Meeting, mating, and intermediating: How incubators can overcome weak network problems in entrepreneurial ecosystems

Abstract

To promote economic growth and overcome societal challenges, policy-makers often try to shape an entrepreneurial ecosystem (EE) that will facilitate technological entrepreneurship. An EE consists of a knowledge subsystem and a business subsystem, which are often unconnected. A financial support network (FSN) consisting of startups and private venture capitalists can bridge two subsystems and thus enable critical technology transfer in EEs. These FSNs remain underdeveloped in many European regions, however; the literature on innovation systems refers to this lack of connectivity as a “weak network problem.” While incubators can function as intermediaries to overcome such weak network problems, how they do so is poorly understood. This research thus poses the following research question: What is the effect of incubators’ support mechanisms on the occurrence of weak network problems in entrepreneurial ecosystems? We develop a theoretical model in which network development is a function of two processes: “meeting” and “mating.” We argue how different incubator support mechanisms influence these two processes; we then apply these insights in an agent-based model, which allows for estimating how much each support mechanism contributes to overcoming weak network problems in the FSN. Our simulation shows that developing a strong network among startups is key to overcoming weak network problems in FSNs. The most effective way to do so is to introduce incubated startups to non-incubated startups through field-building. Our results provide new theoretical insights into how networks in EEs and innovation systems develop, and what role incubators play as intermediaries in this process. The systemic benefits of incubators also greatly enhance their societal value proposition.