efforts should be made to stimulate entrepreneurial recycling (successful cashed out entrepreneurs investing their time, money and expertise in supporting new entrepreneurial activity) as this is an important feature of successful entrepreneurial ecosystems. 8.3 Summary: four steps Summarized, the following steps are proposed for national governments aiming for economic growth by supporting high potential scale-ups: 1. Take the initiative to select high potential scale-ups by defining this group and putting actors with market knowledge together 42

43 2. Develop coherent scale-up policies to support these companies focussing on access to talent and access to markets 3. Experiment with dedicated scale-up support, varying from subsidising scale-up programs to appointing account managers 4. Evaluate these efforts and fine-tune scale-up policies 8.4 Further research As the topic of scale-ups is relatively new, there are endless opportunities for further research. First, it would be interesting to make a comparison between scale-up policies in Europe, the United States and Israel. The latter is interesting because it was labelled as a Start-up Nation (Senor & Singer, 2009) and they have the ambition to further develop towards a Scale-Up Nation. Second, the effectiveness of scale-up programs like Future Fifty could be studied in depth. This research showed participants and external parties evaluate the programs positively, but it would be interesting to have more quantitative insights in the results. Based on that, improvements can be made and other countries willing to support scale-ups can benefit from it. Third, more insight is needed in how to solve the most pressing scale-up issues (access to talent and access to markets). Policy makers in the UK, Sweden & the Netherlands struggle with these issues and are willing to join forces in Europe and develop joint policies to tackle them. The development, implementation and results of these policies should be studied to learn which policies are most effective in building scale-up ecosystems. 43

44 References Achtenhagen, L., L. Naldi & L. Melin (2010). Business Growth Do practitioners and scholars really talk about the same thing? Entrepreneurship Theory and Practice 34 (2), Acs, Z. & D. Audretsch, (1993). Small Firms and Entrepreneurship: An East-West Perspective. Cambridge: Cambridge University Press Anyadike-Danes, M., M. Hart & J. Du (2015). Firm Dynamics and Job Creation in the United Kingdom: International Small Business Journal 33 (1): Audretsch, D.B. (2003). Entrepreneurship. A survey of the literature. Enterprise Papers 14 Birch, D. L. (1987). Job Creation in America: How Our Smallest Companies Put the Most People to Work. Free Press, New York Brown, R. & C. Mason (2017). Looking Inside the Spiky Bits: A Critical Review and Conceptualisation of Entrepreneurial Ecosystems. Small Business Economics 49: Brown, R., S. Mawson & C. Mason (2017). Myth-Busting and Entrepreneurship Policy: The Case of High Growth Firms. Entrepreneurship & Regional Development Brown (2018). What Happens if the Rules Change? The Impact of Brexit on the Future Strategic Intentions of UK SMEs Cole, N. (2016). The Second-Largest Unicorn Breeding Ground in the World? Sweden. Retrieved from: Duruflé, G., T. Hellmann & K. Wilson (2017). From Start-up to Scale-up: Examining Public Policies for the Financing of High-Growth Ventures. Bruegel. Working Papers. Issue 04 European Commission (2014). Policies to Support High Growth Innovative Enterprises. Final report from the session II of the 2014 ERAC Mutual Learning Seminar on Research and Innovation Policies by Jana Kolar. European Union, Brussels European Commission (2017). Annual Report on European SMEs 2016/2017. Focus on self-employment. European Union, Brussels Feld, B. (2012). Startup Communities: Building an Entrepreneurial Ecosystem in Your City. Garnsey, E., E. Stam, & P. Heffernan (2006). New Firm Growth: Exploring Processes and Paths. Industry and Innovation 13: Gemeente Amsterdam (2018). 30% tax ruling in Amsterdam. Retrieved from: 44

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47 APPENDIX 47

48 Appendix A: List of interviewees Researchers - Ross Brown University of St Andrews, Scotland, UK - Daniel Isenberg Harvard Kennedy School, USA - Colin Mason University of Glasgow, Scotland, UK - Erik Stam Universiteit Utrecht, The Netherlands United Kingdom (UK) - James Muldoon & Tom Craig Scottish Government - Angelina Cannizzaro & Kevin Sharp UK Ministry of Business, Energy & Industrial Strategy (BEIS) - Chris Haley Nesta - Stephan Kuester TechCity UK - Simon Devonshire serial entrepreneur & scale-up entrepreneur in residence - Lieke Conijn Embassy of the Netherlands in London Sweden - Tyler Crowley founder STHLM Tech - Karin Rydén Tillväxtverket, Swedish agency for economic and regional growth - Kjell Håkan Närfelt Vinnova, Sweden s innovation agency - Magnus Lundin Swedish Incubators & Science Parks - Joseph Michael Invest in Stockholm - Karin Tell Almi, advisory services, loans & venture capital - Per Thulin KTH Royal Institute of Technology - Carl Rosén & Marie Wall Ministry of Enterprise - Wadi El-Achkar Startup Stockholm - Wilco Schuttelaar Embassy of the Netherlands in Stockholm The Netherlands - Constantijn van Oranje & Katja Berkhout Startup Delta - Leon Klinkers Brightlands - Leon Hoek NL Groeit - Menno van Dijk Scale Up Nation - Bas Beekman Startup Amsterdam - Ministry of Economic Affairs & Climate Policy o Paul Tops & Paul Heemskerk o Tess Rutgers o Rutger de Graaf & Nelleke Corbett o Sebastiaan van Lunteren o Team Ambitious Entrepreneurship: Joost Dieleman, Myrthe Hooijman, Robert-Jan Brooijmans, Lucien Vijverberg Other - Simon Devonshire Endeavor Insight 48

49 Appendix B: Interview protocol Scale-up definition - Tech versus non-tech - Speed versus sustainable growth - Data and monitoring - Startup vs Scale-up Focus - National versus regional - Generic versus sector specific - What would justify a sector specific focus? - Generic scale-up success factors - Main challenges of the ecosystem Governance - Role of the national government - Role of private parties and how to activate them - Role of other parties - How to sustain a long-term agenda in a political setting - Other governance issues Ranking scale-up issues & possibilities to address these - Access to talent - Access to markets - Leadership (skills) - Finance - Infrastructure - Other Programs and best practices - Scale-up programs - Policies and government behaviour Final remarks - Relevant insights or persons you would like to share - Issues we did not address 49

50 Appendix C: Slides final presentation Ministry of Economic Affairs 4/3/18 Introduction How do national governments support scale-up ecosystems? A comparison of the United Kingdom, Sweden & the Netherlands Background Executive Master of Public Administration (MPA) School of Governance, Berlin Former director tech incubator YES!Delft Pieter Guldemond Presentation results, February 1 st 2018 Contact information pieterguldemond@gmail.com Programma & doel vandaag Programma Welkom Presentatie onderzoek & feitelijke vragen Discussie & vervolg Uitloop Doelen Delen resultaten Kansen en urgentie scale-up beleid bespreken Discussiëren over volgende stap Content Demarcation Why are scale-ups important? Definitions Methodology Literature review Country studies: United Kingdom, Sweden & The Netherlands Recommendations Demarcation What this study is about What governments can do to build a scale-up ecosystem Qualitative insights in how UK, Sweden & NL deal with scale-ups based on 30 interviews Recommendations for the Dutch government how to define and how to improve the Dutch scale-up ecosystem What this study is NOT about Individual scale-up needs Quantitative insights in scale-up policies In-depth analysis of support programs and national policies Why are scale-ups important? First big scale-up study US (Birch, 1987) UK study (NESTA, 2009) NL study (Staat van het MKB, 2017) 4% of US companies are responsible for 70% of all new jobs 6% of UK businesses with the highest growth rates generated half of the new jobs created by existing businesses between 2002 and 2008 A small group of fast growing companies (2,5%) create a significant part of the new jobs Conclusion Scale-ups are an important driver for job creation 1 50

51 4/3/18 High-growth Firm (HGF) scale-up DEFINITIONS HGF definition A high-growth firm is an enterprise with average annual growth in employees or turnover greater than 20 per cent per annum* over a three year period**, and with more than 10 employees at the beginning of the period. OECD definition *Eurostat & CBS use a percentage of 10 per cent per annum for employee growth ** A subset called gazelles can be constructed by adding a maximum age of the company of 5 years HGF scale-up In 2014 The Scale-up report on UK economic growth (Sherry Coutu) was published, in which the definition of HGFs was used to define scale-ups. It is confusing that although the terms HGF and scale-up are different, they are used interchangeably HGF definition focuses on companies that meet specific growth metrics and can only be identified ex post Scale-up is a broader term with multiple definitions Was every scale-up a startup before? Decision needed: what is a scale-up? Considerations As there is no clear definition of what a scale-up is, the Ministry should make a decision on the definition they want to use: Only (former) startups or include traditional SMEs? Only innovative tech companies or all companies? Only companies that have a growth ambition or all companies? Companies that can scale from 10 to 100 or from 100 to 1000 employees? Proposal My proposal presented after country studies in recommendation #1 Methodology Literature review Interviews Round 1 Selection of countries Interviews round 2 Recommendations METHODOLOGY Selection of relevant HGF literature as preparation for the interviews Interviews with four leading HGF researchers Selection of top performing European countries to compare to NL Exploratory interviews in these countries with 26 people based on an interview protocol 12 recommendations for improving the Dutch scale-up ecosystem 2 51

52 4/3/18 Literature review Selection of relevant HGF literature as preparation for the interviews Interviews Round 1 Interviews with four leading HGF researchers Selection of countries Selection of top performing European countries to compare to NL Interviews round 2 Exploratory interviews in these countries with 26 people based on an interview protocol Recommendations 12 recommendations for improving the Dutch scale-up ecosystem Why encouraging people to become entrepreneurs is bad policy (Shane, 2009) Policy makers should stop subsidizing the formation of the typical start-up and focus on the subset of businesses with growth potential. On entrepreneurial ecosystems (Brown & Mason, 2017) Myths of HGFs (Brown, Mason & Mawson, 2017) Embryonic ecosystem Scale-up ecosystem Dominant actors Limited number of startups High numbers of growth-oriented startups Levels of entrepreneurial Low. Startups focus on early and/or premature exits High. Strong growth focus on generating new orientation blockbuster firms Availability of funding Good sources of seed and early stage funding, often Full range of funding sources across the entire funding publicly funded through co-investment schemes escalator. Nearly all privately funded Fluidity and diversity of Low level of transnational entrepreneur Large number of entrepreneurs are non-native, ecosystem actors immigration of transnational entrepreneurs is high Nature of entrepreneurial Small number of major exits Large number of blockbuster exits. Large number of recycling high net worth individuals who become angels Importance and focus of Strong role for policy, typically focuses on increasing Limited role for policy, many initiatives are industry-led public policy resources and new-technology based firms and focus on building vertical network connectivity Archetypical examples Scotland, Ireland, Finland, Portugal Silicon Valley, TechCity London, Berlin 1. HGFs are all young and small UK: 70% of HGFs are at least five years old (Nesta, 2009) 2. HGFs are predominantly high tech UK: 15% of HGFs are operating in high-tech sector But: majority is highly innovative, irrespective of their industrial sector ((O Regan, Ghobadian, and Gallear 2006; Segarra and Teruel 2014) 3. Universities are a major source of HGFs But: they do play a key role in shaping the overall entrepreneurial ecosystem 4. HGFs undertake steady linear growth and grow organically à So: rather than supporting a large number of high potential scale-ups, choose for short periods of in-depth engagement with a small number of firms and focus on relational and peer-based support Generic or selective business support? OECD (2010) As it is difficult to identify firms that will grow faster based on a list of common characteristics, an appropriate strategy would be to create the conditions for any firm to become high growth. But, programmes that specifically target firms with growth potential can be important, provided that they are not the only policy tool NESTA (2009) Economic policy should focus on promoting innovation and on the small number of companies with high growth potential, rather than broadly based business support programmes for new start-ups and SMEs Literature review Selection of relevant HGF literature as preparation for the interviews Interviews Round 1 Interviews with four leading HGF researchers Selection of countries Selection of top performing European countries to compare to NL Interviews round 2 Exploratory interviews in these countries with 26 people based on an interview protocol Recommendations 12 recommendations for improving the Dutch scale-up ecosystem 3 52

53 4/3/18 Interviews four leading HGF researchers Literature review Interviews Round 1 Selection of countries Interviews round 2 Recommendations Selection of relevant HGF literature as preparation for the interviews Interviews with four leading HGF researchers Selection of top performing European countries to compare to NL Exploratory interviews in these countries with 26 people based on an interview protocol 12 recommendations for improving the Dutch scale-up ecosystem Prof Colin Mason, University of Glasgow, Scotland Prof Ross Brown, University of St Andrews, Scotland Prof Daniel Isenberg, Harvard Kennedy School, Boston, USA Prof Erik Stam, Universiteit Utrecht, The Netherlands Selection of three countries Desire Ministry of Economic Affairs & Climate Policy: lessons for The Netherlands based on top performing European countries Nesta Digital City Scale-up Index London 2. Stockholm 3. Paris 4. Helsinki 5. Amsterdam 6. Copenhagen 7. Berlin 8. Munich 9. Dublin 10. Vienna Startup Genome ranking 2017 Share HGFs in Europe % HGFs of total companies >10 employees EU28: 9 Germany France NL Sweden UK European Commission, Annual report on European SMEs 2016/2017 & Eurostat 4 53

54 4/3/18 Number of unicorns in Europe Decision: compare NL with UK and Sweden Geographic focus Rationale # of unicorns, NL France Germany Sweden UK Other Europe High scores in relevant rankings High share of HGFs High number of unicorns Policy focus on scale-ups? Interview protocol: main topics Literature review Selection of relevant HGF literature as preparation for the interviews Interviews Round 1 Interviews with four leading HGF researchers Selection of countries Selection of top performing European countries to compare to NL Interviews round 2 Exploratory interviews in these countries with 26 people based on an interview protocol Recommendations 12 recommendations for improving the Dutch scale-up ecosystem Focus Scale-up issues Governance Programs Selecting scale-ups List of interviewees UK UK James Muldoon & Tom Craig, Scottish Government Angelina Cannizzaro & Kevin Sharp, UK Ministry of Business, Energy & Industrial Strategy (BEIS) Chris Haley, Nesta Stephan Kuester, TechCity UK Simon Devonshire, serial entrepreneur & investor Lieke Conijn, Embassy of the Netherlands in London + Rhett Morris, Endeavor Insight 5 54

55 4/3/18 Ministry of Business, Energy & Industrial Strategy (BEIS) (1/2) Ministry of Business, Energy & Industrial Strategy (BEIS) (2/2) Focus New: industrial policy (December 2017) Four grand challenges: growing artificial intelligence and data-driven economy, clean growth, the future of mobility, ageing society Investment of 725m in Industrial Strategy Challenge Fund & 2,5bn investment fund Invest in mathematics, digital and technical education to boost STEM skills Existing: national network of Local Enterprise Partnerships (LEPs) & growth hubs with local approaches Program: Business Growth Service & Growth Accelerator 200m program that was executed from business supported with potential to have 50% turnover growth in 3 years Experienced people from private sector advised them Helped founders to step back and think, most difficult job as an entrepreneur Killed after 4 years despite good review (budget moved to local growth hubs) Nesta the innovation foundation (1/2) Focus We want economic growth and productivity à tech & digitalization will bring us there, so that is our focus Governance Difficulty of short term experiments versus long term policies Private sector individuals are involved too because of the British honours system Nesta the innovation foundation (2/2) Selecting scale-ups Start with deciding who not to support: small business with no ambition or potential to scale Key question to answer is how to check the ambition of the entrepreneurs. Proxies should be used: Negative flags: e.g. owner s name in company s name Positive flags: e.g. exporting Programs Are there enough similarities to learn together? Are scale-ups not too busy to participate? If you can find a way to let founders step back, that is wonderful. Team support needed to realise this Better involve successful entrepreneurs and their network, just ask! TechCity UK (1/2) Focus Tech startups and scale-ups, with special focus on AI, fintech & robotics Scale-up issues Talent: we need a better entrepreneurial visa scheme Internationalisation: make better use of trade missions and global network Talent and internationalisation are key: Brexit is not helping Regulation: we organise delivery panels in which scale-ups are involved in future talks for a sector, e.g. fintech TechCity UK (2/2) Governance TechCity focuses on Advocacy: investment schemes, future regulations Digital skills: online academy Life cycle programs from early stage to series A+ funding April 2018 TechCity UK transforms into a national organisation: Tech Nation Annual TechNation report: Programs Two later stage programs Upscale: series A, 30% growth per month, scalable digital component, 2/3 years old Future Fifty (next slide): series B, 30% growth per year, 5mln+ revenue 6 55

56 4/3/18 Best practice: Future Fifty (1/2) History Launched in 2013 by UK government Aimed at promoting 50 of the UK s most rapidly growing digital tech companies What? Network of entrepreneurial companies for intensive levels of support and connections to key sources of funding, entrepreneurial mentoring and government support Introduction to institutional investors and guidance from professional services companies, investors and veteran entrepreneurs on how to approach a public listing or undertake a big expansion A concierge-style approach which connects firms with key resources within various government departments such as BEIS, UK Trade & Investment and Her Majesty s Revenue and Customs Aimed at founders, but there are underlying workshops for e.g. CMOs too Best practice: Future Fifty (2/2) Strengths Peer to peer support Active scouting and selection of participants Learn from entrepreneurs who are just ahead of them Connection to relevant government departments Net Promotor Score Simon Devonshire (1/2) Focus Online and global should be the focus in order to scale, whether a company is high tech or not does not matter Scaling from 2 to 10 is as hard as from 10 to 200 and as hard as from 1000 to 2000 employees Scale-up issues Talent: top universities attract people from all over the world, we have to put more efforts in keeping those people Leadership skills: train people to have an entrepreneurial mindset, that is key Governance Government should not hesitate to intervene, entrepreneurs want and need positive interventions Simon Devonshire (2/2) Programs No consistency in growth programs from UK growth hubs Governments should organize more competitions for their societal challenges and connect procurement to these solutions. So in future we will have hopefully more MedTech than AdWords Selecting scale-ups Simply ask scale-ups: do you have the ambition to grow? On top of that: apply machine learning to identify potential growth. Basic algorithms to do this analysis are present and will develop further soon Ranking scale-up issues UK Access to talent Fear that Brexit will influence this negatively Living costs in London are a serious problem Leadership skills Access to markets Finance Other 7 56

57 4/3/18 Endeavor Insight (1/2) Focus Scale-ups create jobs that disappear, they are needed for growth Focus on companies with the ambition to grow from 10 to 100 and on companies with 100+ employees and an ambition to grow, as they have similar needs and challenges Use networks to discover cluster strengths. You won t find scale-ups that are not connected in a community Scale-up issues Talent needed: specific functions (e.g. developers) and middle & upper management Leadership: founders have difficulties making tough decisions on team composition due to loyalty, this can hamper growth Endeavor Insight (2/2) Programs Develop a program for a group of companies that addresses their common needs Scale-ups attract scale-ups UK, Sweden & NL are first movers on formulating scale-up policies Selecting scale-ups Ambition to grow = key question Don t choose a sector as a policy maker. Entrepreneurs do economic research for you: they will guide you to where the action is Key insights from the UK interviews (1/2) Focus Although there is no clear definition used, scale-ups are high on the political agenda. There is a scale-up taskforce and a minister is appointed as scale-up champion Different vision on target group exist: focus on tech & digitalisation (TechCity and Nesta, both mostly public funded) vs. generic approach (Scale-up Institute, private sector, not for profit company) Ministry is focusing on societal challenges with growth & tech potential Scale-up issues: talent is most pressing Interviewees emphasize more efforts are needed to maintain top talent from universities Fear for consequences Brexit, especially for attracting talent Visa schemes are important to attract talent (e.g. exceptional talent visa, judged by TechCity UK) Key insights from the UK interviews (2/2) Governance Ministry has many interactions with private sector, amongst others by inviting experienced people from the field to spend time at the ministry and advice them Influential persons from private sector are challenged to contribute to societal goals TechCity UK is a large, powerful and well funded organisation with a clear communication strategy Nesta executes very relevant research on a variety of entrepreneurship topics Programs Inspiring later stage programs executed by TechCity UK Selecting scale-ups Upscale and FutureFifty invest in identifying high potential scale-ups Ambition is a crucial factor in determining the potential of a scale-up List of interviewees Sweden SWEDEN Tyler Crowley founder STHLM Tech Karin Rydén Tillväxtverket, Swedish agency for economic and regional growth Kjell Håkan Närfelt Vinnova, Sweden s innovation agency Magnus Lundin Swedish Incubators & Science Parks Joseph Michael Invest in Stockholm Karin Tell Almi, advisory services, loans & venture capital Per Thulin KTH Royal Institute of Technology Carl Rosén & Marie Wall Ministry of Enterprise Wadi El-Achkar Startup Stockholm Wilco Schuttelaar Embassy of the Netherlands in Stockholm 8 57

58 4/3/18 Why is Stockholm the unicorn capital of the world? (1/2) Direct promotion by the government of the use of computers and the internet through a variety of measures (e.g, subsidies to buy PCs in the 90 s) Highly developed technical infrastructure that enabled early adoption of IT Highly connected formal and informal social networks among entrepreneurs, business people, politicians and university researchers Strong engineering background à focus on problem-solving through informal networks Social safety net that reduces the risks faced by entrepreneurs Higher education is free, students have time to devote to entrepreneurial endeavors Stockholm School of Economics (2016). Chasing the tale of the unicorn A study of Sweden s misty meadows Why is Stockholm the unicorn capital of the world? (2/2) Well-developed startup ecosystem (incubators, startup loans, investors, state agencies, etc.) Pay it forward culture: serial entrepreneurs sharing their expertise and reinvesting in new firms A few actors can provide the necessary resources such as capital, experience and know-how within a startup network Imported media à good English language skills and American sensibility Strong international connections and global approach due to the size-limitations of the Swedish domestic market Stockholm School of Economics (2016). Chasing the tale of the unicorn A study of Sweden s misty meadows Ministry of Enterprise (1/2) Focus Shift focus towards growing companies in Sweden, they should not be bought too early by American companies Traditional SMEs should get infused by tech & innovation startups Five innovation partnership programs to meet societal challenges: next generations transport, smart cities, circular and bio-based economy, life sciences, a connected industry and new materials Sustainability challenges need huge amount of funding. We need more deep tech companies to address these challenges. We want to close the investment gap for these companies but have to take state aid regulations into account Scale-up issues Access to talent Ministry of Enterprise (2/2) Governance We have to formulate a joint EU agenda on these topics and address them at the innovation council Programs Digilift - Tillväxverket (focus: traditional SMEs, see next slide) Peer to peer groups - Almi (focus: fast growing companies) Going Global - Business Sweden (focus: potential scale ups) Surprising fact: Swedish SME willingness to grow Share of companies wanting to grow 7 out of 10 want to grow Declining willingness to grow among the smallest companies Selection No need to select and support high potential scale-ups, they will make it themselves 9 58

59 4/3/18 Ranking scale-up issues Sweden Access to talent Access to markets Leadership skills Finance Other Key insights Sweden (1/2) Focus Startup ecosystem is well developed, especially the funding possibilities No clear policy focus now on producing high number of unicorns Scale-ups are not intensely discussed and defined yet, but focus is shifting towards supporting scale-ups Priorities Tillväxverket 2018 fit a scale-up agenda: digitalisation & internationalisation Scale up issues: talent is most pressing Handing out more startup visa for foreign talent is needed, but is a political sensitive topic Availability and costs of housing is a serious problem in Stockholm Key insights Sweden (2/2) Governance Dominant position of public actors in the startup ecosystem Not easy to prioritise Stockholm over other geographical regions Sweden in policies High level of cooperation between players in the startup ecosystem: lagom Programs Digilift focuses on traditional SMEs, there is no selective scale-up program NL Selection Selective programs do not seem to fit well in the Swedish culture Willingness to grow is very high amongst SMEs HGFs & Gazelles in NL List of interviewees NL HGFs Gazelles Constantijn van Oranje Startup Delta Leon Klinkers Brightlands Leon Hoek NL Groeit Menno van Dijk Scale Up Nation Bas Beekman Startup Amsterdam Ministry of Economic Affairs & Climate Policy Paul Tops & Paul Heemskerk Tess Rutgers Rutger de Graaf & Nelleke Corbett Sebastiaan van Lunteren Team Ambitious Entrepreneurship: Joost Dieleman, Myrthe Hooijman, Robert-Jan Brooijmans, Lucien Vijverberg 10 59

60 4/3/18 Ministry of Economic Affairs & Climate Policy (1/3) Focus No clear scale-up definition Successful development of startup ecosystem, climbing in the rankings Startup Delta 3.0 will be more data driven and opportunity driven, focusing on hands-on support for startups Innovation policies need to be better connected to societal challenges Scale-up issues Access to talent Program warm welcome talent with recommendations for improving position NL Housing market Amsterdam is a problem 30%-facility is important regulation Access to markets: low score in Genome ranking, not as networked as Sweden & UK Funding: new investment fund InvestNL is launched. Despite improvements NL is not a top performer in the European rankings Ministry of Economic Affairs & Climate Policy (2/3) Governance NFIA focuses on corporates, RVO is national entry point for international startups. There seems to be a gap for companies in between Direct WhatsApp contact via Startup Delta portal is unique Top sectors do not specifically focus on startups & scale-ups, but are interested to accommodate them more Programs NL Groeit: mentoring program for companies with 1mln+ revenue (SMEs & startups) Ideas from Europe: working together to scale ideas that can solve global challenges Startup City Alliance Europe (SCALE): creating a connected European city-to-city startup ecosystem (lead: Startup Amsterdam) Scale-up Nation: young (max 10 years), innovative scale-ups with 1mln+ revenue and international traction Ministry of Economic Affairs & Climate Policy (3/3) Selection 90% of SMEs do not have the ambition to grow (Staat van het MKB, 2016) No proactive selection of startups/scale ups (but for CES Las Vegas selection and training took place) Challenge Dutch startups to move from tech push to pull Aggregated results interviews (1/2) Focus No clear definition of scale-ups. Guidance of the ministry is needed More attention for deep tech is needed Scale-up issues Different views on whether funding is still an issue for Dutch startups and scale-ups, but there is consensus that the situation in London and Stockholm is better Governance Big differences between regions à more support for ambitious regions is desired Aggregated results interviews (2/2) Selecting scale-ups Focus on companies that have the ambition and potential to grow only Hands-on and peer to peer support is needed Experiment & validate policies, starting tomorrow Chamber of Commerce experiment to predict which company will grow fast (e.g..com extension) Ranking scale-up issues NL Access to talent Access to markets Finance Leadership skills Other 11 60

61 4/3/18 Common insights interviews UK, Sweden & NL UK, SWEDEN & NL No clear definition of scale-ups Access to talent is the most pressing scale-up issue Despite the urgency of access to talent, this issue is not high on the political agenda Little experience with proactively selecting high potential scale-ups National governments connect societal challenges to their economic policies Conclusion: UK is slightly ahead Literature review Selection of relevant HGF literature as preparation for the interviews Interviews Round 1 Interviews with four leading HGF researchers Selection of countries Selection of top performing European countries to compare to NL Interviews round 2 Exploratory interviews in these countries with 26 people based on an interview protocol Recommendations 12 recommendations for improving the Dutch scale-up ecosystem UK has for years actively been working on supporting scale-ups Sweden only recently started to address them, but has a well funded startup ecosystem and unicorn role models to build on but if we act now, we can become a Scale-up Nation Why The Netherlands? Why now? What does it take? How to become a Scale-up Nation? Short-term Medium-term Many of the circumstances explaining why Sweden has many unicorns are present here too There is a solid startup ecosystem with plenty of high potential scale-ups Amsterdam is an asset in attracting international talent. Although housing is a problem, the situation is not as bad as in Stockholm and London (and not as good as in Berlin) National government is willing and able to invest in scale-ups and experiment with scale-up policies? External experts (like Endeavor) confirm the strong opportunities for The Netherlands as a leading Scale-Up Nation in Europe UK and Sweden are slightly ahead, more entrepreneurial ecosystems are on the rise Both startups and SMEs can become scale-ups, which can lead to great economic impact and address societal issues at the same time à fits the political vision of the new government? à To become a leading Scale-up Nation a shift is needed from generic startup support to dedicated scaleup support, starting today I Support a selective group of scale-ups - - Directie entrepreneurship 1 Decide which scale-ups to focus on and communicate this internally and externally 2 Identify proactively ambitious, high-potential scale-ups 3 Dedicate account managers for this identification and support 4 Recognize the value of these high-potential scale-ups by labelling them and/or offer a program 5 Use these selected scale-ups to zoom in on their needs and test policies 6 Develop a plan to make better use of entrepreneurial recycling II Develop generic policies for potential scale-ups Multiple ministries 7 Develop a joint plan on talent in which actors on a national, regional and local level join forces 8 Continue the implementation of generic policies to stimulate growth 9 Invest in stimulating ambition of high-potential SMEs who do not have ambition to grow III Be inspired by Europe and inspire Europe European collaboration, Directie Entrepreneurship in the lead 10 Work on a European scale-up agenda in cooperation with UK and Sweden 11 Make use of the knowledge and network activated by this study 12 TechCity UK / TechNation can serve as an inspirational model for the organisation of the Dutch ecosystem 12 61

62 4/3/18 #1 Decide which scale-ups to focus on and communicate this internally and externally I Support a selective group of scale-ups WHY WHAT Multiple definitions are used interchangeably, leading to a blurry picture Choose and communicate a clear definition (see next slide) HOW Discuss this definition with Startup Delta, the hubs, NL Groeit, etc. and take a collective decision on which definition to use Proposal for a scale-up definition A scale-up is a company with a minimum of 10 employees, a validated business model, paying customers, aiming for growth, in which technology plays an important role Role of technology can be discussed If job creation is the only goal of the ministry, this part could be dropped If stimulating innovation and/or contributing to societal challenges are goals of the ministry, this part should not be dropped à UK & Sweden explicitly connect achievement of societal goals as rationale for growth & technology policies Consequences of this definition Highly selective (NL: max out of 1mln companies) Expected mix of startups (~10%) and traditional SMEs (~90%) Age of company does not matter à Make sure this is not seen exclusively as a startup (delta) topic #2 Identify proactively ambitious, high-potential scaleups WHY WHAT HOW If companies are not ambitious, it is very unlikely they will become a scale-up Develop a mechanism to identify ambitious, high-potential scale-ups There is a huge amount of knowledge on Dutch businesses at different organisations. Venture capitalists, startup journalists, accelerators, regional development corporations and organisations like ScaleUpNation have a good overview of young and innovative high potential scale-ups. RVO, KvK and programs like NL Groeit should be able to add more traditional SMEs with the potential to scale. On top of that, experiments can be setup to identify high-potential scale-ups by using algorithms and machine learning #3 Dedicate account managers for this identification and support #4 Recognize the value of these high-potential scale-ups by labelling them and/or offer a program WHY Growth happens non-linear and interventions should be timely, but also time limited. Therefore support should be tailored WHY Recognition for being a high-potential scale-up in itself can help to conquer the world and contribute to growth WHAT This could be achieved with account managers, in regular and close contact with companies and able to identify needs (Mason & Brown, 2013) WHAT Develop a Future Fifty-like program in close cooperation with existing parties like NL Groeit and ScaleUpNation HOW Train account managers, preferably with an entrepreneurial background. In addition to this an entrepreneur in residence could be appointed at the ministry (like Simon Devonshire in the UK) to spend time at the ministry and advise on how to implement this successfully HOW Focus on peer to peer support Seduce high potential scale-ups with direct access to government and valuable knowledge on procurement Get inspiring serial entrepreneurs on board 13 62

63 4/3/18 #5 Use these selected scale-ups to zoom in on their needs and test policies #6 Develop a plan to make better use of entrepreneurial recycling WHY This group can function as a test group to experiment with policies. Their main issues are known, but to support them effectively more knowledge and customisation is needed WHY The principle of entrepreneurial recycling (successful cashed out entrepreneurs investing their time, money and expertise in supporting new entrepreneurial activity) is an important feature of entrepreneurial ecosystems (Mason & Brown, 2014) WHAT Identify their needs, track their progress and test what type of support works best WHAT Select successful entrepreneurs who are not active in the Dutch entrepreneurial ecosystem yet and track down why they are not HOW Set up policy experiments and/or studies in cooperation with experts (see also recommendation 11) HOW Make use of the hubs in identifying and targeting them #7 Develop a joint plan on talent in which actors on a national, regional and local level join forces II Develop generic policies for potential scale-ups WHY WHAT HOW Access to talent is the most pressing scale-up issue Efforts on all levels are needed, varying from operational local issues (housing in Amsterdam) to strategic national issues (visa) Ministry of Economic Affairs & Climate Policy and Startup Delta can take the lead to build a coalition and action plan #8 Continue the implementation of generic policies to stimulate growth #9 Invest in stimulating ambition of high-potential SMEs who do not have ambition to grow WHY National policies on taxes, labour market, education and capital market are of great influence on the entrepreneurial ecosystem WHY 90% of the SMEs do not have the ambition to grow. Within this group there should be SMEs who do have the potential to scale, using technology WHAT As these topics concern several ministries, interdepartmental cooperation is a necessity WHAT Get better insights in the causes of this problem HOW The ScaleUpEurope Manifesto and the views of amongst others Erik Stam provide valuable insights in promising measures that are needed to stimulate growth (VAT simplification, radical tax benefits, etc). These ideas should be prioritised and translated into policies. HOW Do research and perform policy experiments to change this situation 14 63

64 4/3/18 #10 Work on a European scale-up agenda in cooperation with UK and Sweden III Be inspired by Europe and inspire Europe WHY WHAT HOW National governments in UK and Sweden are willing to join forces to build a better scaleup ecosystem. Working closely together should result in European support for this mission, the exchange of best practices and in strengthening the national ecosystems by connecting them. Option: add France. Set up a European working group on scale-ups, where other ambitious European countries can join Take the lead in bringing key persons of these countries together and start as soon as possible to experiment. #11 Make use of the knowledge and network activated by this study WHY WHAT Worldwide experts on scale-ups are triggered and interested to contribute to the ambition of the ministry Involve a selection of the interviewees in executing these recommendations #12 TechCity UK / TechNation can serve as an inspirational model for the organisation of the Dutch ecosystem WHY TechCity UK is a strong, well funded, hands-on organisation running a full range of inspiring programs and is very effective in communicating their results. They have an annual budget of approximately 4mln and 45+ people in London only HOW Researchers Brown, Mason, Isenberg and Stam are motivated to cooperate with the ministry in researching and advising on the execution of the scale-up ambition Endeavour (Rhett Morris), Nesta (Chris Haley) & TechCity UK (Stephan Kuester) are experts on this topic and willing to share their expertise Simon Devonshire is willing to share his experiences as entrepreneur in residence Tillväxtverket is already linked to the Ministry concerning Digilift WHAT HOW Invest in combining forces and allocating budget to a strong organisation based on the TechCity UK model Interact with TechCity UK, especially now they are moving towards a national organisation. Learn from their best practices and publications, like their annual Tech Nation report ( Summary BIG THANK YOU! Scale-ups are a major source of job growth NL has good chances to become a leading Scale-up Nation, but only if we act now A shift is needed from generic startup support to dedicated scale-up support Make use of the political momentum to get support for a dedicated scale-up plan that targets high-potential, ambitious firms (whether they have a startup or SME background is irrelevant) Invest in combining forces and allocating budget to this mission Take the lead in Europe together with the UK and Sweden 15 64