How to Prevent a Disintegration of Your Startup Ecosystem’s Talent Pool

The economic crisis brought about by COVID-19 risks a dramatic retrenchment in startup numbers, and by extension, in the demand for talent. For ecosystem leaders who have spent years building their stock of domestic talent, and working hard to position themselves to attract the best foreign talent, this demands attention.
Marc Penzel
on May 11, 2020

Article by Marc Penzel, Founder & President, and JF Gauthier, Founder & CEO of Startup Genome

In a matter of weeks, the challenge facing most innovative startups, namely the acquisition of high-calibre talent, has shifted dramatically. The economic crisis brought about by COVID-19 risks a dramatic retrenchment in startup numbers, and by extension, in the demand for talent. Promising teams on the brink of building globally leading companies are disintegrating as we speak. 

74 percent of startups have had to let go of full-time employees, and 26 percent of them had to let go of 60 percent or more of their full-time staff — despite the fact we are still at the very beginning of the economic crisis. For ecosystem leaders who have spent years building their stock of domestic talent, and working hard to position themselves to attract the best foreign talent, this demands attention.

Doing so responds to our understanding of what happens to top talent in an economic crisis. Past periods of economic uncertainty highlight that without proper measures to retain firm and ecosystem talent, the best will migrate to large, incumbent firms, further their studies or move abroad. While each path presents a rational response, the net result of each is a decrease in the human capital available to innovative startups and the ecosystems that support them.

How do you support founders in retaining their talent? What are ways to avoid delays on new graduate employment? Are foreigners on a work visa forced to leave your country 30 days after being laid off? Are you about to experience a massive brain drain of your highly productive immigrant workforce? Addressing these questions with immediate policy responses is critical to keep high calibre talent in your economy and sustain the momentum of your startup ecosystem.

Wage support schemes and other survival programs
For startups, employee salaries are the largest variable cost factor and an immense burden especially at an early stage of development. In the absence of funding prospects, CEOs will be forced to enact short-term and broad sweeping furloughs and layoffs.

A proven policy response to keep skilled workers in their jobs is the German concept of ‘Kurzarbeit’, with which employers can furlough employees without cutting them loose entirely. The government covers up to 67 percent of their employee’s lost income for a period of up to a year--a model that received a lot of credit for Germany’s rapid recovery from the 2008-09 crisis and was emulated by several other countries since then.

However, a recent study suggested that the German model is currently the least favorable in a European comparison. To effectively combat the crisis at hand, the study rather points to Austria as a best-practice example where the government covers as much as 90 percent of lost income for the lowest income group.

Despite wage support schemes and other survival programs, the harsh reality is that layoffs have become absolutely inevitable in the current crisis. Governments and startup ecosystem leaders urgently need to find new ways to retain top talent in their region.

Relaxing visa rules for immigrant talent
Foreign talent requires immediate attention, as they are not only at risk of leaving companies but countries. There is an abundance of evidence that foreign entrepreneurs and talent disproportionately drive startup growth and success. International talents drive intercultural awareness, globalize business models, and open up new markets. Our team found that startups selling to global markets grow twice as fast as those focused on domestic markets.

Research from Startup Genome’s Global Startup Ecosystem Report 2018 quantifies what's at stake. As much as 20 percent of the world's tech founders are immigrants, even though immigrants only make up about 4 percent of the world's population. Similarly, 28% of startup engineers are foreign globally.

There are very practical steps to avoid a brain drain of this talent, most importantly an immediate review of visa schemes. While virtually all leading economies introduced visa routes for startup founders and talent, a significant proportion of these schemes remains tied to work contracts, resulting in the automatic expulsion of employees who got laid off. Policy makers must consider at least a moratorium to respective visa schemes if they are not to risk losing the talent they invested so much in attracting, educating and integrating into their tech communities.

One region making a notable effort is the United Arab Emirates, where residency visas and IDs that expired on March 1st, 2020 were renewed for a period of three months without additional fees (read more here). To date no country has made stronger commitments to retain or attract foreign talent in the aftermath of the crisis, which is certainly an opportunity to capitalize on.

Encouraging transfer between academia and industry
A way to accelerate the organic growth of any region’s given talent base is to strengthen the collaboration between the tech ecosystem and local universities, for example by subsidizing new graduate hiring by startups and SMEs.

Dr. Dan Herman, former Head of Strategy at Canada’s Ministry of Innovation, Science and Industry suggests policy leaders look at the example of MITACS, a Canadian non-profit that brokers the placement of scientific and technical researchers and graduates into startups and SMEs at reduced cost to the firm. The organization is widely viewed as an important component of Canada’s innovation system, with participating firms indicating that the program increases their innovation related activities.

In a time of economic uncertainty, when startups and SMEs are prone to layoffs and cost cutting, this type of support program should be enhanced to ensure that both new graduates and innovative firms continue their momentum in the accumulation of experience and innovation processes, respectively.

Forward-thinking policy leaders turn crisis into opportunity
The crisis risks resetting the scorecard on startup ecosystems. My colleagues at Startup Genome projected that $28 billion in global startup investment may go missing this year.

Minor tweaks to existing policy measures will not suffice to retain your top talent. Instead, inaction will cause many of them to pursue new opportunities. Beyond offers from incumbent firms and institutions of higher education, scaleups and startups from other startup ecosystems will make an effort to attract your furloughed talent within weeks.

While this represents a huge risk for some, for others who enact smart, proactive policies it could represent a major opportunity. Decisive action will allow your economy to attract new talent, recover rapidly and even gain competitive advantage by being among the first ones “out of the gate”.

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