Start-ups depend on external funding to innovate, scale and succeed. While venture capital plays a pivotal role, a broader mix of financial support instruments ‒ including grants, accelerators, and incubators ‒ is essential to bridging early-stage funding gaps and mitigating the risks associated with emerging technologies. Scaling up requires substantial capital to bring innovative products and services to market. Access to late-stage funding ‒ such as growth equity and venture debt ‒ is critical to enabling expansion. Equally important are viable exit options, such as stock market listings, which provide liquidity to investors and facilitate reinvestment in new ventures. A well-structured funding environment is essential to fostering a resilient and competitive start-up and scale-up ecosystem.
Start-up driven innovation and growth
Start-ups are a key driver for breakthrough innovation, enhancing economic dynamism and long-term growth. Over the past two decades, they have played an increasingly important role in the economy in diverse areas, including the digital and green transition. Ensuring access to funding, fostering a supportive policy environment, and strengthening innovation ecosystems are critical for their success.
Key messages
Start-ups founded by researchers and academics are uniquely positioned to transform scientific discoveries into commercially viable solutions. These firms contribute not only to economic value creation, but also to broader societal benefits through cutting-edge innovations. However, limited connections with industry can hinder their ability to scale and succeed in the market. Evidence shows that such firms benefit from support through incubators and accelerators. Policies that promote knowledge transfer, facilitate the commercialisation of research, and provide targeted funding are essential in bridging the gap between academia and industry ‒ ultimately fostering a dynamic ecosystem for science-based entrepreneurship.
Collaboration between start-ups and established companies creates opportunities for knowledge sharing, market access, and resource pooling. However, excessive dependence on larger firms can stifle competition and limit incentives for start-ups to pursue independent innovation. Policies should balance measures that promote strategic partnerships with measures that ensure start-ups retain their autonomy, to sustain a dynamic and competitive business environment.
Green start-ups are pivotal in tackling climate change, improving resource efficiency, and reducing pollution. While these startups often outperform others in key business metrics such as the likelihood of securing venture capital or receiving grants, they face greater challenges in raising seed funding and navigating exit strategies. Targeted support ‒ particularly in the seed and scale-up phases ‒ can significantly enhance their ability to survive and scale up in a phase where they might be at a disadvantage compared to non-green start-ups.
As markets evolve and technologies advance, the needs of start-ups are constantly changing. Policymakers must regularly assess the effectiveness of existing support programmes, ensuring that funding mechanisms, regulatory frameworks, and business development initiatives align with the growth trajectories of start-ups. Continuous evaluation and adaptation of policies create a sustainable innovation ecosystem that fosters long-term economic and technological advancements.
Context
Start-ups play an increasingly important role in the economy
This chart shows the evolution of total venture capital funding over GDP for different funding stages in OECD countries from 2000 to 2021. Venture capital transactions – meaning equity-linked funding to start-up companies – have been growing in OECD countries, accounting for 1.2% of GDP in 2021. This increase has been evident across all funding stages. Seed funding supports initial concept development. Early stage helps build the product and business model. Late-stage funding goes to scaling and market expansion. Growth funding targets mature start-ups nearing exit or IPO.
Start-ups in the low-carbon mobility sector have driven green venture capital investments since 2013
This chart shows the evolution of global venture capital funding to green start-ups, distinguishing between low carbon mobility and other green start-ups. Green start-ups – companies that innovate to accelerate progress on climate and other sustainability-related policy objectives – have attracted increasing amounts of funding over the past decade. Since 2010, venture capital investments in green start-ups have experienced average yearly growth rates of 23%. This growth was mainly driven by the low-carbon mobility sector where investments have grown by 52% on average.
Academic start-ups rely more on support through assistance, grants and government venture capital than non-academic start-ups
Start-ups rely on a variety of funding and support instruments. These include, for example, assistance from incubators and accelerators, grants and government venture capital. Academic start-ups whose founders frequently have no close links to industry as a result of their backgrounds are particularly reliant on support.
Between 2010 and 2021 academic start-ups in OECD countries were 70% more likely to have used funding and support provided through assistance, grants or government venture capital than non-academic start-ups.
Related policy issues
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Industrial policy refers to government assistance to businesses to boost or reshape specific economic activities, especially to firms or types of firms based on their activity, technology, location, size or age. Governments use industrial policies to address important economic, social and environmental challenges that markets cannot address on their own, such as to accelerate the green transition, or improve the robustness of value chains for critical products and services.Learn more
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Empowering SMEs and entrepreneurs is crucial to sustainable and inclusive growth. They fuel innovation and competition, sustain competitiveness in global markets and value chains, provide a main source of employment, champion inclusion and represent the lifeblood of local economies and communities. They are also pivotal in the transition of economies to a digital and sustainable future. The OECD works with countries and regions to develop policies that strengthen the resilience of SMEs and entrepreneurs and unlock their potential in a changing global landscape.Learn more