Why Startups Fail in Emerging Entrepreneurial Ecosystems

Abstract

Innovation is key to the economic and social development of any geographical area. Entrepreneurs are the actors responsible for innovation and startups (technology-based companies with high potential for growth and impact) are usually associated with the existence of entrepreneurial ecosystems. This paper aims at understanding why startups fail in an emerging entrepreneurial ecosystem. To achieve the goal, we performed an exploratory research in which entrepreneurs whose startups had failed in the emerging entrepreneurial ecosystem of Porto Alegre, Brazil were interviewed. The insights from the interviews are used to generate ideas on how the different domains of an emergent entrepreneurial ecosystem may influence on startup mortality and to provide possible avenues of improvement for the ecosystem itself. The results show that this particular ecosystem could be much better in avoiding the failure of startups. Policy and Finance are the most problematic areas, while the presence of high-level Human Capital is seen as the strongest point. Culture, Support and Markets are the three middle-ground dimensions. They need improvement, but they are not as bad as the two first ones. A lot of ground remains to be covered in understanding the emergent entrepreneurial ecosystems and especially the failure of startups on these environments. It is necessary to further understand those ecosystems are related to the overall economic situation of the country and especially how better public policy could positively impact.