Why Most Countries Fail at Tech Startups (How to Fix That)
Wrapping up 2024 and on our way into a fresh start, whether you celebrate the holidays or ring in the new year, something most of us will experience in the next few weeks is a shift in the culture we typically experience. People are warmer, perhaps more social, and in the spirit of giving gifts or well wishes; the point that I want to encourage you appreciate is that the culture we experience changes a bit, and I want you to capture that in your hearts and minds because it should help you see that it isn’t funding, education, or tech, that fosters startup communities, it’s culture.
Entrepreneurship Is Culture: The Missing Ingredient
When you appreciate that entrepreneurs are a type of person rather than a role in your community, you begin to transform the culture of your economy from believing you can help start businesses, to instead enabling the entrepreneurs who do. Startups are not born of innovative ideas, billions in funding, or even cutting-edge research, those are qualities that contribute to startups; at their core, startups are born by entrepreneurial people, and those people only really rise to the occasion when the culture encourages —a dynamic interplay of risk tolerance, capital availability, and government support (or hindrance).
If you’re not making the connection, or you still mistakenly believe that fostering startups is like supporting small businesses, think of entrepreneurs as athletes and your economy as akin to sports. A culture that is more excited about music than sports, isn’t likely to accomplish much in football or baseball. Without media attention, fans, and advertisers, the industry itself struggles to get along. More importantly, while you have people more than capable of being pro athletes, they can’t compete without teams, programs, and training to be their best; and that training doesn’t take place when someone in the 20s decides to have a career playing sports, it’s a result of a culture in their youth, that inspires them to pick up a ball with friends, to run or bike into town, or lift weights at school. A government and culture that stifles this, can’t compete – and as much can equally be said of athletes and sports as can be said of entrepreneurship and tech.
No amount of investment available, innovation spaces opened, or incubators operating can turn adults into founders if the culture isn’t first in place to inspire, support, train, and reward people for trying as they mature.
Most the world is fueled by good intentions, wanting to encourage entrepreneurs and knowing that startups create jobs, but most of the world is focused on the wrong measures and as a result, they’re contributing to startups failing while hoping they’re making a difference.
While many governments around the world recognize the importance of fostering startups, their efforts often fall short because they misunderstand an essential trifecta. It isn’t about throwing money at the problem; it’s about building an ecosystem where risk-taking, failure, and recovery are celebrated.
The European Problem: Risk Avoidance
Let’s me temper the fact that I’m about to be critical of Europe here while indeed, not being a part of the ecosystem myself. Keep in mind, I study this and do the work with cities and countries necessary to developing their economy for startups. I want to focus on Europe for a moment because I was asked to, “So what does Europe have to do to become competitive in the tech space?” and my perspective celebrated; what you’re reading now, here, is a more elaborate explanation of what I’ve been talking about with Europeans already.
Despite billions in government funding allocated to foster innovation, many European countries struggle to create thriving startup ecosystems. The issue isn’t a lack of resources — it’s cultural. “Money comes from the government, and we aren’t really celebrated for taking risks or failing,” one Croatian entrepreneur told me during my time there. This statement captures the heart of the problem.
Government money often comes with strings attached, favoring safe, incremental ideas over bold, disruptive ones. And because governments dominate the funding landscape, private investors — who bring not only capital but also mentorship and accountability — are sidelined. Why would angel investors and venture capitalists’ step in when government funds fill the gap, albeit inefficiently?
A 2021 report by the European Investment Bank found that while Europe’s venture capital market is growing, it still lags far behind the United States, both in terms of volume and the average deal size. This lack of private investment stifles the critical ecosystem of experienced advisors who understand the high-stakes, high-reward nature of startups. Consider, the ideal motivation and support of a founder is an investor who demands a return on investment a result exceptional accomplishment but who can also advise the founder from their own experience; respectfully, academics at the University or good intentioned government officials aren’t up to that task, removing the role investors can and should play in your ecosystem, by merely providing the funding from taxpayers, counter-intuitively kills entrepreneurship.
So, Is Government: Friend or Foe?
Governments can play a pivotal role in shaping startup ecosystems, but often, their involvement backfires. High levels of regulation, coupled with the over-reliance on government grants and university-led programs, often do more harm than good. Universities and government officials are rarely the best advisors for startups. Their incentives are misaligned. Universities prioritize research and academic accolades, while governments often aim for politically safe outcomes, which leads to funding mediocrity over innovation.
In the United States, the situation is somewhat different but not without its flaws. While Silicon Valley thrives on a unique combination of risk-tolerant capital and a culture that celebrates failure as a steppingstone, other parts of the country falter by imitating the wrong aspects of that success. Cities like Austin and New York have glimpses of the right ingredients, but local programs often miss the mark by emphasizing commercialization or research-heavy approaches or providing the wrong kind of mentorship. Most cities support a startup hub and then celebrate their accomplishment through the media, really just hoping to win over voters for trying, without realizing that they’re likely harming would-be founders.
What Needs to Change?
Foster a Culture of Risk and Reward: Startups thrive where risk is rewarded, and failure is seen as part of the journey, not the end of it. This requires a cultural shift, one that celebrates entrepreneurial success stories and normalizes the struggles that come with building a company. A study by the Kauffman Foundation highlights this point, showing that regions with a high density of entrepreneurial role models and mentors see significantly higher startup success rates. For countries lacking this cultural fabric, the first step is education — not in “entrepreneurship” curriculum but in a k-12 culture of teaching children that shows what’s possible and how failure builds resilience.
Attract Private Investment: Government funding has its place, but it should complement, not replace, private investment. You can develop policies that attract venture capital, we’ve explained it here, but I’d still bet your city is failing to do this and likely discouraging investors. Policies that incentivize angel investors and venture capitalists — such as tax breaks or co-investment models —can help build a robust network of experienced investors who provide more than just capital. In Israel, for example, the Yozma program successfully jumpstarted its venture capital industry by matching government funds with private investments, a model that has since been emulated globally.
Reduce Regulatory Burdens: Overregulation is a startup killer. While some oversight is necessary, governments must create an environment where startups can move quickly and adapt. The World Bank’s Ease of Doing Business Index consistently shows that countries with simpler business regulations see higher levels of entrepreneurial activity.
Rethink Education and Advisory Models: Universities and government-led startup programs often offer the wrong kind of advice, focusing on research-heavy approaches that stifle innovation. Instead, ecosystems should prioritize real-world experience. This is where accelerators, incubators, and private-sector mentors can make a meaningful impact. Silicon Valley’s success, for instance, is deeply rooted in its network of seasoned entrepreneurs who actively mentor the next generation.
Tailoring Economic Strategies to Startup Contexts
You should not aim to replicate Silicon Valley! But you should learn from the culture of that ecosystem to better understand why it works so well – it isn’t tech or capital. Built on a foundation of individualism, risk tolerance, and market-driven dynamics, the United States generally has a cultural advantage but even then you can see that cities within the U.S. struggle or succeed – I assure you, everyone is trying the same things: demo days, coworking spaces, startup hubs, entrepreneurial curriculum, and incubators -> recognize that if everyone is doing that, what works is something more. Take elements of understanding the implication of culture, adapt them to their unique sectors, strengths, and economic contexts.
For example, Finland has found success by blending government support with private sector involvement through initiatives like Tekes (now Business Finland), which provides funding but also actively connects startups with private investors and international markets. Similarly, Singapore’s Startup SG initiative has created a thriving ecosystem by offering grants, mentorship, and access to global networks without stifling private investment.
Entrepreneurship is fundamentally a cultural question, supported by capital and shaped for good or bad by government policies.
Countries that focus on just one or two of these elements will continue to fall short. To succeed in tech startups, nations must cultivate a culture that celebrates risk, attract private investment to provide more than just money, and implement government policies that enable rather than hinder innovation.
The question isn’t whether your country can compete in the global startup race; it’s whether you’re willing to do what it takes to change the culture, policies, and investment landscape to make it happen.
The post Why Most Countries Fail at Tech Startups (How to Fix That) appeared first on Startup Economist.
No related posts.