How Innovation Ecosystems are Created?

“You can’t solve a problem at the same level that it was created. You have to overcome it at the next level” -Albert Einstein

In 1939 Hewlett Packard founded its offices in Silicon Valley, during the 60s companies such as AMD and Nvidia were founded there. Later in the 70s Silicon Valley saw the birth of Atari, Apple, and Oracle and by the end of the 90s it was home to companies such as Yahoo, PayPal, and Google, becoming the world capital of technology and innovation. Some characteristics that have driven the development of Silicon Valley are the capacity for innovation and entrepreneurship; a genuine spirit of cooperation and collaboration among the different participants in the VC ecosystem; autonomy; independence; motivation and good compensation for startup employees; building platforms and organizations that last and broad networks of businesses that have bet on the development of this ecosystem.

In recent years we have seen how other regions have become more relevant in the VC and innovation ecosystem. Such is the case of emerging economies such as Indonesia, India, Malaysia, Brazil, Colombia, among others. These ecosystems have imported innovation from countries such as the United States and have had the capacity to generate their own local innovation. The emergence of successful startups is one of the main factors in the development of innovation as they become visible success stories for the VC ecosystem, motivate the development of new startups and trigger investments from local and international VCs. Some examples of startups that are fostering their local ecosystems are Gojek in Indonesia, NuBank in Brazil, Rappi in Colombia and at the time Grin in Latin America.

Entrepreneurs are trying to improve the capital raising experience for startups by becoming angel investors and sometimes creating their own investment funds. Such is the case of Jonathan Lewy, founder of Grin, who has his own VC fund called Investo; or Mike Johns, former CEO of MySpace, who founded Science Ventures. There are also VC funds that are made up of entrepreneurs and investment bankers such as a16z.

Sometimes when an entrepreneur has had a successful project, they try to replicate their success by becoming a serial entrepreneur. Thanks to these serial entrepreneurs whose efforts encourage the continuous development of the ecosystem, the door is open to new entrepreneurs. An example is Juan de Antonio, founder of Cabify (mobility service), who also founded the Fintech Lana or Jack Dorsey who founded Twitter and later Square.

The development of the ecosystem is accelerated by the creation of new teams that participated in other ventures. For example, PayPal employees became independent to develop successful technology-based startups such as Linkedin, YouTube, Yelp, Yammer, Tesla and Palantir. In turn employees from these companies have left to create their own startups. This becomes a virtuous circle which is in its early stages of development in emerging markets such as Mexico. In Mexico, people have left Linio, Clip, Cabify, Amazon, Uber, and others to start their own companies.

The convergence of accelerators and events in a geographic region has encouraged the growth of innovation ecosystems in those regions. For example, in places like Indonesia you can find a cluster of accelerators such as Techbator, Batavia, Kolaborasi among others; Sao Paulo concentrates the main accelerators and events in Brazil such as Wayra, Google for Startups and The Bakery; Bogota has active programs of Seedstars, Rockstart, Wayra and Torrenegra and Mexico City with accelerators such as Masschallenge, Finnovista, 500 Startups, Village Capital, Seedstars, among others.

Local VC funds also contribute to the development of these ecosystems; through their equity investments they promote new businesses that develop innovation and generate competition in the market. The Brazilian market has had a great development supported by funds such as Kaszek, Monashees, Valor, Redpoint, Indicator, Astella, Canary, etc. In Indonesia there are players such as Alpha JWC, Convergence Ventures, MDI Ventures, Ventura Capital, among others. International funds with regional presence also have a positive impact, such is the case of Sequoia with presence in India, Israel, United States, China, Hong Kong, and Singapore; or Lightspeed with presence in the United States, Israel, China, India, Europe, and Southeast Asia.

There are other actors that favor the development of these ecosystems, such as governments, universities, foundations, and multilateral agencies. In Colombia, Bancoldex, through VC investments, promotes the ecosystem together with ProColombia; in Brazil, Apex does so; in Chile, ProChile promotes these projects; in Israel, there is Israel Innovation Authority and Startup Nation Central.

The development of innovation and entrepreneurship ecosystems does not come out of nowhere. All actors (entrepreneurs, VC funds, accelerators, universities, governments, etc.) are responsible for fostering a functional and expansive system. Moreover, the development of a culture and values linked to innovation and entrepreneurship are fundamental for the economic development and sustainability of a country.

“What is innovation calculus? The calculus of innovation is really quite simple: knowledge drives innovation, innovation drives productivity, productivity drives economic growth.” -William Brody, Scientist

Note: please refer to the original publication at EL CEO: ¿Cómo se crean los ecosistemas de innovación? (elceo.com)

Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.

Ricardo Latournerie. VC Investor at ACV.

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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