All governments want more high-growth entrepreneurs. But can policy effectively support high-growth ventures? Many are sceptical: growing new ventures is difficult, and even professional venture capitalists have a hard time ’picking winners’.

It is challenging to demonstrate real value-added in high-growth entrepreneurship support programmes. If the participants of a given initiative grow faster than others, is this due to genuine value-added produced by the programme, or simply because the initiative managed to pick high-potential participants? If the entire effect is due to selection rather than genuine value-added, the programme should be discontinued, as the participating ventures would have grown regardless.

Because sorting out genuine value-added from bias introduced by selection is challenging, there has been little solid evidence to tell one way or the other. An additional difficulty is that most high-growth entrepreneurship programmes are young, meaning that their track record is not long enough to robustly demonstrate an impact on growth trend. With my colleague Heikki Rannikko of Aalto University, I recently addressed this gap in our eight-year study of the impact of one of the oldest high-growth entrepreneurship programmes in the EU, the ‘Young Innovative Firms’ (YIF) initiative in Finland1.

And the results are encouraging. According to our study, the YIF programme has increased the sales growth of its participants by 120% above and beyond the selection effect. Because this is an effect on the growth trend, the effect is likely to amplify in the future. And, we were careful to remove outliers from the analysis so as to not to bias our findings. The most notable outlier was SuperCell, the authors of the hugely popular Clash of Clans game, who grew their sales turnover from 200 000 Euro to 860 Million Euro in just over two years.

Outliers aside, did the YIF programme produce real value for money? After all, this is an expensive policy initiative, as the programme participants can look forward to receiving up to 1 Million Euro worth of support over three years. A conservative value-for-money calculation suggests that each support Euro has produced, on average, 1.11 Euro worth additional sales turnover beyond the selection effect. As this is trend growth, the value added is repeated annually, meaning that the programme has produced good value for money.

How did YIF manage this positive outcome? The traditional scepticism against governments supporting high-growth entrepreneurs rests on three arguments. First, governments are notoriously bad at ‘picking winners’, so they should not do it. Second, support (especially unconditional support) may lead to incentive distortion, when applicants compete for access to support and not for growth. Third, by supporting some ventures and not others, governments may unwittingly bias markets.

The YIF approach addresses all these concerns. First, instead of selection, they emphasise outselection: while the initial selection is not light-touch (there is a panel of judges, and the applicants’ growth plans and motivation are put to serious test), support is not automatic. Rather, it is tied to milestones. You get a little support initially and more as you demonstrate your ability to grow. In other words, rather than trying to ‘pick’ winners, this programme retains them.

Second, the participants do not get to use their support money as they wish: it is all earmarked for use to buy capacity-boosting expert services, and applicants need to invest considerable effort to extract value of the services acquired. As applicants do not actually see the money the risk of incentive distortion is lessened.

Also the third risk – market distortion – should be relatively minor, as this programme is about boosting capacities for growth, not about propping up living zombies.

The above said, value-added is not automatic. A shift in emphasis from selection to retention simply moves the goalposts a little. If ‘picking winners’ is difficult, so is outselection. Any venture capitalist will tell you that it is very difficult to decide when to stop throwing good money after bad. Discontinuing failing participants may be particularly challenging for public-sector agencies, who are not playing with their own money. During our research we did receive anecdotal comments that perhaps the YIF programme could have been more disciplined in deciding when to discontinue participants.

Our research has been accepted for publication in Research Policy. You can access it in the link below.

1 Autio, Erkko & Rannikko, Heikki. 2015. Retaining Winners: Can Policy Boost High-Growth Entrepreneurs? Accepted for Publication in Research Policy.

Erkko Autio
Erkko Autio
Erkko Autio is professor of technology venturing at Imperial College Business School. He blogs about entrepreneurial ecosystems. You can follow his tweets at @eautio.