1. Startup Ecosystems of Silicon Valley and
Bangalore: Depiction and Comparison
Sébastien Bianchi
Master in Management
HEC Lausanne
Supervisor: Pr. Dr. Yves Pigneur
Expert: Dr. Balz Strasser
Bangalore, academic year 2014 – 2015
This work is carried out under the Master in Management at the faculty of Business and Economics
of the University of Lausanne and the internship program at swissnex India in Bangalore.

2. 1
Acknowledgements
I would like to thank all the people who supported me in the completion of this
final Master thesis. First and foremost, I am grateful to my supervisor, Professor
Yves Pigneur from HEC Lausanne, and to my expert and CEO at swissnex
India, Dr. Balz Strasser; they have been source of support and guidance.
Moreover, this Master thesis would not have been complete without the
contribution of different personalities I made interviews with from May 2015 to
June 2015: Vikram Ahuja, Jai Asundi, Sartaj Anand, Ajay Bam, Alisée de
Tonnac, Aditya Ghose, Suhas Gurumurthy, Prateek Khare, Rishikesha T.
Krishnan, Mauktik Kulkarni, Hervé Lebret, Barbara Maim, Harshith Mallya,
Rich Mironov, Srinivas Padmanabhuni, Tej Pochiraju and Govind Shivkumar.
Furthermore, it is a real pleasure to acknowledge Nikita Sharma for her
proofreading of my work, as I am not a native English speaker/writer. Finally, I
really appreciated the support of my sister, Caroline Bianchi, and my dear friend,
Romain Roulet, for the reading of my work and their insightful commentary.

3. 2
Abstract
This academic thesis takes into consideration the startup ecosystems of Silicon
Valley (United States) and Bangalore (India). Bangalore is a city where
considerable efforts have been dedicated to the promotion of the innovation since
more than one decade. Today, in India, the city of Bangalore exemplifies a
successful and world famous ecosystem of innovation which was comparatively
set up decades ago in Silicon Valley. Therefore, I took the opportunity of doing an
internship at swissnex India in Bangalore to explore this startup ecosystem and
depict its features in comparison with Silicon Valley’s. Even though there are
differences between United States and India based on culture, society and
economy, as to the structure of their respective startup ecosystem we can for sure
draw points of analysis to identify and understand the levers by which innovation
and entrepreneurship can be fostered to make a startup ecosystem successful and
drive economic development in a region: high-impact entrepreneurs, community
and culture, government and regulation, universities and education, incubators and
accelerators, and capital sources.
Keywords: innovation, entrepreneurship, startup, ecosystem, Bangalore, Silicon Valley, SWOT

4. 3
Contents
Acknowledgements..............................................................................................................................1
Abstract ................................................................................................................................................2
Figures..................................................................................................................................................6
1. Introduction......................................................................................................................................7
1.1 Points of interest.........................................................................................................................7
1.2 Methodology..............................................................................................................................7
1.2.1 Type of sources...................................................................................................................8
Secondary sources....................................................................................................................8
Primary sources........................................................................................................................8
1.2.2 Analysis Tools ....................................................................................................................8
Six-Factor Ecosystem Scorecard .............................................................................................8
Value Proposition Canvas........................................................................................................9
SWOT ....................................................................................................................................10
1.3 Limitations ...............................................................................................................................11
2. Innovation and Startup Ecosystem.................................................................................................12
2.1 What do innovation, entrepreneurship and startup really mean?.............................................12
2.1.1 Innovation .........................................................................................................................12
The concept of novelty...........................................................................................................14
The concept of utility.............................................................................................................17
2.1.2 Entrepreneurship...............................................................................................................18
Product/service and market risks ...........................................................................................20
Financial risks ........................................................................................................................21
Team risks..............................................................................................................................21
Execution risks.......................................................................................................................22
2.1.3 Startup...............................................................................................................................23
2.2 What is a startup ecosystem about? .........................................................................................26
2.2.1 Introduction.......................................................................................................................26
2.2.2 What are the different stakeholders of a startup ecosystem?............................................27
High impact entrepreneurs.....................................................................................................28
Community & culture ............................................................................................................28
Government & regulation ......................................................................................................28
Universities & education........................................................................................................29

5. 4
Incubators & accelerators.......................................................................................................29
Funding & capital sources......................................................................................................30
2.2.3 What makes a startup ecosystem successful? ...................................................................32
Talent .....................................................................................................................................32
Density ...................................................................................................................................34
Culture....................................................................................................................................35
Capital....................................................................................................................................36
Regulatory environment.........................................................................................................37
3. Silicon Valley.................................................................................................................................40
3.1 Introduction..............................................................................................................................40
3.2 High tech innovation, lean startup and design thinking...........................................................41
3.2.1 High tech innovation.........................................................................................................41
3.2.2 Lean startup.......................................................................................................................42
3.2.3 Design thinking.................................................................................................................43
3.2.4 Examples...........................................................................................................................44
Uber .......................................................................................................................................44
Drone GoPro – TPV (Third Person Camera) – In development ...........................................45
3.3 Stakeholders and key components ...........................................................................................46
3.3.1 High impact entrepreneurs................................................................................................46
3.3.2 Community & culture .......................................................................................................47
3.3.3 Government & regulation .................................................................................................49
3.3.4 Universities & education...................................................................................................50
3.3.5 Incubators & accelerators..................................................................................................51
3.3.6 Funding & capital sources ................................................................................................52
3.4 SWOT ......................................................................................................................................54
4. India’s Silicon Valley: Bangalore..................................................................................................55
4.1 Introduction..............................................................................................................................55
4.2 From Jugaad to frugal innovation ............................................................................................57
4.2.1 Jugaad...............................................................................................................................57
4.2.2 Frugal innovation..............................................................................................................59
Example using incremental innovation: Hike Messenger vs. Whatsapp ...............................60
Example using disruptive innovation: Forus Health.............................................................61
4.3 Stakeholders and key components ...........................................................................................62
4.3.1 High impact entrepreneurs................................................................................................62

6. 5
4.3.2 Community & culture .......................................................................................................63
4.3.3 Government & regulation .................................................................................................66
4.3.4 Universities & education...................................................................................................67
4.3.5 Incubators & accelerators..................................................................................................69
4.3.6 Funding & capital sources ................................................................................................71
4.4 SWOT ......................................................................................................................................72
5. Silicon Valley vs. Bangalore: Comparative discussion .................................................................73
5.1 Similarities ...............................................................................................................................73
5.1.1 Origins: military contracts, technology institutes and big companies ..............................73
5.1.2 Talent ................................................................................................................................74
5.1.3 Media and visibility ..........................................................................................................75
5.2 Differences...............................................................................................................................75
5.2.1 Entrepreneurial culture and community............................................................................75
5.2.2 Role models ......................................................................................................................77
5.2.3 Innovation flows and type of reach...................................................................................77
5.2.4 Types of innovation: Low tech vs. high tech....................................................................79
5.2.5 Lean startup methodology.................................................................................................79
5.2.6 Quality of support to startups............................................................................................80
5.2.7 IP protection......................................................................................................................81
5.2.8 Synergies with the education system ................................................................................82
5.2.9 Facilities and infrastructure: standard of living ................................................................82
5.2.10 Funding environment......................................................................................................83
5.3 Performance and potential .......................................................................................................85
6. Conclusion .....................................................................................................................................87
7. References......................................................................................................................................89
7.1 Works.......................................................................................................................................89
7.2 Websites...................................................................................................................................91
8. Appendix........................................................................................................................................98
8.1 Startup development phases and funding timeline ..................................................................98
8.2 Domains of the entrepreneurial/startup ecosystem ..................................................................99
8.3 The Global Startup Ecosystem Index.....................................................................................100
8.4 Silicon Valley vs. Bangalore: Statistics .................................................................................101
8.5 Interviewing guide .................................................................................................................104
8.6 Profile description of the interviewees...................................................................................105

7. 6
Figures
Figure 1 - Value Proposition Canvas (Osterwalder, 2012)..................................................................9
Figure 2 - SWOT (Team FME, 2009, p. 6)........................................................................................10
Figure 3 – Technology progress versus market impact (Carpenter, 2009)........................................16
Figure 4 - The natures of innovation (Kalbach, 2012).......................................................................16
Figure 5 - Venture phases and funding (Lünendonk, 2013; Market Revolution, 2014)....................25
Figure 6 – Differences between supportive programs (Crowell, 2013).............................................30
Figure 7 – Value Proposition Canvas of Uber (Boeckel, Sprunger, Smith and Work, 2012) ...........44
Figure 8 – Value Proposition Canvas of Drone GoPro......................................................................45
Figure 9 – Networks and platforms (main source: swissnex San Francisco, 2014) ..........................49
Figure 10 - Institutes (main source: Kenney, 2000)...........................................................................51
Figure 11 – Incubators/Accelerators (main source: swissnex San Francisco, 2014).........................52
Figure 12 – Actual stage distribution (Startup Genome, 2012, p. 12) ...............................................53
Figure 13 - Funding sources (Startup Genome, 2012, p. 12).............................................................53
Figure 14 - The interwined factors at the BOP (Ruohonen and al (eds.), 2012) ...............................56
Figure 15 - Jugaad - The Art Of Converting Adversity Into Opportunity (Forbes, 2014) ................58
Figure 16 – Whatsapp vs. Hike: How does Hike differentiate itself from the leader? (Raina, 2014)61
Figure 17 – Value Proposition Canvas of Forus Health (forushealth.com, 2015).............................62
Figure 18 – Networks and platforms (main source: Sulochana Development Trust, 2014)..............66
Figure 19 - Institutes (main source: Wikipedia, 2015) ......................................................................68
Figure 20 - Incubators in Bangalore (main source: Padmanabhan, 2014).........................................70
Figure 21 - Accelerators in Bangalore (main source: Padmanabhan, 2014) .....................................71

8. 7
1. Introduction
1.1 Points of interest
Supported by different agents that constitute the nature of a startup ecosystem, innovation is made
possible only when preconditions, which facilitate the activities of the innovators, entrepreneurs,
advisors, investors and other stakeholders, do exist.
This work aims at identifying different and key stakeholders of any startup ecosystem and provide a
better understanding of the interactions between each other. The comparison between Silicon
Valley and Bangalore helps in raising up how the cultural and socio-economic background of a
region impacts on the nature of its innovation and its startup ecosystem. Therefore, the case of
Bangalore is particularly appropriate since it allows us to closely examine and analyse how this
emerging place in Southeast Asian region is approaching innovation and entrepreneurship and what
are the existing similarities and differences that exist with the Western reference of Silicon Valley.
The fact of living and working 6 months at swissnex India in Bangalore (from February to July
2015) enabled me to learn much more about the stakeholders of the startup ecosystem here and
made it easier for me to get in touch with different on-site experts I conducted interview with.
“Since United States and India have very different socioeconomic situations, can
we depict points of comparisons regarding their famous respective startup
ecosystem; Silicon Valley and Bangalore?”
1.2 Methodology
In this work, I define first what innovation and entrepreneurship really mean and what levers, stages
and stakeholders make a startup ecosystem successful. Then, I separately introduce the startup
ecosystems of Silicon Valley and Bangalore. For each of these startup ecosystems I describe the
type of innovation which is the most characteristic and give details about each of the stakeholders of
the startup ecosystem. Further, a comparative analysis enlightens the similarities and differences
between Silicon Valley and Bangalore, where insights of experts support the contents.

9. 8
1.2.1 Type of sources
Secondary sources
In the bibliography section at the end of the work you will find the secondary sources which
allowed me to realize the theoretical part of this thesis. They have been very helpful in
understanding the theoretical context of an innovation and startup ecosystem, while providing me
with very valuable information about both Silicon Valley and Bangalore.
Primary sources
I decided to conduct a series of interviews to enrich the content of my work. Therefore, I selected
and contacted several Swiss, American and Indian experts in entrepreneurship and innovation, to
whom I asked a series of questions via skype or email, in order to deepen or confirm the
information gathered through sources. I dedicated a specific section under the name Comparative
Analysis between Silicon Valley and Bangalore, where I sorted out the most insightful comments
those experts shared with me. An interviewing guide and the profiles of the interviewees are
available in the appendix, as well.
1.2.2 Analysis Tools
Six-Factor Ecosystem Scorecard
A group of researchers from the University of Pennsylvania in United Stated identified six critical
groups, which they consider essential to the success of innovation ecosystems:
1. High impact entrepreneurs
2. Community & culture
3. Government & regulation
4. Universities & education
5. Incubators & accelerators
6. Funding & capital sources

10. 9
Value Proposition Canvas1
The value proposition canvas was developed out of the Business Model Canvas by Dr. Alexander
Osterwalder and Prof. Dr. Yves Pigneur from HEC Lausanne in their book named Business Model
Generation which was published in 2010 and encountered a huge success in academia and in
industry. Another book released in 2014 under the name of Value Proposition Design enlightened
more on its principles and its managerial usage. The value proposition canvas aims at explaining
through 6 “blocks” how to design, test, create and manage compelling products and services where
the value propositions meet the customer needs and requirements:
1. Customer jobs describe the tasks the customers are trying to get done and the purpose they
are looking for (functional, social, personal/emotional or supporting)
2. Customer pains describes undesired outcomes, obstacles and risks which prevent the
customers to get a job done
3. Customer gains describe the required, expected, desired and unexpected gains the customers
are seeking from the value proposition of the product & services.
4. Products and Services decribe the type of offer (physical/tangible, intangible, digital and
financial) the value proposition is built around
5. Pain relievers decribe how the products and services alleviate the customer pains
6. Gain creators describe how the products and services create customer gains
The value proposition canvas can be decomposed into two parts: the right part is related to the
customer segment profile (customer jobs, customer pains and customer gains) and the left part is
related to the value proposition map (products & services, pain relievers and pain creators). More
explicitly, the right part represents the characteristics of a specific customer segment, while the left
part shows the benefits to get designed for fitting the value proposition and the customer segment.
Figure 1 - Value Proposition Canvas (Osterwalder, 2012)
1
http://businessmodelalchemist.com/blog/2012/08/achieve-product-market-fit-with-our-brand-new-value-
proposition-designer.html

11. 10
Figure 2 - SWOT (Team FME, 2009, p. 6)
SWOT
The SWOT enables to compare both innovation ecosystems I previously descibed and individually
evaluated, in order to understand the underlying reasons of their differences. To facilitate this
process, I will first use the SWOT analysis, which serves as an analysis tool to classify, as its
acronym indicates, the strengths (S), the weaknesses (W), the opportunities (O) and the threats (T)
that each innovation ecosystem entails:
 Strengths: internal factors that enable the innovation ecosystem to be successful
 Weaknesses: internal factors than hinder the innovation ecosystem to be successful.
 Opportunities: external factors the innovation ecosystem can capitalize on to be successful
 Threats: external factors the innovation ecosystem should mitigate to be successful.
The principle is to depict each of the startup ecosystems previously described, in order to see how
their respective configuration of resources and competences allows them or not to take advantage of
their environment (Johnson and al, 2009, cited by Team FME, 2013, p. 4).
This tool will be used in the section where both innovation ecosystems, Silicon Valley and
Bangalore, will be independently depicted and evaluated.

12. 11
1.3 Limitations
In this work, I decided to exclusively focus on the innovation related to startup ecosystems.
Therefore, I excluded from my research other topics that are also related to and have a significant
impact on innovation such as industrial innovation, research and development management,
leadership management, etc.
Moreover, even though the purpose of this work is to speak about innovation, entrepreneurship and
ecosystems, I keep my focus only on startups. Therefore I do not study for instance the impact of
multinational corporations (MNCs) to an innovation ecosystem. It is the reason why I generally
refer to the term “startup ecosystem”.
Last and not least, I did not achieve a thorough analysis of each stakeholder’s actor of both startup
ecosystems for the simple reason as the purpose of this Master’s degree internship thesis was to
make an overview of both startup ecosystems while comparing them with each other rather than
making a micro focus on each of them without being able to draw interesting comparison points at
the end.

13. 12
2. Innovation and Startup Ecosystem
2.1 What do innovation, entrepreneurship and startup really mean?
2.1.1 Innovation
The term innovation can be defined in different ways according to different perspectives. The
etymology of the word comes from the Latin word “innovare” which means to renew or change.2
The Oxford English Dictionary defines innovation as “the action or process of innovating, [or] a
new method, idea, or product” (Stevenson, A. and Soanes C., 2010).
While asking my interviewees about their own definition of this word, the following expressions
caught my attention:
- Innovation is something which has never been done before. Or you do it in a very different
way which nobody else talks about. (Prateek Khare, personal communication, June 4, 2015)
- The process of converting money into knowledge is R&D, while the process of converting
knowledge into money is innovation. […] Innovation is sticky and really scalable when it is
financially available; that is just because the economic model that sort of succeeded the
most last hundred years has been capitalism (Sartaj Anand, personal communication, June
10, 2015)
- Innovation must be measured in product cycle times (faster and faster releases and entire
product replacement generations), market validation in financial terms (if no one buys it or
pays for it, then we're probably using vanity metrics) and replacement trends (VCR replaced
by DVR replace by streaming video…). (Rich Mironov, personal communication, June 7,
2015)
- Innovation means doing things in a different way. Applying existing concepts in a non-
existent scenario is the essence of Innovation. (Suhas Gurumurthy, personal communication,
June 15, 2015)
- The introduction of a new product or a process that solves a need; the real question is what
is the need (or why innovate). (Tej Pochiraju, personal communication, June 24, 2015)
- Innovation is using technology to solve a problem in a unique and different way, which may
sound counter intuitive at first, but has a sustainable and long lasting scalable effect in the
2
https://experiencinginformation.wordpress.com/2012/06/03/clarifying-innovation-four-zones-of-innovation/

14. 13
long run. […] For example Uber pioneered the concept of hailing cabs using smartphones
and though people may have been skeptical about it initially, the world has now adopted it.
(Harshith Mallya, personal communication, June 17, 2015)
- The commercialization (or use by society) of invention, of something new. (Hervé Lebret,
personal communication, June 1, 2015)
- It’s quite a broad concept that can change depending on the cultural, social and economic
context. The most basic definition of innovation is implementing a new idea. The idea can
be a new solution to an old problem, a new solution to a new problem or developing
something that doesn’t solve any problem, but simplifies human life. (Mauktik Kulkarni,
personal communication, June 14, 2015)
From a business point of view, innovation can be defined as a new or improved idea, designed as a
process, a product or a service, which can get translated into an outcome in the form of a business
opportunity as long as it creates value and impact (financial, social and/or environmental) to the
market segment it targets and/or to the functioning of the innovative organization itself. It is
generally if we can take advantage of the opportunity, that is whether a cost saving or an increase in
revenues is unlocked, that we can speak about innovation. (Drucker, 1985; O'Sullivan and Dooley,
2009; Krishnan, 2010; Bessant and Tidd, 2011; Dabholkar and Rishikesha, 2013)
Therefore, the condition for a sustainable business requires generating enough economic value
which exceeds the cost of capital. In our competitive and globalized world market, there are
basically two strategies businesses can opt for: cost advantage or quality differentiation. Innovation
driven by cost advantage requires economies of scale in order to gain efficiency in the business
processes to deliver value with less cost. On the opposite, innovation driven by quality
differentiation aims to understand user needs and desires by creating higher value for customers
who will subsequently be willing to pay more for. Innovation can also be both driven by cost
advantage and quality differentiation, but such a strategy can be dangerous since the risk of being
stuck in the middle is then bigger: efficiency in both of the strategies is far harder to reach and
demands considerable know-how and resources for a business.
Rishikesha T. Krishnan, Professor of Corporate Strategy at the Indian Institute of Science in
Bangalore, identified two key dimensions of innovation: novelty and utility (Krishnan, 2010),
which can result in many other dimensions I am going to explain in the coming sub-sections.

15. 14
The concept of novelty
The concept of novelty is applicable whenever an innovation is new to (a country, an industry or a
company) and whenever a type of innovation takes place (non-static process). An innovation can be
local instead of being global (local, global or glocal innovation), it can be of diverse nature
(incremental innovation, disruptive innovation, breakthrough innovation or radical innovation) and
it can be of different forms (technological innovation, organizational innovation or business model
innovation).
First, the world is becoming much flatter than it has ever been with the various parts of the world
being more connected than they have ever been. In that sense, glocalization or hybridization
represents the ongoing blending of cultures. If the world is interconnected and interdependent in
many parts, the local conditions however play a key driver in global trades, because individual
needs and requirements are not flat at all; they are as much round as the Earth really is. We can cite
here the example of McDonald’s, which locally adapted its corporate strategy when going global by
customizing the menus to satisfy the local demand of consumers, while keeping global standards
like the French fries, the burger’s concept, the “happy meals” menu for the children and others
(George Ritzer and Atalay, 2010). In India, McDonald’s has been for instance brilliant enough to
bring Indian street food to its table. The Aloo Tikki Burger (burger with a cutlet made of mashed
potatoes, peas and flavored with Indian spices) exemplifies this success because of its very
affordable price and its street food taste, which mutually increase its perceived value for the Indian
consumer3
Secondly, the way of setting up the system (technology protection or technology progress versus
market protection versus market progress) will define which type of innovation will be fostered
(Shavinina, 2003; Kalbach, 2012; Shelton and Percival, 2013). Jim Kalbach, user experience
designer and information architect focusing on innovation and strategy, proposed the following
view of innovation which has been influenced by a model developed by Wheelright and Clark
(1992)4
:
1. Incremental or continuous innovation brings relatively small and low-risked changes in
performance and utility to a product, a service or a process in order to improve and protect
its commercial success over time in an existing market that is currently served. It happens
3
http://www.bbc.com/news/business-30115555
4
https://experiencinginformation.wordpress.com/2012/06/03/clarifying-innovation-four-zones-of-innovation/

16. 15
relatively often, especially for the existing companies which generally look for sustaining
innovation, since it is based on their existing knowledge and resources which it constantly
improves thanks to their know-how. Incremental innovation results into new product
features, extensions, variants, service improvements and cost reductions; e.g. I-Phone series,
Microsoft Office Software, Google Chrome extensions, etc.5
2. Disruptive innovation, originating from The Innovator's Dilemma (Christensen, 1997), is
opposed by Clayton M. Christensen, Harvard Professor and businessman, to sustaining
innovation like incremental and breakthrough innovations, which do not create new markets
but rather only sustains and enhances existing ones6
. Disruptive innovation is generally
initiated by newcomers since it consists to adopt a very different and new business model,
which enables to address a market which was not yet addressed; either being underserved or
unserved (Christensen, 1997). Disruptive innovation follows a learning curve where it
initially gives inferior performance to existing customers of a mature market and then
improves the quality step-by-step while retaining a competitive advantage over the existing
products or services of the market. It is a market/business innovation and therefore it is
based either on existing technological innovations (e.g. microfinance) or new technological
innovations (e.g. online education like MOOCs). 7,8
3. Breakthrough innovation brings a technologically advanced product, service or process into
an existing market well ahead of competitors. It changes from traditional business models
and creates a greater and higher-risked sustaining competitive advantage than incremental
innovation. This is because it offers something substantially new that people did not think it
was possible or because it satisfies previously undiscovered needs and requirements of the
existing customers; e.g. The Xerox 9700 Electronic Printing System was the first
xerographic laser printer product to be released within the existing printer market, then
dominated by line printers, and “[…] pioneered in laser scanning optics, character
generation electronics, and page-formatting software […]”9
.
4. Game-changing innovation has an unconventional impact on the market and on the society
by pushing the barrier of knowledge and driving the performance frontier with a change of
technology. Therefore, it happens relatively rarely contrary to incremental innovation since
it requires highly improved capabilities and higher risks. Game-changing innovation
5
http://www.innosupport.net/index.php?id=6054
6
http://mattwest.io/sustaining-vs-disruptive-innovation/
7
http://www.ribbonfarm.com/2007/07/23/disruptive-versus-radical-innovations/
8
http://jugaadtoinnovation.blogspot.in/2012/08/disruptive-radical-innovation-how-are.html
9
http://inventors.about.com/library/inventors/blcomputer_printers.htm

17. 16
transforms and induces a major shift of the market since new product categories, new
businesses and new industries emerge or existing values-based industries are radically
transformed; e.g. smart watches, 3D printers, edible food packaging, laser-guided bullet,
commercial space flights, lab grown beef, etc. 10,11,12
Gary Hamel, an American management expert, pointed out the accelerating pace of change in
today’s world that are driven by the incessant search for new sources of profit. The markets across
the globe are getting more volatile because of a faster and more intense innovative worldwide pace
and also because of a better access for customers to information and knowledge. The results are
faster innovation and consumerist moves and more frequent innovation and customer behavior
changes towards radical innovations in existing markets or new markets13
. The phenomenon of
accelerating pace of change in turn accelerates what Joseph Schumpeter, economist and former
Minister for Finance in the Austrian government, called “creative destruction”. This latter is a
repeated cycle where one innovation emerges and creates a situation of monopoly, before getting
imitated by other entrepreneurs spamming out other innovations around and creating a situation of
concurrency within the market segment until a next innovation comes up, destroy in a certain sense
the old rules of the game for creating new ones. (Bessant and Tidd, 2011, Kindle Locations 662-
667)
10
http://www.innosupport.net/index.php?id=6054
11
http://www.businessinsider.com/30-game-changing-innovations-2012-8?IR=T
12
http://jugaadtoinnovation.blogspot.in/2012/08/disruptive-radical-innovation-how-are.html
13
https://www.cloudave.com/1129/the-four-quadrants-of-innovation-disruptive-vs-incremental/
Figure 4 - The natures of innovation
(Kalbach, 2012)
Figure 3 – Technology progress versus
market impact (Carpenter, 2009)

18. 17
Third and finally, an innovation can be of different forms. We can speak about technological
innovation, organizational innovation or innovation based on the business model:
1. As Professor Krishnan points out (Krishnan, 2010), technological innovation has been the
most prominent form of innovation in the last century such as the internal combustion
engine, the microprocessors, the mobile technology, internet with the great development of
the e-services, and many others yet.
2. He also supports that organizational, administrative or managerial innovations like lean
manufacturing, total quality management, outsourcing, supply chain management and
intercorporate industrial partnerships have been as much important as technological
innovations. They have played a key role in the evolution of the practices, processes,
activities and structures over time; e.g. the evolution of raising capital and sharing risks
(joint-stock system, private limited system, cooperative system, corporation system,
partnership system, proprietorship system and more recently crowdfunding system).
3. Finally, Professor Krishnan mentions the innovation based on the business model in the
sense the innovation comes across the value chain, that is how a business generates value for
its customers and how a business captures value from the business model innovation; e.g.
Uber, an American international transportation network company, provides a mobile app for
potential customers to submit a ride request; its business model innovation is certainly
upsetting the traditional business model of the taxi driving companies.
The concept of utility
The concept of utility determines the reasons that influence customers to adopt and use innovations.
It can be translated into five characteristics, which Victor Yocco, researcher and strategist at
Intuitive Company, defined as follows14
:
1. Relative advantage: This is how potential customers perceive a product, a service or a
process improves their current situation alternatives or a previous generation of a product,
service or process. Here, it is very important for a business to undertake a market research in
order to test and validate hypothesis.
2. Compatibility: This is how potential customers consider the innovation compatible with
their lifestyle. Better the compatibility is, higher is the chance for the innovation to be
adopted. Here, the designers need to understand the conditions of adoption, which the design
14
http://www.smashingmagazine.com/2015/01/29/five-characteristics-of-innovations/

19. 18
of the innovation should take into account and align with: beliefs, attitudes, values and
behaviors.
3. Complexity vs. Simplicity: This is how intuitive it is for potential adopters to learn how to
use the innovation. Less complex the innovation, higher is the chance for the innovation to
be adopted. Here, usability testing practices should be applied by the designers through
iterations of the design, in order to address workflows that potential customers have
struggled with and come up to the market with a design as simple and functional as possible.
4. Trialability: This is how easily the potential customers can explore the innovation and get
used to and satisfied with its functionalities. Easier the innovation is to try out, higher is the
chance for the innovation to be adopted. Here, it is necessary for designers to use the trial
version of an innovation as a consistent representation of the experience that potential
customers could get out of it.
5. Observability: This is how visible the outcomes of using the innovation to potential
customers are. More there are early-adopters who use an innovation and make its outcome
visible to potential later adopters, higher is the chance for the innovation to be adopted.
Here, there are several ways of increasing the observability of an innovation for designers:
side-by-side comparison, before and after comparison and testimonials.
2.1.2 Entrepreneurship
Entrepreneurship can be considered as a practice since it defines the willingness or the motive
power of people within a team supported by a network to drive an innovation from scratch to
motion by taking risks. Entrepreneurs are visionaries, passionate, innovators, managers, decision-
makers, opportunity-seekers and risk-takers before being businessmen. They look for business
opportunities by driving innovation to create social and commercial value in developing a strategic
advantage (Drucker, 1985; Bessant and Tidd, 2011; Hwang and Horowitt, 2012).
By allegory, we can say that entrepreneurship and innovation can be respectively seen as vehicle
and fuel. Peter Drucker, Management consultant, educator and author, explained the relationship
between innovation and entrepreneurship as follows: “Innovation is the specific tool of
entrepreneurs, the means by which they exploit change as an opportunity for a different business or
service. It is capable of being presented as a discipline, capable of being learned, capable of being
practised.” (Drucker, 1985; cited by Bessant and Tidd, 2011, Kindle Locations 652-654) In
economics, the relative importance of innovation and entrepreneurship among other components

20. 19
like labor, capital and natural resources for generating profit and growth is well known. It is also a
reason why many countries today, which are under economic crisis and/or simply want to generate
jobs, try to support innovation and entrepreneurship with dedicated public programs and/or funds.15
Since entrepreneurship is a practice with general principles and rules applicable to a large part of
human activities and organizations, there results a discipline called “entrepreneurial management”.
This latter applies either to an existing institution or an individual starting to run a new venture16
(structure), either to a business or a nonbusiness organization (purpose), and either to a
governmental or a nongovernmental institution (sector), even though they all have different needs,
constraints and learning curves (Drucker, 1985). Therefore, we can state that entrepreneurship does
not only refer to one category of people or organizations, but instead includes many of them
(Drucker, 1985; Bessant and Tidd, 2011; WEF, 2014), like for instance:
 The low impact entrepreneur: They are individuals who merely want to bring something into
the market while taking limited risks.
 The high impact entrepreneurs: They are individuals who have big dreams, generally take
high risks and have in return huge potential for growth and success, and hence are likely to
influence others.
 The social entrepreneurs: They are entrepreneurs with social and/or environmental goals as
primary passion for change while considering profitability to a lesser extent.
 The serial entrepreneurs: They are entrepreneurs who start many different businesses and
therefore get a better understanding of how to be successful thanks to long-term capabilities.
 The “intrapreneurs”: They are internal entrepreneurs of existing companies, which want to
renew and evolve their products, services or processes.
The notion of risk-taking is a very important ingredient of any entrepreneurial venture. It is
particularly true for the four first above-mentioned categories, but it is false for the “intrapreneurs”
since they avoid part of the financial risks their existing company carries in their favor. Risks
should not be drivers for resignation but rather be considered as necessary obstacles that any
entrepreneur must overcome to succeed. Any entrepreneur should have the ability to take risks in
counterparties of very positive payoffs if successful or very negative payoffs if unsuccessful (risk-
return trade-off). Peter Drucker (1985) underlines that successful entrepreneurs learn how to get
adequate and minimized risks. Therefore, being a successful entrepreneur is not about taking
unnecessary risks that make no-sense, but rather about behaving and managing with a methodology
15
http://www.businessdictionary.com/definition/entrepreneurship.html#ixzz3cBLkCWay
16
A business enterprise involving some risk in expectation of gain.(cited from Thefreedictionary)

21. 20
based on purposeful innovation (Drucker, 1985; Bannerjee, Banerjee and Sastry, 2014). Sreekanth
Ravi, serial entrepreneur and founder of Tely Lab - video-conferencing company, identified
different types of entrepreneurial risks, which if are identified and approached early enough will be
less negative on the chance for success of the entrepreneurs17,18
:
Product/service and market risks
The entrepreneurs need to decide what they want to offer to the market, who they want to target and
how they want to address them, while understanding why, who and how potential customers or
customer segment would like to buy their product/service. It is in that sense a predictable risk
entrepreneurs are responsible for. Therefore, they have to clearly design using physical, intellectual,
human and financial resources about what the product or the service is and offers as value
propositions, and particularly need to match the value propositions with the customer segment they
would like to target. It is pretty hard for entrepreneurs to perfectly estimate the popular interest
towards a product or service, since people are unpredictable by human nature and there is always a
risk of overestimating a potential market.
It is the reason why the entrepreneurs should use the lean startup methodology, in order to alleviate
the risk of missing out their target with an inadequate product or service. For instance, the lean
startup methodology proposes to draw hypothesis and then test them on potential customers, but
also to pivot a prototype of the product or service again and again for matching the needs and
requirements of the customer segment at best. There are two important tools called the Business
Model Canvas and the Value Proposition Canvas, which help the entrepreneurs to realize a fit
between their value proposition and the market segment. The Business Model Canvas will
especially help to understand how a business model generates and provides value to customer,
while the Value Proposition Canvas will identify how the value proposition of the product or
service can alleviate the pains of the customer segment while creating gains. Better the fit between
the value position and the customer segment is, lower are the product/service and market risks.
(Osterwalder, Pigneur, Bernarda and Smith, 2014)
17
http://www.entrepreneur.com/article/234094
18
http://www.entrepreneur.com/article/238319

22. 21
Financial risks
Becoming an entrepreneur and starting a venture can be a difficult choice to make for those who are
already employed and are following a corporate career path. Even though, there is a backup plan for
many in the sense they can still resume their career in case of failure in their entrepreneur job. There
is indeed no guarantee of success and income at the beginning. This can be overwhelming for not
experienced and prepared people. However, this is also the reason why entrepreneurship makes the
entrepreneurs immensely motivated to succeed in their venture: It is a “do-or-die mission”19
.
Moreover, depending on the financial needs of the entrepreneurs, it can be possible to be only
dependent from external funding: angel investor contributions, venture capitalist investments,
government financial support (grants and loans), personal loans, award-winning grants and
crowdfunding sources like Kickstarter. However, most of the cases, entrepreneurs have to withdraw
cash from their personal savings to get the things moving forward, at the expense of losing their
safety net.
Furthermore, cash flow is a struggling issue that many entrepreneurs face at the early stage of their
business. It is primary for them to regularly have higher ingoing cash flows than outgoing cash
flows, in order to support day-to-day expenses at its best.
Last and not least, deadlines and timelines are very important for a venture when considering
product launches and milestones within the context of financial risks. They are often subject to
change as entrepreneurs deal with multiple goals. Therefore, it is primary to prioritize the key
business milestones, in order to achieve them successfully on time and nurture the confidence of the
investors.
Team risks
For any young entrepreneur, the key to success is the team and its network. It is necessary to
leverage on the skills of everyone since no one has all the answers. Nevertheless, a young venture
will never have a lot of employees. Thus, it is primary to cherish, valorize and trust the few key
people to be hired. There are two main reasons behind this assertion:
19
http://www.entrepreneurship.org/resource-center/risk-in-entrepreneurship.aspx

23. 22
1. If the team members have high-skilled profiles, they could be tempted to opt for a career and
higher salary in the industry instead. Therefore, the venture needs to trust those people and
to give them a maximum of autonomy, flexibility and responsibility, in order to primarily
compensate more or less the disadvantages of working for a venture and then to fully
develop their skills and potential.20
Yet, shares of equity can be dedicated to members of the
team – option pool (Market Revolution, 2014).
2. Moreover, entrepreneurs absolutely need to trust those key people to lead their task to
completion on time especially within the context of a venture which depends on its first
released product or service and where the timeline is also crucial to respect with regard to
financial risks. Therefore, it is very important here to trust the key people in a team who
inspire and invoke confidence as they are good enough to get the venture across the
milestones.
Execution risks
While it is dangerous for entrepreneurs to focus too much on details, it is also non-recommended to
overlook crucial details by keeping solely an overall look on the strategy and the execution. A right
balance lies between micro-management and macro-management.21
Moreover, during the execution, there are risks that can be controlled and minimized, but others that
cannot. Market analysis, consulting and auditing can help to evaluate and mitigate risks, as long as
there are more than only one actor to impact the decision-making process at the end.
Finally, entrepreneurship is a restless activity that requires personal sacrifices from entrepreneurs
wanting to reach up to the desired level of success. It can then engenders regular stress, delays and
intense pressure for the entrepreneurs, resulting from other entrepreneurial risks (product risk,
market acceptance, capital dependency, available cash flows, timelines to respect and team risk).
20
http://www.entrepreneurial-insights.com/hr-reality-check-working-startup-vs-corporate-job/
21
http://www.sapience.net/blog/work-efficiency/169-345-micro-management-versus-macro-management-for-
managers

24. 23
2.1.3 Startup
A startup is a venture since it has quite an independent environment under conditions of uncertainty,
where entrepreneurs exploit a new and scalable technology or a market opportunity with external
financing. It serves as starting point for transforming an entrepreneurial idea into a marketable
product, services or process, and for evolving a team into a company22
.
We can refer to startup as a structure which helps to manage innovation and entrepreneurship,
which Richard Branson, world famous entrepreneur and CEO of Pepsi Co., defined as follows: “An
innovative business is one which lives and breathes ‘out of the box’. It is not a singular single good
idea; it is a combination of good ideas, motivated staff and an instinctive understanding of what
your customer wants.” (Branson, DTI Innovation lecture, 1998; cited by Bessant and Tidd, 2011,
Kindle Locations 822-82)
Hervé Lebret, Professor of entrepreneurship and innovation at the Swiss Federal Institute of
Technology in Lausanne (EPFL), provided a very insightful definition of startup in 2013 by
highlighting the key criteria which personifies its purpose as23
:
A start-up is a corporation which explores, which is looking for a business model, a market,
customers and is trying to innovate. It usually looks for a big market (“scalable”) and
therefore service businesses do not qualify (except on the web) as they do not often scale. It
is also a matter of strong and rapid growth in emerging markets because the competition is
tough and there will be few winners. It often go fast. That is why it is more about a mindset:
you are curious, in an uncertain world, trying to bring new things to the world. Because you
are looking for a business, you do not have enough paying customers, and you will most
likely need external capital (business angels, venture capital) except if your future
customers accept to pay a lot in advance. This is why there is a strong correlation between
being a start-up and having investors. (Lebret, 2013)
There are basically five main stages of development in a startup’s life cycle, which require from the
starting up different milestones and are correlated to different rounds of venture funding, where
each time the startup “[…] take just enough money to reach the speed where [it] can shift into the
next gear.” (Graham, 2005; cited by Market Revolution, 2014) The concepts have been normalized
22
http://www.startupcommons.org/startup-key-stages.html
23
http://www.startup-book.com/2013/01/08/whats-a-start-up-and-a-spin-off/

25. 24
over a business's life cycle, in order to vulgarize the funding stages as much as possible and sources
of the startup over a time. It is however important to point out that venture investment amounts in
one startup ecosystem may on average look more like early stage investment amounts in others
(Lauder Institute Global Knowledge Lab, 2012).
Below are the venture phases and funding:
STAGE ACTIVITY, DURATION, %EQUITY FUNDED FUNDING AGENT ADVANTAGES/DISADVANTAGES
1 - Pro-seed  Ideation: company set up, prototyping
(business model and value
proposition)and living expenses
 Timing : 3 months
 Funding : 5% equity ($15'000)
Friends and family  Pros : easy to find
 Cons: personal relations involved
in business risk, no business
network
Grants and competition  Pros : money, gain visibility, few
constraints
 Cons: no business network
Crowdfunding
24
 Pros: awareness, recognition, fast
funding process, complex and
niche projects get funded, no
constraints
 Cons: no business network and
percentage of successful projects
crowdfunded decreases,
crowdfunded information is
asymmetric compared to what
business angels and VC obtain in
diligence, no need to convince
investors decreases feedbacks
2 – Seed  Concepting and commitment : first
run to build the company goal and
team (shareholder agreement) with a
Minimum Valuable Product (MVP) and
a business plan (market size, revenue
model, competitors, competitive
advantage)
 Timing : 3-6 months
 Funding : 5-30% equity ($15’000-
100'000)
Incubators/accelerators
(for people): offer
funding, working spaces,
business and technical
mentorship, supporting
services (consultants,
lawyers, accountants,
etc.), networking
 Pros: low control over the startup,
easy to reach, standardized
investment process, personal
relationship, access to VC network
 Cons: small funding, strong
competition, lower commitment
Crowdfunding Idem
3 - Early stage  Market validation: generate traction,
generate revenue and hire additional
staff
 Timing: 12-18 months
 Funding : 15-20% equity up to 2m
Angel investors (for
market captivity): rich
and generally
experienced people who
invest
in high growth startups
 Pros: networking, mentoring, less
investment constraints
 Cons: push to exit, less reputation
to protect, involved in the
management
24
http://www.gsb.stanford.edu/ces/crowdfunding-101

26. 25
Crowdfunding Idem
4 - A-B-C
rounds
 Scale: grow from revenue to profit
(outsourcing and automation to
increase productivity), hire executives
and go international
 Timing: 1-2 years
 Funding : 10-40% equity > 2mio
Venture capitalists (for
exit - cash-out with a
strong multiplier 2-3x):
investors managing
equity stakes of high-
risk/high-return ventures
 Pros: capital, experience, network
 Cons: control on the management,
strict, regulation on investment
Crowdfunding Idem
5 - Later stage  Establishing: get bought (acquisition),
go public (IPO) or grow funding
(external investments of large
companies)
 Timing: 3-4 years
Acquisition
25
 pros: adding value to the
combined entity, additional
distribution channels to leverage
on, facilited acquisition of
technology and talent
 cons: clash between the corporate
cultures
IPO
26
 pros: improved financial condition,
incentive compensation to
employees, stock can be used for
company purchases, increased
recognition and visibility
 cons: Loss of control (need
shareholders’ approval for some
matters), financial statements to
be audited on a regular basis,
sensitive information to be
revealed on a regular basis
Investments from large
companies
27
 pros: large amounts of funding,
active external involvement in the
running of the business
 cons: dilution/loss of ownership
stake and management control
Figure 5 - Venture phases and funding (Lünendonk, 2013; Market Revolution, 2014)
25
http://www.thehartford.com/business-playbook/in-depth/business-acquisition-pros-cons
26
http://smallbusiness.findlaw.com/business-finances/pros-and-cons-going-public.html
27
http://business.tutsplus.com/tutorials/the-pros-and-cons-of-having-private-equity-firms-invest-in-your-business--
cms-19887

27. 26
2.2 What is a startup ecosystem about?
2.2.1 Introduction
“Ecosystem” originates from the merging of the words “eco” and “system”. The former stands for
the relations between living things in a specific environment, while the latter refers to organization
(Durst and Putanen, 2013). The analogy between ecology and management has often been used to
study how community environments: compete and/or cooperate with each other.
Using a kind of biological analogy, the innovation ecosystem can be associated to the so-called
“Rainforest culture”, which “[…] is a human ecosystem in which human creativity, business
acumen, scientific discovery, investment capital, and other elements come together in a specific
recipe that nurtures budding ideas so they can grow into flourishing and sustainable enterprises.”
(Hwang and Horowitt, 2012, p. 28) Therefore, as Mercan and Göktas mention (Mercan and Göktas,
2011, p. 102; cited by Durst and Putanen, 2013, p. 3), innovation ecosystems are the result of the
mixing of economic and non-economic agents (technology, education, culture and society). Further,
Judy Estrin, Internet pioneer and American business executive, explains that “innovation
ecosystems are made up of communities of people with different types of expertise and skill sets”
(Estrin, 2009, p. 37–38; cited by Durst and Putanen, 2013, p. 5). Her theory states that innovation
can only thrive within an ecosystem if there is “[…] a constant and balanced cross-pollination of
ideas, questions, knowledge and technology between the most important communities [which] must
receive “nutrients” through different supportive structures, such as leadership, funding, policy,
education, and culture.” (Durst and Putanen, 2013, p. 5)
Ron Adner, Professor of strategy at the Tuck School, defines more simply an innovation ecosystem
as “the collaborative arrangements through which firms combine their individual offerings into a
coherent, customer-facing solution” (Adner, 2006, p. 98; cited by Durst and Putanen, 2013, p. 3).
He claims that innovations rarely emerges in isolation with single actors, but rather in open
innovation, where there is a large basis of interacting and dependent actors coming up with
complementary innovations creating value for everyone (2006; cited by Durst and Putanen, 2013, p.
4). Open innovation encompasses both internal and external actors of an organization, which act as
co-innovators along the innovation process. Indeed, the multi-varied types of knowledge and
expertise of the actors nurture the innovation process and facilitate the marketization for its
commercial use (Chesbrough 2003; cited by Durst and Putanen, 2013, p. 3). We can also speak

28. 27
about “innovations communities”, which according to Professor Ping Wang are “a set of
organizations and people with interests in producing and/or using a specific innovation” (Wang
2009, p. 8; cited by Durst and Putanen, 2013, p. 4). According to Professor Wang, those
communities are dependent on each other in the sense that they emerge and evolve around
“orchestrating activities” by following a collective innovation movement (Durst and Putanen, 2013,
p. 4). Rubens et al. talks about “creation nets” that provide (Rubens et al., 2011, p. 1743; cited by
Durst and Putanen, 2013, p. 4):
(a) goal-focused creation of new goods and services tailored to rapidly evolving market needs,
(b) with multiple institutions and dispersed individuals,
(c) for parallel innovation.
Last and not least, the concept of innovation within an organic system like a startup ecosystem can
be decomposed into three systematic derivatives regarding the way the stakeholders interact with
each other (Hwang and Horowitt, 2012):
1. The advisors of innovators (one-to-one relationship): One advisor mentors and advises one
innovator at a specific time for a specific matter (e.g. coaches, advisors, consultants,
investors, accountants, etc.).
2. The groups of advisors and innovators (many-to-one relationship): Their role is to build up
scalable, efficient and wide-skilled networks of mentors (e.g. incubators, accelerators, etc.),
in order to support the innovators on the early phase of the value creation.
3. The systems of groups, advisors, and innovators (many-to-many relationship): This type of
relationship facilitates the partnerships between the different communities within the
ecosystem, which become self-sustaining and where human culture is transformed into a
many-to-many system (e.g. crowdfunding like Kickstarter, open innovation platforms, etc.).
2.2.2 What are the different stakeholders of a startup ecosystem?
A startup ecosystem does not manifest overnight. The interactions of a community of agents are
necessary to facilitate its emergence and functioning. Subsequently, the ecosystem enables to
answer the requirements of entrepreneurs because they are supported by the adequate partners,
which benefit from the innovators with regard to their own profit or non-profit purpose, to fulfill
their needs. A group of researchers from the University of Pennsylvania in United Stated identified
six critical groups, which they consider essential to the success of innovation ecosystems (Lauder
Institute Global Knowledge Lab, 2012):

29. 28
High impact entrepreneurs
High impact entrepreneurs are pioneering entrepreneurs who start from scratch a business resulting
from their imagination with the intent to create new products/services, new markets, to disrupt
incumbents and contribute to improve the standard of living in the region through their innovation.
They are highly motivated and passionate, have no fear to fail and want to break the status quo.
(World Economic Forum, 2014)
Community & culture
Passionate entrepreneurs within a same ecosystem can build trusted and informal networks for
mutual purposes: sharing and learning knowledge and information, research and collaboration,
partnerships and business. Visionary and very engaged entrepreneurs are generally those who
facilitate the meet-ups and events and participate to spread awareness through media inside and
outside the startup ecosystem, in order to attract local and global talent, investors and entrepreneurs.
Government & regulation
Governments are policy makers and regulators at the same time. They should encourage innovation
by alleviating the barriers to entrepreneurship and investment. They play a key role in pulling
together the conditions necessary for a “[…] stable, predictable, and supportive regulatory
environment for entrepreneurs and investors.” (UP Global, 2014, p. 4) The architecture of the
regulatory environment designed by the government “[…] can have a significant influence on how
investors think about the location of innovators and the destination of their investments.” (Erixon,
2013; cited by UP Global, 2014, p. 37) Thus, regulations are needed tools, which should facilitate
the process of entrepreneurship, innovation and investment; e.g. property rights, contract
enforcement, supportive tax policy, protective intellectual property (IP)28
, direct investment for
fostering research, innovation and entrepreneurship, etc.
28
Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and
symbols, names and images used in commerce. Types of IP: Copyright, patents, trademarks, industrial designs and
geographical indications. (cited from http://www.wipo.int/about-ip/en/)

30. 29
Universities & education
Private and public education institutions serve as important suppliers of talent (engineers, designers
and businesspeople like entrepreneurs, accountants, consultants, lawyers, investors, etc.) to the
startup ecosystem. They also have the potential to bridge the gaps between the academic and the
entrepreneurial worlds. They accommodate research labs where scholars look for radical
innovations, which could be commercialized if technology transfers to startup companies are
operated. It is why nowadays more and more universities have started hosting their own incubators.
Incubators & accelerators
Incubators and accelerators are supportive stakeholders which are designed to foster the growth and
success of startups. These organizations help startups to plug into the startup ecosystem to make
valuable connections and move forward by sidestepping loss of time and failure risks. Even though
both incubators and accelerators offer similar services (office space, mentorship, networking and
early stage support services like internet access, accounting and legal service), they have different
roles to play towards startups and therefore their business models are different. (Lauder Institute
Global Knowledge Lab, 2012)
On one hand, incubators29
provide various types of startups on a rolling basis with a long time and
fee-based services support as well as access to experienced entrepreneurs (Lauder Institute Global
Knowledge Lab, 2012). On the other hand, accelerators give support on a batch basis and over a
short, limited and condensed period of time to mostly high growth potential tech startups “[…]
entering or growing in a national or global market” 30
with the possibility of investments by venture
capitalists in exchange for equity (Lauder Institute Global Knowledge Lab, 2012).
29
http://www.entrepreneur.com/encyclopedia/business-incubator
30
http://blog.theentrepreneursadvisor.com/2011/07/business-incubators-business-accelerators/

31. 30
Below is a table that compares simple business assistance, incubator and accelerator according to
seven key criteria for startups:
Funding & capital sources
There are mainly six ways for startups to seek funding, which can be either private- or public-
sourced and can for some of them, “in addition to capital, [investors] offer relationships, guidance
and services to portfolio companies in an effort to increase valuations and generate returns through
acquisition or IPO” (Lauder Institute Global Knowledge Lab, 2012, p. 9): family and friends,
business angels, incubators (some) and accelerators, venture capitalists, crowdfunding and banks
(loans)31
.
31
http://www.huffingtonpost.com/colleen-debaise/five-sources-of-money-
for_b_4032145.html?ir=India&adsSiteOverride=in
Figure 6 – Differences between supportive programs (Crowell, 2013)

32. 31
Below are descriptions of the most popular and specific sources of capital: business angels, venture
capitalists and crowdfunding:
 Business angels32,33
: Wealthy and accredited (means having important financial resources)
investor who provides funding to a startup, either on one-time investment or on ongoing
investments usually going from $150,000 to $1.5 million, in exchange for equity. They are
less demanding than venture capitalist regarding the term sheet and also offer support
(expertise, experience and network)
 Venture capitalists or firms34
: Risk profile investors who generally “[…] take large equity
positions in exchange for funding and may require representation on the start-up's board.”35
They can earn impressive returns on equity if the startup goes to success. Therefore, their
main focus concerns the viability of the business model and can also provide the startup
with managerial expertise and influence on company decisions.
 Crowdfunding36
: Online platform enabling to fund a venture by rising amounts of money
from a large group of people. As a source of capital, it has successfully and increasingly
emerged with the information economy and facilitated the process of aggregation of small
contributions of plenty of individual investors for funding startups (Lauder Institute Global
Knowledge Lab, 2012). Entrepreneurs can use them as a platform to “[…] prove to VCs,
angel investors and banks that there is a demand for a product in the marketplace, removing
some of the risks from the equation“. (Danae Ringelmann, co-founder of Indiegogo; cited by
Forrest, 2014) There are basically four types of crowdfunding: equity based, donation based,
lending based and reward based.37
The advantages of this method are: generation of seed
rounds from non-accredited investors (easier and faster process), no need to offer equity to
the investors and no need of a lead investor (UP Global, 2014, p. 32).
32
http://www.techrepublic.com/article/funding-your-startup-crowdfunding-vs-angel-investment-vs-vc/
33
http://www.investopedia.com/exam-guide/cfa-level-1/alternative-investments/venture-capital-investing-
stages.asp#ixzz3e6j5IidX
34
http://www.investopedia.com/terms/v/venturecapitalist.asp
35
http://www.investopedia.com/exam-guide/cfa-level-1/alternative-investments/venture-capital-investing-stages.asp
36
http://www.techrepublic.com/article/funding-your-startup-crowdfunding-vs-angel-investment-vs-vc/
37
http://utrconf.com/4-types-of-crowdfunding-and-what-this-means-for-the-future-of-investments/

33. 32
2.2.3 What makes a startup ecosystem successful?38
There are ingredients that create the appropriate conditions for a vibrant startup ecosystem to exist
and attain maturity. These drivers enable evaluating the health of a startup ecosystem over time and
can then be used as dynamic measures. Marc Nager, entrepreneur and CEO at UP Global - non-
profit dedicated to fostering entrepreneurship, grassroots leadership, and strong communities,
shared the research his company conducted about what makes entrepreneurial ecosystems thrive:
talent, density, culture, capital and regulatory environment. I comment the results under this section.
Talent
Talent is an essential driver for innovation and business growth, since entrepreneurs generally look
for the best locations where to go for accessing diverse, experienced and talented people. Therefore,
investing in human capital enables “[…] to build and retain a workforce not only with the skills
startups seek but also to help build businesses and innovate for the future” (UP Global, 2014, p. 7)
Universities and education focusing on IT and innovation should be supported in order to maintain
a considerable high-skilled workforce within a startup ecosystem, which will attract local, regional,
national and global entrepreneurs and in turn will bring innovation and value to existing and new
businesses.
Moreover, creating flexible and dynamic labor markets prevents from missing out diverse and high-
skilled talent. Otherwise, there would be shortages of manpower in some specializations or roles of
course, less competitiveness and more uncertainty for entrepreneurs and investors. Labor policies
should then not be intricate, but they should rather facilitate and stimulate investment flows into the
startup ecosystem. Moreover, global talent and innovators from other countries could be more
attracted to leave their place and contribute to the local economies whether the startup ecosystem
offers interesting opportunities and flexibility to them. It has been proved that immigrants
historically had a very high entrepreneurial spirit (Stangler and Bell-Masterson, 2015). High-skilled
immigration policies should be used for this purpose of facilitation of human capital exchanges.
Carlos Espinal, partner at Seedcamp, confirmed: “One quick way of bridging a shortage in staff in
an area is to create immigration policies that allow for talented and capable individuals to enter the
38
Main source: UP Global, 2014

34. 33
country and its labor force without major hurdles.”39
Thus, it is also necessary to ensure that
employers will no way be penalized for attracting foreign talent with high skills and experience. In
the report of UP Global, it is stated that “[...] attracting foreign talent can support investment in the
local workforce because it creates a virtuous cycle that allows highly skilled workers from other
countries to train local employees.” (UP Global, 2014, p. 9)
Besides, it is important to consider the pace of change, which is evolving very fast in today’s
information and communication economy. The traditional model of employment where most of the
people occupied only one function over their entire professional life and were working full-time is
giving way to more flexible and short-term working arrangements depending on the place.
Therefore, the traditional model of education is evolving as well into “[…] a broader inclusion of
learning opportunities that promote hands-on skills development and can be made available to
anyone who’s interested in learning […] also referred to as “authentic learning” where students
learn by doing.” (UP Global, 2014, p. 10) Companies, schools and governments already
implemented education-based applications that “[…] complement the traditional system, encourage
an entrepreneurial ecosystem, and create a competitive workforce” (UP Global, 2014, p. 10): Short
term and job-specific educational programs like Skillshare, workshops and events like Startup
Weekend, corporate educational programs and platforms dedicated to employees, ICT-based school
programs for team working, STEM education40
, applied apprenticeships and internships, etc.
Finally, it is primary nowadays to promote workplace diversity (gender, race, age, culture, etc.),
which will in turn “[…] encourage[s] different ways of thinking, new products and services to
support a wide range of users, and creative problem-solving techniques.” (UP Global, 2014, p. 13)
It has been for instance proved that startups addressing the gender gap perform better: “[…] with
five or more females, 61 percent were successful and only 39 percent failed.” (UP Global, 2014, p.
13) The cross-pollination of ideas necessary for innovation will subsequently be facilitated (Lauder
Institute Global Knowledge Lab, 2012). Yet, it is important to foster economic diversity, which is
moving up local people with low income quintiles, for expanding opportunities to the local
population, improving their conditions of life and offering prosperity (Stangler and Bell-Masterson,
2015).
39
http://thenextweb.com/entrepreneur/2014/04/01/build-tech-ecosystem-essential-building-blocks-
city/?utm_source=social&utm_medium=feed&utm_campaign=profeed#
40
STEM is a curriculum based on the idea of educating students in four specific disciplines — science, technology,
engineering and mathematics — in an interdisciplinary and applied approach (Hom, 2014).

35. 34
Density
More talented entrepreneurs have the opportunity to pool their ideas together, higher is the chance
that successful ventures emerge. Proximity of nodes helps to bring people together and develop a
network very fast41
. Business clusters are environments where entrepreneurship can flourish since
they are geographic networks of closely located, interconnected and dynamic businesses, suppliers
and associated organizations active in a specific field. AnnaLee Saxenian, Professor in the
Department of City and Regional Planning at UC Berkeley, explains that “proximity facilitates the
repeated, face-to-face interaction that fosters the mix of competition and collaboration required in
today’s fast-paced technology clusters.” (Saxenian, 1994; cited by UP Global, 2014, p. 16)
Worldwide Clusters growth has been facilitated over the past decades by a “[…] combination of
policies focused on fostering and attracting a skilled talent pool, incentives for investment in
technology-driven businesses, a strong business community support network, and reliable
transportation that facilitates movement to, from, and in a city.” (Blank, 2014; cited by UP Global,
2014, p. 16) Physical hubs or co-working spaces can also help to foster entrepreneurship and
innovation since they enable to gather all the necessary actors of a startup ecosystem within the
context of a limited space. They play the key role of supporting entrepreneurs and providing them
with “training, networking opportunities, access to finance, [...], a home base for the startup
community, and if possible, a free event space for education, demo days, [...], a focal point for
investors, mentors, and others looking to support the startup ecosystem.” (UP Global, 2014, p. 18)
Moreover, media (especially the ones dedicated to entrepreneurship and innovation) is an important
tool for attracting global entrepreneurs, talent and investors. It enables to drive awareness of the
startup ecosystem by sharing news, startup advices, resources, research reports, and by spreading
entrepreneur success stories, which in turn will increase engagement towards entrepreneurship
within the startup ecosystem. The public services can also provide immigrants with online
information about the startup ecosystem's place and administrative steps to follow for working or
launching a business there. The public services can simultaneously inform local employers about
the opportunity of hiring high-skilled and experienced immigrants; e.g.: visa programs (Chatterji,
Glaeser and Kerr, 2014; cited by UP Global, 2014). Workshops, festivals, mentoring and
networking events indirectly help in fostering innovation for entrepreneurs and connecting them to
other stakeholders of the ecosystem who may help them. These are instruments for sharing
information, learning lessons and best practices. They definitely serve to build a stronger
41
http://thenextweb.com/entrepreneur/2014/04/01/build-tech-ecosystem-essential-building-blocks-city/

36. 35
community. Besides, there are also cross-national programs that aim at connecting most of the time
Silicon Valley with emerging startup ecosystems; e.g. The Hindu Entrepreneurs (TiE)
Finally but not least, entrepreneurs need to build their ideas on research which is profusely
produced by universities and other organizations. Therefore, there is a key advantage to leverage on
“[...] strong connections between business and academia [since they] include funds for joint
research, development of standardized licenses to facilitate technology transfer, and coordination of
seed funding for university spin-offs.” (UP Global, 2014, p. 23) Universities can even be the
intermediary for connecting entrepreneurs, mentors and investors together. Many universities
initiated incubators at their campuses42
.
Culture
The development of role models, which are entrepreneurs or startups whose success can be
emulated by other entrepreneurs or startups aspiring to be like them, stimulates the desire for
entrepreneurship and innovation within a startup ecosystem. Here, media and visibility foster the
entrepreneurial spirit and help spreading the best practices across the ecosystem and even beyond. It
however not only talks about success, but also shares with the communities of entrepreneurs a
success story including failures as lessons learned.
The notion of open and risk-taking culture is an important feature which reveals to a certain extent
how opportunity-seekers the entrepreneurs are. It represents the acceptance of failure as “[…] a
necessary part of the innovation process because from failure comes learning, iteration, adaptation,
and the building of new conceptual and physical models through an iterative learning process.”43
Indeed, a study demonstrates that “[...] businesses set up by re-starters actually grow faster than
business set up by first timers in terms of turnover and jobs created” (European Commission, 2011;
cited by UP Global, 2014, p. 27) . However, it takes time to show entrepreneurs that risk-taking
pays off, since building a community of role models, who failed before reaching success, is not an
overnight journey. Media, as explained in the previous section, can help in that sense. Besides,
establishing role models with other startup ecosystems, notably the Silicon Valley, can help the
entrepreneurs of other startup ecosystems to understand more open and risk-taking culture of
innovation.
42
http://thenextweb.com/entrepreneur/2014/04/01/build-tech-ecosystem-essential-building-blocks-city/
43
http://www.forbes.com/sites/darden/2012/06/20/creating-an-innovation-culture-accepting-failure-is-necessary/

37. 36
Entrepreneur is obviously not the job that young graduates are generally looking for after exiting
University because of the categories of risks I already explained under the section
Entrepreneurship. Universities started to introduce entrepreneurship classes in their curriculum.
They understood the importance to teach students entrepreneurial skills to make them feel less risk
averse and more confident towards becoming entrepreneurs. Governments and community
initiatives also promote jobs for startups, in order to make young graduates consider the impact they
could have as entrepreneurs (UP Global, 2014, p. 29).
Yet, interactions between the private and the public sectors helps to indirectly impact on policy
makers for the private sector by providing a valuable feedback of the reality of the startup
ecosystem and the take actions to get preferably executed by the public sector for supporting
innovation in the best possible way (UP Global, 2014, p. 29).
Capital
Capital is a critical resource for an entrepreneur at whatever stage of the business. The capital
investment sources then play an essential role in nurturing and accompanying the startups along the
different stages of their development and are necessary to thrive a startup ecosystem. It is indeed
considered that “successful venture funds are an indicator of a healthy entrepreneurial ecosystem”
(Lauder Institute Global Knowledge Lab, 2012, p. 9).
Proactive regulation should facilitate the access to capital for entrepreneurs. Providing funding is
however not the end since it does not necessarily guarantee success. Therefore, governments should
design supportive funding structures according to the context and the specificities of the startup
ecosystem (seed capital, early stage capital, etc.).
Besides, tax incentives can attract high-risk appetite investors and in turn unlock business
opportunities within a startup ecosystem. Carlos Espinal, partner at Seedcamp, states that
“ecosystems that have government support to help investors invest more, generally manage to
unlock a stored pool of capital that can be repurposed to help stimulate the economy.” (Espinal,
2014; cited by UP Global, 2014, p. 34) The experienced investors should be more particularly
attracted by the government since they are the most helpful investors to the entrepreneurs by

38. 37
providing them with expertise, experience and advice along the investment stages of a startup.44
Above all, the government should keep attracting investors by encouraging them to reinvest their
gains into the economy of startups by using a tax policy of capital gains tax relief for shares.
Furthermore, other tax incentive programs like “Employee Share Option Plans” can offer tax
advantages for an employee shareholder and then persuade an employee to take more risks into the
venture as well (UP Global, 2014, p. 34).
Regulatory environment
Regulators should primarily focus on easing the creation and closing of ventures by several
measures, in order to alleviate the burdens for investors in regards with the investment environment
and drive innovation and entrepreneurship within a startup ecosystem,:
Putting registration processes online, reducing or eliminating minimum capital
requirements, simplifying post-registration procedures (tax registration, social security
registration, licensing), creating one-stop shops for registration, and reducing bankruptcy
penalties are a good place to start (UP Global, 2014, p. 38)
In the case of failure and bankruptcy, there should be a faster and facilitated process for investors to
exit their liabilities and therefore they would be more likely to take risks again by reinvesting into
other ventures of the startup ecosystem. It is indeed for instance stated by the Organization for
Economic Cooperation and Development (OECD), that “[…] reducing the stringency of bankruptcy
legislation from the highest to the average level in the OECD could raise capital flows to patenting
firms by around 35 percent.” (OECD, 2013; cited by UP Global, 2014, p. 38) It is to bear in mind
that failure is part of success in entrepreneurship, so that the regulatory environment should not
sanction failure too much under penalty of losing investors.
The tax system should be effective enough to drive entrepreneurship and investment within the
startup ecosystem. There are some policies that can be initiated by the government in order to
accomplish this goal (UP Global, 2014, p. 39):
 Corporate tax: Competitive corporate taxation attracts companies and in turn fosters R&D
development within the startup ecosystem.
 Tax breaks for hiring: Trade-off between cost and value of hiring a new employee is
rebalanced with such incentives.
44
http://thenextweb.com/entrepreneur/2014/04/01/build-tech-ecosystem-essential-building-blocks-city/

39. 38
 Tax rebates: Initial investments into startups can be promoted if there is a high-reward fiscal
rebate to gain afterwards.
 Capital gain tax relief: Lower capital gain tax rates can be applied by the government to
encourage reinvestments and foster a virtuous circle of investments.
 Income tax breaks for entrepreneurs: Promotion of entrepreneurship and startups.
 Research and development tax credits: Promotion of innovation by supporting financially
companies investing in research and development.
 Tax compliance simplification: Less time-consuming and cumbersome procedures enable
the entrepreneurs to focus more on their core business.
In today’s interconnected world where internet impacts so much on our economy (e-commerce, e-
services, social media , interconnected supply chains, etc.), it is very important for governments to
strike the right balance between keeping internet free and open to global users (with a fast and
reliable internet connection45
) and regulating it. Entrepreneurs take advantage of the opportunities
offered by internet in scaling their business to the world market. Data localization, data processing
costs or even worse, censorship, are burdens which the governments need to bypass if they want to
foster business growth. However, the governments must anyway regulate the web and set rules. It is
necessary firstly for businesses to know they won’t be held morally and legally responsible for the
actions of their users on their web platform and secondly for the actors of the business environment
to be confident enough they can use internet as a trustworthy platform for innovating, investing and
doing business. Copyright, for instance, has to be carefully studied online. Today, it is necessary to
have copyright’s limitations for fostering online innovation and creation by using tools like
YouTube, Google, Facebook, etc. A flexible trade-off between copyright protection and limitation
based on purpose-based standards can help to legitimate uses of copyrighted content. Yet, the
government should also come up with supportive regulations to today’s alternative funding
mechanisms like Kickstarter or Indiegogo, which operate in many different regulatory environments
and use information and communication technologies. (UP Global, 2014, pp. 40-41)
Furthermore, patents are the tools used for legally protecting innovation. However, they are not
always used to protect real innovation, but rather transformed by patent trolls into economic
weapons. Patent trolls are those who buy low-quality patents exclusively on the purpose to threat of
expensive litigation. The issue is that companies consequently lose time and money to defend their
45
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40. 39
case in court. They could instead dedicate their resources to research and development. Therefore,
governments need to set a protective legal system for entrepreneurs and innovation in general (UP
Global, 2014, p. 43):
 Make easier for companies to recover litigation’s fees from patent trolls:
 Grant a patent only when an invention is useful, novel, not obvious and determined in
details and in a precise patent scope - Less there will be broad functional patents, less there
will be patent actions;
 Identify and sort out the existing bad patents;
 Propose alternative to expensive and time-consuming litigation when suspecting a legal
action from patent trolls.
Last and not least, governments should take an important stake in fostering research and
development (R&D) within the ecosystem by direct investments or by focused government
programs incentivizing ventures to invest capital in R&D. Those measures will create a virtuous
circle leading to more innovations, more employment and more economic growth.

41. 40
3. Silicon Valley
3.1 Introduction
Silicon Valley’s success was made possible through the completion of several features which
because they were innovation facilitators whetted the ecosystem. The starting point of Silicon
Valley has been made possible thanks to Stanford University, which was founded in 1891 in Palo
Alto and aimed at competing with East American Universities. Frederick Terman, an engineering
professor of Standford, played a major role in recruiting the best students and professors, and in
convincing the students to stay in the region after graduation. From this initiative resulted student
enterprises like Hewlett Packard. (Gore and Mhatre, 2002)
However, Silicon Valley’s legacy is recognized to be the Cold War era when billions of defense US
dollars were invested into Stanford and the high-tech cluster of the Valley to support research and
development. A microelectronics industry gradually emerged and attracted companies, graduate
students, researchers and other talent to the Santa Clara Valley. The foundations of the current
Silicon Valley then result from “the Rise of the Gun Belt”, which attributes the economic
restructuring of the US after World War two to the rise of the American military industrial complex
(MIC) that facilitated the emergence of a new industry based on high technology. (Markusen, 1991)
After World War two, the San Jose Chamber of Commerce decided to attract new industry to the
area and companies like Ford, Lockheed, IBM, etc. moved their facilities to the Valley in the
decade of the 1950s (Biradavolu, 2008, Kindle Locations 226-228). There emerged in the 1960’s
the industry of semiconductors, first focusing on the performance of the product before competing
on the basis of function of the semiconductor. Next, the microprocessors industry started in the
1980’s with IBM and Apple notably. (Lee, Miller, Hancock and Rowen, 2000, pp. 63-70)
Apple changed the perception of the Valley which “would no longer be a semiconductor component
supplier but a system supplier. Not only was Apple providing systems, but it was selling systems
that were being marketed to consumers through a whole new retail channel – the computer retail
store.” (Lee, Miller, Hancock and Rowen, 2000, p. 71)

42. 41
It is really in the 1990’s that Silicon Valley became a center of entrepreneurship. The ecosystem
attracted entrepreneurs and ideas, funding agents and investors so that all the stakeholders were
gathered at one same place. Silicon Valley has also become the epicenter of many startup
ecosystems emerging at many places since then. In 1999, overall value per employee reached
$115,000 compared to $78,000 on average in the US (Lee, Miller, Hancock and Rowen, 2000, p. 2).
3.2 High tech innovation, lean startup and design thinking
3.2.1 High tech innovation
Silicon Valley is a perfect ecosystem for startups and entrepreneurship where people come and
develop innovative ideas and where high tech is the most important field of entrepreneurship. It has
always been a forerunner in high tech innovation, all simply because of its history and the strong
partnerships with the institutions and the industry. Most of the startups are technology-driven.
Junfu Zhan, Professor of Economics, explained the supremacy and dynamics of Silicon Valley as
follows:
Start-ups in Silicon Valley have more rapid access to venture capital than comparable firms
elsewhere in the nation; that large, established firms spin off more start-ups than firms in
other parts of the country; and that the high-tech sector is subject to rapid structural change
where “hot spots” of growth may appear in some industries while firms in other industries
are simultaneously dying out. (Zhan, 2003, p. iv)
University research supported by the State government always played a crucial source of innovation
as well (Zhan, 2003, p. 77). The high-tech sector consists of several industries, which follow
different dynamics. He explained the 1990's, when the computer industry performed along with a
decline in the defense industry, there was a fast structural change in the high-tech sector:
Silicon Valley increased from 48,500 to 114,600 between 1990 and 2001, a phenomenal 136
percent growth rate. [...] This kind of rapid growth in a certain industry is achievable only
through massive migration of the needed labor force. (Zhan, 2003, p. vii)
The particularity of the high tech industry is that different industries serve different markets where
different workers have different skills, which are not completely usable in different industries. It is
therefore necessary to have a stable and flexible high-tech structure, which can adapt itself to the

43. 42
economic pace of the industry (slow vs. fast). The goal is to take “[…] full advantage of new areas
of growth […] and [shift] when a major industry shrinks.”(Zhan, 2003, p. 16) Silicon Valley was
the perfect place to be.
Nowadays, high tech innovation refers to many emerging radical innovations like robotics, drones,
the Internet of Things (IoT), etc. Once again, Silicon Valley remains the global leader and a big
stake of the world famous high tech startups which have emerged these last decades are from
Silicon Valley. The Bay Area Council Economic Institute, source of information and analysis in
California, states that in the US “the creation of one job in the high-tech sector of a region is
associated with the creation of 4.3 additional jobs in the local goods and services economy of the
same region in the long run”. (Bay Area Council Economic Institute, 2012, p. 5; cited by UP
Global, 2014, p. 9)
3.2.2 Lean startup
Lean startup is a methodology which incorporates hypothesis-driven experimentations based on
iterative minimum viable products for validating market opportunities. Eric Ries theorized this
methodology in 2011 in his world famous book The Lean Startup: How Today's Entrepreneurs Use
Continuous Innovation to Create Radically Successful Business, claiming that startups could
definitely benefit from iterating their products during the phase of experimentation. They could in
turn better meet customer needs and requirements while cutting down initial project funding,
business expenses and failure risks.46,47
The important theory coming out of this book is that flexible pre-planning and market validation are
essential when moving an idea to a startup since they alleviate the probability of failure for the
entrepreneurs. A business model will help and enable better chances of market success in that sense:
By pivoting their first ideas and validating their market based on feedback (learning) from early
adopters, the startup applies the required changes to its business model which will in turn alleviate
the risk of market failure and increase the probability of fit between its product/service and its
market segment.
46
https://hbr.org/2013/05/why-the-lean-start-up-changes-everything
47
http://steveblank.com/2014/07/30/driving-corporate-innovation-design-thinking-customer-development/