As the Financial Times’ fDi wrote based on Startup Genome’s policy advisory, governments need to act to support startups and bail them out in the same way they are doing for traditional industries and small businesses. We need a new normal for economic development, where we are supporting the technology economy just as much as we were supporting traditional small businesses and traditional industries like airlines.

This is especially true for ecosystems that are not at the very top and do not have the decades of experience, talent, and capital to draw upon during times of crisis. One of the reasons acting now is particularly critical is that startup ecosystems have increasing returns to scale due especially to network effects. As the number of startups in the ecosystem grows, the whole economic community related to the ecosystem — talent, universities, startup support organizations — produces more value. An ecosystem that is 3x larger creates about 5x more economic value. This also means that if you lose about 20% of startups, you can expect to lose about 27% in value. If you lose 40% of them, which is the figure for startups in the red zone globally, and you're risking shaving off over 50% of economic value produced by your ecosystem.Mumbai Wealth Management

Economic Impact of Startup Ecosystem Accelerates with Ecosystem Size

Ecosystem Value by Number of Tech Startups in Ecosystem

Source: Startup Genome |

Ecosystem Policy Is the New Industrial Policy

The reality is that, once we are through with this crisis, top startup ecosystems will remain high performing. Places like Silicon Valley, New York, London, and Beijing will continue to produce tremendous innovations and create astounding valueSimla Investment. They have depth of talent, experience, and capital in the ecosystem; which might retract but will remain there post-crisis. That is not the case in emerging ecosystems, where failures now will leave deep scars. Talent that gets laid-off might make a permanent switch to working for big corporates or move to another city altogether. The same is true for founders who might have to close their businesses.

Ecosystems need to invest now to not lose the progress made in the past 10 years.

The Next Great Generation of Companies and Ecosystems

Every crisis creates opportunities, and this crisis is no different. For instance, over half of Fortune 500 companies started during a contraction, as our colleague Dane Stangler has written, and over 50 unicorns were created in the Great Recession alone, as Startup Genome data shows The list of companies funded during the Great Recession is impressive. It includes Facebook, LinkedIn, Palantir, and Dropbox — all of these based in the Bay Area.

In the same way opportunities are unlocked for companies, they are also unlocked for ecosystems. The current crisis has accelerated the digitization of the offline economy, making tech companies even more important. The actions of ecosystems today will help determine how they will be positioned in the global stage tomorrow. At the same time, this is a unique opportunity for all of us to rebuild our economic communities with a lower negative impact on the environment and a stronger focus on inclusion and fair access to the amazing value that tech ecosystems create.

Just like the rise of both London and New York City came at the heels of the 2007-2009 Great Recession — in their attempt to diversify from reliance on their traditional strengths in finances — the post-COVID-19 recovery will see new ecosystems rising.