Great talent is critical for startup growth, a fact widely recognized by successful founders and investors. Many startups report that talented employees are critical to scaling, while the lack of suitable employees can be a major inhibitor. And on an ecosystem level, Startup Genome data shows that there is a close correlation between the availability of talent and the performance of the ecosystem as a whole.

But finding and retaining the right talent can be difficult. Education systems have largely failed to generate the supply of tech talent needed to keep up with the demand, especially in software engineering. Additionally, the pandemic rapidly accelerated the pace of digital transformation globally, vastly increasing demand for software engineers. Data from survey respondents in our ecosystem assessment services shows that the difficulty in recruiting experienced talent for roles has increased noticeably in most ecosystems since 2019.

Startups are also increasingly competing for talent within a global marketplace: the shift towards greater remote working has widened the labor market but also intensified competition. Moreover, after years of supplying talent to more mature markets, some countries are making active policy measures to attract their diaspora back home: many Eastern European countries are examples of this.

However, there are opportunities for startups and scaleups, not least since the downturn in the tech industry has led to mass layoffs. This presents a pool of skilled and experienced workers, many of whom also have valuable industry networks. Ensuring that this talent doesn’t rest dormant is beneficial to everyone.

How to Attract Skilled Talent to Your Ecosystem

So what can ecosystem leaders do? Around the globe, we can see a number of successful policies being used to attract, train, and retain talent. Ecosystem marketing is important in “selling” an ecosystem to international workers. One successful example is La French Tech, a state-supported initiative intended to create a unified brand for French startups, which is both more recognizable overseas than individual programs and also creates a sense of internal unity within France.

Effective remuneration also matters — resource-constrained startups can rarely compete with established firms on base salaries and so need to offer stock options and other incentives as part of an overall package. Employee stock option plans are less widespread in Europe than the U.S., and are often rendered unattractive by local taxation systems (which may, for example, tax options at the point of vesting, rather than at exercise, thus creating a significant tax liability for employees and effectively rendering the options infeasible). However, when stock options are designed appropriately, they can be an important tool that enables young firms to attract top-quality talent and spur growth. Startup Genome’s Scaleup Report shows that firms that offer ESOPs to all employees are significantly more likely to become scaleups.

Incoming talent is also important. Most OECD countries have long had visa programs directed at experienced business people with capital to invest. However, the newer slew of startup visas typically focus on entrepreneurs with scalable business ideas in the early stages. In our view, the best schemes outsource the judgment of scalability to private sector investors or entrepreneurs, give a decision in a very short timeframe, and also permit the entry of the entrepreneur’s family. However, entrepreneur visas do not directly help firms looking for employees. For that, visa schemes need to be extended to target workers: the U.S. O-1 visa and the Argentina Startup & Talent Visa are examples of this.

Orientation and soft-landing schemes aim to reduce the administrative overheads of moving overseas, and can help attract talent. The Work in Estonia portal, for instance, provides not only assistance with visas, a jobs board, and advice on adapting to Estonia’s culture, but also a list of schools to support tech workers with young families. IN Amsterdam takes a similar approach: this one-stop-shop allows international newcomers to the Amsterdam area to deal with all the bureaucracy of relocation in one building. The Australian Landing Pads scheme is another example, providing startups with an operational base in key ecosystems, together with customized support in expanding overseas; over 250 companies took advantage of this scheme in its first two years.  

Nurturing the Next Generation

Talent attraction is important to the success of an ecosystem, but it’s also vital that strategies are in place to ensure that the next generation of talent is being developed. For young people to develop the mindset for working in a startup or founding one themselves, technical training must be accompanied by practical experience and entrepreneurial education.

Entrepreneurial education has not always been well regarded. Indeed, the rise of accelerators over the past 18 years or so might well be seen as an indictment of the traditional education system for failing to provide entrepreneurs with the real-world skills they desire. Moreover, evidence in support of entrepreneurial education has historically been poor, partly because few programs have sought to measure their impact for very long after the event. This is changing rapidly, however: not only is entrepreneurial education becoming much more widespread, but we are also building the evidence base of what works, including through the use of randomized control trials.

Entrepreneurial education is also becoming more practical and experiential. One interesting initiative is Communitech in Waterloo, Canada. Started in 1997, this hub in the university town of Waterloo-Kitchener brings together higher-education institutions, corporations, innovative startups, and government agencies. Communitech leverages existing university initiatives such as co-op programs to help build entryways into the startup ecosystem.

That said, to widen the pipeline of entrepreneurial talent to its full extent, we need to introduce young people to the idea even earlier. This means offering entrepreneurial experiences not only to university students but also to school children, developing their awareness of entrepreneurship and innovation, and nurturing attitudes such as risk-taking and perseverance. The Danish Foundation for Entrepreneurship, for example, provides entrepreneurial education to around 290,000 children per year, as well as offering training programmes to teachers.

Ensuring that adequate talent is readily available is a key function of policymakers and ecosystem leaders. Ultimately, talent must either be attracted into the ecosystem, or else homegrown and then retained. Long-term vision is also needed, since it may take many years for the impact of some initiatives to become visible. By selecting and enacting the appropriate policies, ecosystem leaders can ensure the supply of talent needed for startups to thrive.

A version of this article was published in the Global Startup Ecosystem Report 2023. Read the report to learn more.