The state is becoming a start-up driver

Governments are increasingly recognising the significance of tech growth, and the start-up scene has become a barometer of a country’s digital health. As a result, states are taking a more active role in financing and developing start-ups, thereby actually playing a major part in future tech exits and company longevity. For example, London corporate finance is closely tied to the UK state, as the Tech Week manifesto demonstrated last month. Business transfer agents certainly benefit, as greater positive state involvement can provide a more fertile environment for new ideas.

The digital economy is becoming a vital component of a country’s GDP contribution, with markets such as consumer telecom consumption, e-commerce and online advertising capable of significantly driving economic growth. States are recognising this by incentivising and supporting localised telecom segments, from grassroots entrepreneurial levels to consumer-focused subsidies. According to research by the European Parliament, digital technologies accounted for over 21.0% of GDP growth among the world’s developed countries over 2008-2013, with Europe’s digital economy set to expand seven times the speed of overall EU GDP from 2014 to 2020. Increasingly, digitalisation is becoming an essential pillar of economic productivity and growth.

Providing early-round financing to local start-ups can help build a digital segment from the ground up, attract eventual FDI inflows and generally improve the domestic business environment. For example, in April 2014 Singapore selected six start-ups to each receive $7.9 million in taxpayer money through the country’s Early Stage Venture Fund.

States are also targeting specific technologies which they believe can increase a country’s competitiveness and solve long-term challenges. For example, Climate-KIC is a European Commission-funded programme that supports environment-focused tech start-ups at universities through specialised incubators. Exporting cleantech know-how is becoming big businesses as large emerging economies focus on lowering carbon emissions.

The EU, which has undergone a period of economic stagnation since 2008, is implementing expansive telecom reforms in an attempt to kick-start more dynamic GDP expansion across the region. The European Council has named the dropping of mobile roaming charges by 2015 and high-speed broadband access for most of the region’s homes by 2018 as some of its key policy goals.

However, some countries are actively taking strategies that can potentially undermine digital development and damage technological innovation over the long term. Turkey, for example, pushed through parliament a number of draconian Internet censorship laws in early 2014, which is likely to limit opportunities for local start-ups and hinder investments into the sector. Turkey is already a regional telecoms laggard, holding some of the weakest mobile and fixed Internet penetration rates in Europe.

Nonetheless, as governments invest more in their digital landscape, the outlook of the digital world is continuing to diversify, as more states challenge the innovation and online productivity of traditionally dominant technology hubs such as Japan and the USA. Emerging economies such as China, Israel, Brazil and Russia are increasingly major digital hotspots within their regions.

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