Public Private Partnerships for developing startup ecosystems
Having worked with and studied numerous startup ecosystems across Europe, the United States, and Asia, I have observed one critical element often overlooked in Public-Private Partnerships (PPPs): the strategic alignment of interests between public and private sectors.
While PPPs are widely acknowledged for bridging funding gaps, fostering financial ecosystems, and providing long-term stability, these partnerships often fail when public and private interests are not properly aligned. This lack of alignment can derail even the most well-intentioned initiatives.
The common misconception is that simply pooling resources from both sectors will inherently lead to success. But without shared objectives, PPPs can quickly devolve into inefficient and sometimes counterproductive endeavours. Governments tend to prioritise broader social objectives like job creation or environmental impact, while private investors focus on financial returns. This divergence, when left unmanaged, can create tension, mismatched incentives, and wasted resources.
One of the good examples of developing PPP is Interreg Europe project CROWDFUNDMATCH, which is aiming to combine private resources, collected through digital crowdfunding campaigns, with ESIF funds.
Why Strategic Alignment Matters?
At the heart of successful PPPs is the ability to create value for both sides without compromising their distinct goals. Policymakers often underestimate the importance of setting clear, mutually beneficial targets. Public investments are not just about risk mitigation for private investors, nor should they merely serve to fulfil social mandates. The most successful PPPs are those where the public sector’s long-term economic and social goals complement the private sector’s need for financial viability.
For example, in emerging startup ecosystems, public funds should be directed at sectors the government deems strategically important and having genuine market interest and potential for scalability. This ensures that private capital is drawn to the opportunity, not just because of reduced risk, but because the investment makes sense commercially. Misalignment occurs when governments support startups disregarding market realities, leading to inefficiencies and missed opportunities.
Balancing Risk and Reward
One of the most frequent pitfalls in PPPs is an imbalance in how risks and rewards are shared. Policymakers often assume that by reducing the risk for private investors, they will attract more participation. While this is true to some extent, PPPs should be structured in a way that private investors remain accountable and motivated to ensure the success of the venture.
When public funds are too generous, they can crowd out private capital, encouraging complacency and diminishing the need for rigorous financial management.
A more effective approach would be to create incentive structures that balance public risk-sharing with private sector performance. For example, matching grants or milestone-based funding can ensure that public funds are used efficiently and that private investors remain engaged and invested in the long-term success of the startups they support.
Aligning interests for lasting impact
The bottom line for policymakers is that the success of PPPs in startup ecosystems hinges on strategic alignment between public and private objectives. When both sectors share a common vision for success and an equitable distribution of risks and rewards, PPPs become powerful vehicles for fostering innovation, driving economic growth, and addressing societal challenges.
Without this alignment, however, PPPs are at risk of becoming expensive and ineffective ventures. Therefore, before embarking on a PPP, policymakers must focus on creating a balanced, aligned framework that leverages the strengths of both sectors for mutual benefit.
About the author
Rene Tonnisson has more than 20 years of experience in innovation management and business development. He has held executive management positions in several public and private sector organisations helping SMEs to increase their competitiveness.
