Typical Actors in an Innovation Ecosystem

Research Institutions are crucial for innovation due to their role in knowledge creation and diffusion, and are a primary tool for governments seeking to spur research and innovation in their economies. Some perform “blue sky” research, while others focus on more short-term market-oriented projects. Importantly, research institutions also often provide tertiary education and training, which means they play an important role in creating entrepreneurial students who will contribute to the future human capital pool of innovators and inventors.

Incubators and accelerators play an important role in the innovation ecosystem in providing a supportive environment for startup and fledgling companies. This typically includes a physical space for innovators to convene and share ideas while benefiting from shared technology infrastructure and equipment. They also often provide innovators with access to a network of business and technical advisors / mentors capable of providing guidance and assistance in product development, finance, business planning, marketing, legal consulting, manufacturing, etc.

Angel Investors play an important role in helping fast growing small firms overcome common funding gaps between Stage 2 (Research & Development) and Stage 4 (Transition to Scale) in the IDIA Scaling Pathway. They are often less risk averse than Venture Capitalists and can sometimes directly advance innovations by taking a position on the board of the start-up, assisting its management with their own knowledge and experience while also widenening the range of contacts and networks that the firm needs to secure additional supporters and follow-on financing.

A venture capitalist is an investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities markets. Venture capitalists are willing to invest in such companies because they can earn a massive return on their investments if these companies are a success. Although venture capitalists can experience major losses when their picks fail, these investors are typically wealthy enough that they can afford to take the risks associated with funding young, unproven companies that appear to have a great idea and a great management team. Their investment is typically much larger than an Angel Investor, and can take the form of equity, quasi-equity and sometimes debt, straight or conditional (i.e. with the interest and principal payable when the venture starts generating sales).

Private equity firms manage money committed by pension funds, other institutional investors and high net worth individuals. In contrast to Venture Capitalists, Private Equity firms are typically interested in more mature companies with a business that is already established, although they can also buy companies that may be deteriorating or not making the profits they should be due to inefficiency in order to revitalise their profits through more streamlined operations to increase revenues. Similarly, Private Equity firms often buy 100% ownership of the companies in which they invest and are therefore in total control of the firm after the buyout, as opposed to Venture Capitalists who are more likely to invest in 50% or less of the equity of the companies.

Governments play many critical roles in promoting innovation, primarily in terms of creating a supporting policy and regulatory environment in which start-ups are encouraged and able to thrive through a variety of tax or partnership incentives that enable the growth of scientific research, angel, venture capital and private equity communities. They are also essential in ensuring innovators have access to the technological infrastructure (e.g. internet) they need to advance their products and networks. Governments can even play an "entrepreneurial” role themselves by envisioning and financing the creation of entire new fields ripe for innovation (e.g. aquaculture), and then acting as a partner to help take successful innovations to scale and sustainable impact.

Innovation is a difficult, frequently frustrating and often very lonely endeavour. For many innovators, their circle of supporting friends and family will often be critical in helping them take their idea forward, whether that support comes in the form of initial financial backing, an extra pair of hands, or just confidence that all of that hard work will be worth it in the end.

Civil Society Organizations (often referred to as non-governmental organizations or NGOs) are a subgroup of organizations founded by citizens and active at local, national or international levels. They are usually nonprofit organizations that are task-oriented and independent of government. Many CSOs are active in humanitarianism or the social sciences and typically have a high degree of public trust, which can make them a useful proxy for the concerns of society and stakeholders within an ecosystem. Within an ecosystem they often act to bring citizen concerns to Governments, advocate and monitor policies and encourage political participation through provision of information.

Development agencies - whether these are bilateral, multilateral or private foundations - are always looking for new and innovative ways to address social and economic challenges in the Global South. Most agencies have tended to focus on supporting very early stage innovators, helping them with relatively small amounts of seed capital funding to develop / test their idea. They often help stimulate innovation in a particular sector through launching competitive 'Challenge Prizes', while others are expanding their financial instruments and taking on roles more akin to that of Venture Capitalists and investing in businesses that have outgrown microfinance, but are too small for mainstream private equity or commercial bank investments. Today, more and more development agencies are exploring the role they can play in strengthening innovation ecosystems as a whole, building connectivity and capacity of ecosystem actors.

People are at the heart of an ecosystem, and the speed and efficiency of the process through which an innovation is designed, tested, adapted and scaled depends on the quality of the people involved in the process. For this reason, strong innovation ecosystems require a large and diverse group of professionals with a range of technical skills as well as the passion, determination and risk-taking behaviour to drive innovation forward even when faced with the inevitable and often significant challenges and obstacles that will arise along the way. If there is not enough human capital within an ecosystem, competition over the talent that does exist intensifies and undermines true collaboration and trust between different actors.

A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed. They are usually small and initially financed and operated by a handful of founders or one individual. For this reason, startups represent a powerful engine of innovation - they are inherently innovative, agile and adaptive which gives them an advantage over the more rigid structures prevalent in larger corporations. They also have the ability to pioneer new solutions that others perhaps may overlook or disregard, bringing continuous creativity and healthy competition into an ecosystem.Pioneering a new idea in the presence of industry giants can be a daunting prospect, but by questioning the accepted standard successful startups such as Airbnb and Uber have redefined whole industries.

Market facilitators and intermediaries play an important role in national as well as in regional innovation systems, especially in innovation policy. Their role is to link organisations within an innovation ecosystem, and to facilitate the transfer of ideas, technology and other resources to help commercialise them at scale. Ideally they are small and agile entities (sometimes just individuals) who are perceived to be neutral or impartial within the ecosystem, which enables them to provide important 'bridging' functions between actors who might otherwise struggle to collaborate, understand or trust each other. As such, they are often the 'glue' that helps to hold an ecosystem together, and who can take a broad perspective across all of the various actors involved to help shape and improve how they interact for different purposes.

The private sector plays a crucial role in innovation ecosystems. Business-led initiatives, such as research and development partnerships, knowledge-sharing platforms, technology and skills transfer, and infrastructure investment have the potential to catalyse, develop and scale innovation, while also providing fertile ground for future innovation to emerge. While driven primarily by considerations of profit, private companies are increasingly recognising the importance of working in partnership with governments, research institutions, development agencies and civil society actors to collaboratively tackle large-scale social / economic issues that are hindering the development of new markets and the efficiency of their broader business environments.