Behind every startup ecosystem that governments admire sits an agency — or, more often, a small family of them — that made a set of unglamorous decisions about mandate, money, staff and accountability twenty years earlier. Israel’s innovation authority, Singapore’s enterprise agency, Britain’s Innovate UK, Finland’s Business Finland, Thailand’s science agency, India’s Startup India machinery and the Gulf’s new generation of enterprise, venture and technology bodies all descend from those decisions. This article compares their anatomy, reviews what the evidence says about the instruments they deploy, and sets out the governance principles that distinguish an agency that builds an ecosystem from one that announces it.
The idea in brief. National innovation agencies succeed when they have a clear mandate, operational independence with political accountability, staff drawn from industry and investment, a portfolio logic that tolerates individual failure, and an evaluation discipline that moves money towards what works. The instruments with the strongest evidence are direct R&D grants to young firms, tax incentives for research, and fund-of-funds structures that crowd in private managers rather than replacing them; pure government venture investing performs worst. India’s and the Gulf’s agencies are young by these standards and are converging — India from scale towards depth, the Gulf from capital towards pipeline — on the same governance model. The test of any agency is not the size of its announcements but the cost per outcome and the private capital it crowds in.
Why agencies at all: the argument, briefly
The case for public innovation agencies rests on a market failure that economists have accepted for seventy years: firms under-invest in research and early-stage risk because they cannot capture all the returns, and young firms in particular cannot finance experiments whose value is mostly information. The argument’s modern statements sit on two shelves. Mariana Mazzucato’s The Entrepreneurial State made the maximal case — that public agencies have been the patient, risk-taking investors behind many of the technologies private firms later commercialised. Josh Lerner’s Boulevard of Broken Dreams (Princeton University Press, 2009) catalogued the far larger number of public venture and entrepreneurship programs that failed, and distilled why: political capture, poor design, no evaluation, and a preference for announcements over follow-through.
Dani Rodrik’s contribution was to change the question. Industrial policy, he argued, should not be debated as whether but as how: governments will intervene regardless, so the useful work is designing institutions that discover what works and stop what does not. Réka Juhász, Nathan Lane and Rodrik’s 2023 survey of the new empirical literature, published as an NBER working paper, finds that well-designed interventions can produce measurable gains and that design and governance explain most of the variation in results. Nicholas Bloom, John Van Reenen and Heidi Williams’s 2019 toolkit review in the Journal of Economic Perspectives ranked the instruments by evidence: research tax credits and direct grants have solid support, skilled immigration is strongly supported, and entrepreneurship-specific interventions have thinner and more mixed evidence — a warning that agencies in this field are operating with less certainty than their brochures suggest.
Anatomy of the exemplars
| Agency | Founded (form) | Mandate | Signature instruments | Lesson |
|---|---|---|---|---|
| Israel Innovation Authority | 2016, from the Office of the Chief Scientist (1960s); Yozma fund-of-funds 1993 | R&D and innovation across firm sizes | Conditional R&D grants; incubator program; Yozma’s leveraged fund-of-funds | Independence, grants repaid from royalties, and a fund-of-funds that catalysed a private VC industry then exited |
| Enterprise Singapore | 2018, merging IE Singapore and SPRING | Enterprise development and internationalisation; Startup SG | Co-investment, grants, accelerator partnerships, market-access programs | One front door for enterprises at every stage; heavy use of private partners |
| Innovate UK | 2007 as Technology Strategy Board; within UKRI since 2018 | Business-led innovation | Competitive grants, loans, Catapult centres, knowledge-transfer partnerships | Competitive, evaluated grant programs with industrial co-funding |
| Business Finland | 2018, merging Tekes and Finpro | Innovation funding and export promotion | R&D grants and loans; international programs | Small, peripheral agencies can drive radical policy change |
| NSTDA, Thailand | 1991 | National science and technology development | Research centres, science park, incubation, industry programs | Institutional proximity of research, transfer and incubation |
| Startup India / DPIIT, AIM, SIDBI | 2016 onwards | Startup recognition and benefits; incubation; fund-of-funds | Registry and tax benefits; Atal incubation network; ₹10,000-crore Fund of Funds for Startups, renewed in 2025 | Scale and registry first; depth and evaluation the current frontier |
| Bahrain EDB, Tamkeen, Bahrain Development Bank | 2000, 2006, and Al Waha fund-of-funds 2018 | Investment promotion; labour and enterprise; finance | Sector promotion; wage and training support; US$100 million fund-of-funds | Three agencies, three mandates, one small jurisdiction — coordination as the product |
| Monsha’at, SVC, Jada, MISA, NTDP (Saudi Arabia) | 2016–2020 | SMEs; venture co-investment; fund-of-funds; investment; technology development | Grants and programs; VC fund investing; PIF-backed fund-of-funds; regional-HQ policy | A full instrument set built in five years; the test is coordination and evaluation |
| Hub71 and peers (UAE) | 2019 onwards | Ecosystem platform; founder attraction | Incentives, capital access, corporate partnerships within free zones | Program-first design; international pipeline |
Two historical cases repay closer reading. Israel’s Yozma program of 1993 — a government fund of roughly US$100 million that co-invested in new private venture funds on terms that let the private partners buy out the state’s share cheaply if the funds succeeded — is the most-cited example of a public instrument that created a private industry and then withdrew. Gil Avnimelech and Morris Teubal’s 2006 analysis in Research Policy placed Yozma within a longer sequence of policies that had built the demand for venture capital before supplying it: R&D grants first, then incubators, then the fund-of-funds. The order mattered. Dan Breznitz and Darius Ornston’s 2013 comparison of Finland and Israel in Comparative Political Studies added an institutional insight: radical policy innovation came from small, peripheral, low-profile agencies with room to experiment, not from the powerful ministries at the centre of government. Agencies that are too important to fail are also too important to try anything.
The instrument menu, and what the evidence says about each
| Instrument | What it does | Evidence | Design risk |
|---|---|---|---|
| Direct R&D grants to young firms | Funds early technical risk | Strong: Howell (2017) finds small early grants roughly doubled the probability of later venture funding; Lerner (1999) finds SBIR awardees grew faster | Capture by repeat applicants; grants without milestones |
| Research tax credits | Lowers the cost of R&D for firms that pay tax | Strong for incumbent R&D; weak for pre-revenue startups | Benefits large firms; little effect on new entrants |
| Fund-of-funds | Invests in private VC managers to expand early-stage capital | Positive where it crowds in private LPs; Brander, Du & Hellmann (2015) find moderate government participation alongside private capital outperforms both pure-private and pure-government funding | Backing weak managers; crowding out; no exit plan |
| Direct government venture investing | State picks and funds ventures | Weakest: pure government VC underperforms consistently | Political selection; no discipline of private co-investors |
| Guarantees and lending | Reduces bank risk on young-firm loans | Mixed; useful for working capital, poor for R&D risk | Adverse selection; default costs hidden |
| Public procurement and sandboxes | Makes the state a first customer; relaxes rules to test | Promising, less studied; procurement was decisive in several historical cases | Slow processes; favouritism; sandboxes that never graduate |
| Programs (accelerators, campus, skills) | Builds capability and pipeline | Design-dependent (articles 31, 34, 37, 38) | Input counting; provider dependence |
| Registries and benefits | Recognises startups; unlocks tax and regulatory relief | Reduces friction; not an outcome in itself | Recognition counted as success |
The fund-of-funds deserves a closer look because it is the instrument every corridor government now holds. India’s Fund of Funds for Startups, launched in 2016 with a corpus of ₹10,000 crore managed by SIDBI, invests in SEBI-registered venture funds rather than in companies; a further fund of the same size was announced in the 2025 Union Budget. Saudi Arabia’s Jada, established in 2018 under the Public Investment Fund with capital in the region of four billion riyals, invests in venture and private-equity funds; the kingdom’s Saudi Venture Capital Company invests in funds and co-invests directly. Bahrain’s Al Waha fund-of-funds, launched in 2018 through the Bahrain Development Bank at around US$100 million, was small but pointed. The chart compares announced sizes; the more important comparison — private capital crowded in per public dollar, and the quality of the managers backed — is one each agency should publish.
Yozma’s lesson applies to all of them: the fund-of-funds works when it builds a private industry that outgrows it, and it should be designed with its own obsolescence in mind — terms that reward private partners for success, a sunset, and a measured exit.
Governance principles that separate builders from announcers
- A clear, narrow mandate. The exemplars do one or two things. Agencies given investment promotion, SME lending, startup programs, research funding and skills in one body do all of them at the pace of the slowest.
- Independence with accountability. Operational decisions — which firms, which funds, which programs — insulated from political direction; strategic priorities and outcome reporting fully accountable to the ministry and legislature. Breznitz and Ornston’s peripheral agencies had this room; the ministries around them did not.
