If finding a start-up ecosystem isn’t on your radar, it’s time to make it a priority. And, if you’re wondering why it’s important, the short answer is start-ups and scale-ups with a supportive ecosystem significantly increase their chances of success. The benefits of finding your ‘tribe’ can be considerable, not only for businesses but also for founders. So we’re examining what start-up ecosystems are, and what to consider when deciding whether an ecosystem is the right one to best support your venture’s growth journey.
What is a start-up ecosystem?
The African proverb popularised by Hillary Clinton: ‘It takes a village to raise a child’ holds true for growing your start-up. And that’s where start-up ecosystems come in. A start-up ecosystem is far more than your venture’s initial cheer squad that usually features your accountant and the ‘family, friends and fools’ who provide seed funding for 35-40% of early-stage start-ups.[1] Instead, it refers to the interdependent collective of businesses, organisations, communities, professional services, networks and other resources that innovation ventures, with high-growth potential, need to succeed in a particular geographic area or vertical.
The anatomy of a start-up ecosystem
Generally speaking, start-up ecosystems are comprised of three elements:
- Start-ups: high-growth innovation-based businesses aiming to disrupt their current industry sectors or create entirely new ones.
- Enablers: individuals and organisations that support the start-ups and partners in the ecosystem. Examples include incubators, accelerators, venture studios, investors and universities.
- Partners: organisations that provide support across the start-up ecosystem. Examples include service providers, corporations and government entities.[2]
How can a start-up ecosystem help businesses and founders?
The hopes and dreams of a start-up and the expectations of its backers often weigh heavily on founders. No one person or start-up can be self-sufficient and have all the answers. Sure, founders could reinvent the wheel figuratively speaking. They could research and seek out the partners and enablers that can best support their business goals and find other entrepreneurs to bounce ideas off. But that wouldn’t be very efficient. And it’s a huge task to tack onto the mammoth endeavour of getting a start-up off the ground. This is why start-up ecosystems and communities exist, and why they’re especially beneficial to businesses and founders alike. These provide something akin to a hypermarket of support, services and resources for businesses in their early stages. In so doing, they offer founders a shortcut to access the advice, resources and partnerships they need to flourish.
What an effective start-up ecosystem looks like
Start-up ecosystems and related communities and organisations exist in different formats and locations. They can be associated with universities, incubators for early-stage ventures, accelerators for later-stage start-ups, venture studios, or coworking spaces. The list goes on. Interestingly, start-ups may choose to engage across more than one ecosystem or community to access the support they need to grow and thrive.
When thinking about who to include in your start-up’s ecosystem, we recommend asking yourself the following questions and considering the following 10 key components:[3] [4]
1. Challenges and solutions
Which challenges is the organisation or community trying to address? Is it already generating any promising ideas and innovations to meet these challenges?
2. Entrepreneurs
While the terms entrepreneur and founder are often used synonymously, they are different beasts. In a nutshell, entrepreneurs are focused on generating income and profits as efficiently as possible. By contrast, founders are consumed by growing their ventures and making an impact on the world.[5] An entrepreneurial culture is essential in a start-up ecosystem. Entrepreneurs start or invest in companies and bring a profitability mindset that can turn promising business ideas into a profitable reality. So make sure active and engaged entrepreneurs are part of any ecosystem your company joins.
3. Human capital
Is there access to talent, skills and resources in the form of founders, mentors, investors, employees, and relevant service providers to help your venture grow?
4. Capital
Money makes the world and the start-up ecosystem go round. So, does the start-up ecosystem offer seed funding or partner with specialist financiers, for example, Radium Capital, or funding providers and other financial services that support start-ups and scale-ups?
5. Investors
Does the start-up ecosystem include investors that can deliver equity funds for start-ups that have the potential for exponential growth?
6. Infrastructure
Is there access to the physical and digital infrastructure to support your business from formation to scaling? We’re talking office space and meeting rooms and the associated furniture and equipment as well as WIFI networks and bandwidth.
7. Professional services
Do the professional service providers that start-ups need to engage exist in the ecosystem? These include legal and tax advice as well as marketing services.
8. Mentors
The start-up journey is never an easy one, no matter how good the idea or ultimately how successful the venture is. That’s why having access to mentors is crucial for start-ups. So explore whether the start-up ecosystem you’re considering has a sufficient number of high-quality mentors to help start-ups navigate the valley of death and journey to success.
9. Sense of community
Is there a sense of community, and are the people and organisations involved strongly committed to helping start-ups succeed? An ecosystem with a strong community also enables founders to connect with and support one another along the start-up journey.
10. An effective network
Does the start-up ecosystem have a strong network of people and organisations that are themselves highly connected and integrated with other businesses and service providers, and can amplify your start-up’s growth?
Why finding your ‘tribe’ is important
Finding your tribe in the form of an optimal ecosystem is crucial. An effective ecosystem (readymade or self-built) can quite literally be the difference between success and failure for a start-up. We know this because the data for start-ups that leverage innovation ecosystems is compelling. So ensuring your business is engaged in a start-up ecosystem will pay dividends for your business.
Incubators, accelerators and venture studios are examples of curated start-up ecosystems that can provide easy access to a range of services, resources, infrastructure, partners and community.
Incubators
If you’re in the process of building a business from the ground up, then a start-up incubator may provide a great option for your venture. It can offer the office space and an array of support and resources you need to finesse your business model or your product-market fit. According to research by the International Business Innovation Association, businesses nurtured in a start-up incubator have a five-year plus survival rate of 87%. This compares to a survival rate of just 44% over the same period for start-ups that went it alone.[6]
Accelerators
If you already have your business model, product-market fit and founding team in place, then applying to join a start-up accelerator is a good move. Research conducted by The University of New Orleans shows that graduates of start-up accelerators boost their chances of survival by 23%.[7]
If you’re keen to learn more about incubators and accelerators and how they could help your business, check out our article Incubators vs accelerators: Which one is best for start-ups.
Venture studios
Venture studios have grown in popularity in recent years with their new approach to entrepreneurship. They start from scratch and use a hands-on approach to build businesses. They leverage the skills and experience of multi-disciplinary teams of entrepreneurs, designers, and an array of marketing experts to transform ground-breaking ideas into successful, profitable businesses. And the results are impressive.
- Compared to traditional start-ups, the success rate of Venture Studio start-ups is 30% higher.
- 84% of Venture Studio start-ups complete a seed funding round, with 72% of those making it to Series A (compared to only 42% of traditional start-ups.)
- Venture Studio start-ups tend to get to Series A faster in just over 25 months (compared to 56 months for regular start-ups.)
- Venture Studio start-ups are more profitable too with an average investment rate of return of 53% compared to 21.3 % among their non-Venture Studio counterparts.[8]
Sector and locational factors
With so many ecosystem options to choose from, it’s crucial to do your research and find the best fit. Look for ecosystems that align with your industry vertical, for example, Radium Capital partner, CORE Innovation Hub has created the first start-up ecosystem for Australia’s mining, energy and resources sectors, with hubs across different locations and states. And another one of our partners, Cicada Innovations is an incubator for deep tech ventures. Location is another factor. Consider what is available in your home state or territory and don’t rule out relocating or expanding; the evidence for success indicates the positives will likely outweigh the negatives of making a move.
How leveraging your start-up ecosystem network will help you succeed
Whichever ecosystems, organisations and communities you shortlist, look for passionate participants who you can engage with and who can help support your business’s growth journey. As a specialist R&D financier, Radium Capital is part of several start-up ecosystems around Australia that cater to different business stages and sectors. However, we see our role in these ecosystems as far more than our Radium Advance funding product that can support all stages of the innovation journey. When any innovation business connects with us, whether they become a client or not, our expert team can help them connect with our trusted network of service providers for start-ups and scale-ups. We’re here to help founders and entrepreneurs grow their businesses. So reach out anytime for a no-obligation consultation with one of our R&D finance specialists.
[1] Gordon, J. (2022). Funding from Friends Family and Fools – Explained. [online] The Business Professor, LLC. Available at: https://thebusinessprofessor.com/en_US/business-transactions/funding-from-friends-family-and-fools.
[2] Pahwa, A. (2022). What Is Startup Ecosystem? How Does It Work? [online] Feedough. Available at: https://www.feedough.com/what-is-startup-ecosystem-how-does-it-work/
[3] Pahwa, A. (2022). What Is Startup Ecosystem? How Does It Work? [online] Feedough. Available at: https://www.feedough.com/what-is-startup-ecosystem-how-does-it-work/
[4] Startup Commons (2019). What Is Startup Ecosystem. [online] Startup Commons. Available at: https://www.startupcommons.org/what-is-startup-ecosystem.html.
[5] builtin.com. (n.d.). Startup Founders & Entrepreneurs: What’s the Difference? | Built In. [online] Available at: https://builtin.com/founders-entrepreneurship
[6] Business News Daily. (n.d.). How Incubators Help Startups Survive. [online] Available at: https://www.businessnewsdaily.com/272-incubators-increase-small-business-success.html.
[7] Tauber, A. (2021). Many startup accelerators fail. Here’s how to find the right one. [online] TNW | Future-Of-Finance. Available at: https://thenextweb.com/news/many-startup-accelerators-fail-heres-how-to-find-the-right-one
[8] www.bundl.com. (n.d.). Why venture studio startups have higher long-term success rates. [online] Available at: https://www.bundl.com/articles/why-venture-studio-startups-have-higher-long-term-success-rates.