3 ways to stop COVID-19 from drying up start-up talent pools


(Yingchou Han, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Marc Penzel, Founder and President, Startup Genome & JF Gauthier, Founder and CEO, Startup Genome

  • Policy leaders have the power to prevent the destruction of start-up pools, from relaxing visa rules to encouraging transfer between academia and industry.
  • Ecosystem leaders who have spent years building a pipeline of domestic talent and working hard to attract the brightest minds need to act now.
  • Retaining foreign talent requires immediate attention, as companies are not the only ones about to lose out: entire nations also run the risk.

In a matter of weeks, the challenge facing most innovative start-ups has shifted dramatically. Not long ago they were neck to neck, competing to acquire high-calibre talent to join their ranks. Now, the economic crisis caused by COVID-19 is threatening start-up numbers, and by extension, any demand for talent.

All-star teams on a path to creating global leaders in their companies are disintegrating before our eyes.

Startup Genome’s research shows that 74% of start-ups have had to let go of full-time employees, with more than a quarter of these companies forced to dismiss 60% or more of them. And just think; we are only at the very beginning of the economic crisis.

Image: Startup Genome

Looking into past periods of economic uncertainty reveals that without proper measures to retain entrepreneurial talent, the best candidates will migrate to large, incumbent firms, further their studies, or move abroad.

International talent drives intercultural awareness, globalises business models and opens up new markets.

—Marc Penzel

While each path is a rational response, the net result would be a decrease in the human capital available to innovative start-ups and the ecosystems that support them.

Ecosystem leaders who have spent years building a pipeline of domestic talent and working hard to attract the brightest minds need to act now. Immediate policy responses can help keep high-calibre talent close and sustain the momentum of start-up ecosystems.

Here are three areas to start navigating:

1. Wage support schemes and survival programmes

Employee salaries are the largest variable expense and an immense burden for start-ups, especially at an early stage of development. In the absence of funding prospects, CEOs will be forced to enact short-term and broad-sweeping furloughs and layoffs.

A proven policy response to keep skilled workers in their jobs is the German concept of ‘Kurzarbeit’, by which employers can furlough employees without cutting them loose entirely. The government covers up to 67% of an employee’s lost income for a period of up to a year. This model received a lot of credit for Germany’s rapid recovery from the 2008-9 crisis, and has since been emulated by several other countries.

Still, a recent study suggested that the German model is currently the least favourable compared to other European ones. To combat the crisis at hand in the best way possible, and the study points to Austria where the government covers as much as 90% of lost wages for the lowest income group.

Even with wage support schemes and other survival programmes, the harsh reality is that layoffs have become inevitable in the current crisis. Governments and start-up ecosystem leaders will urgently need to find new ways to retain top talent in their region.

2. Relaxing visa rules for immigrant talent

Retaining foreign talent requires immediate attention, as companies are not the only ones about to lose out: entire nations also run the risk. There is an abundance of evidence that foreign entrepreneurs and talent drive start-up growth and success in a disproportionate manner.

The Startup Genome team found that start-ups selling to global markets grow twice as fast as those focused on domestic markets. International talent drives intercultural awareness, globalises business models and opens up new markets.

There is an abundance of evidence that foreign entrepreneurs and talent drive start-up growth and success in a disproportionate manner.

—Marc Penzel

Research from Startup Genome’s 2018 Global Startup Ecosystem Report also found that as many as 20% of the world’s tech founders are immigrants, even though immigrants only make up about 4% of the world’s population. Similarly, 28% of start-up engineers worldwide are foreign-born.

Some very practical steps can be taken to avoid a brain drain of this talent, starting with an immediate review of visa schemes.

While virtually all leading economies have introduced visa routes for start-up founders and employees, a significant proportion of these schemes remains tied to work contracts. This results in the automatic expulsion of people who are laid off.

Policy makers must consider at least a moratorium to respective visa schemes if they want to avoid losing the talent they’ve invested so much in attracting, educating and integrating into their tech communities.

One region making a notable effort in this regard is the UAE, where residency visas and IDs that expired on 1 March 2020 were renewed for a period of three months without additional fees.

To date, no country has made stronger commitments to retain or attract foreign talent in the aftermath of the crisis.

3. Encouraging transfer between academia and industry

One way to accelerate the organic growth of any region’s given talent base is to strengthen the collaboration between its tech ecosystem and its local universities, for example by subsidising the hiring of new graduates by start-ups and SMEs.

Dr Dan Herman, former Head of Strategy at Canada’s Ministry of Innovation, Science and Industry, suggests policy leaders look at the example of Mitacs. This Canadian not-for-profit organisation brokers the placement of scientific and technical researchers and graduates into start-ups and SMEs at a reduced cost to the firm.

Mitacs is widely viewed as an important component of Canada’s innovation system, with participating firms indicating that the programme increases their innovation-related activities.

In this time of economic uncertainty, when start-ups and SMEs are prone to layoffs and cost cutting, such support should be enhanced to ensure that both new graduates and innovative firms continue their momentum in terms of accumulating experience and innovation processes, respectively.

COVID-19 risks resetting the scorecard on start-up ecosystems

My colleagues at Startup Genome projected that $28 billion in global start-up investment may go missing this year. Minor tweaks to existing policy measures will not suffice to retain the talent.

Instead, inaction will cause many to pursue new opportunities. Beyond offers from incumbent firms and institutions of higher education, scale-ups and start-ups from other start-up ecosystems will try to attract furloughed talent within weeks.

While this represents a huge risk for some, for those who proactively enact smart policies it could represent a major opportunity.

Decisive action will allow your economy to attract new talent, recover rapidly and even gain a competitive advantage by being among the first out of the gate.

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