4 5830107500875094087

For Public Consultation – October 24, 2024

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

STARTUP ECOSYSTEM DEVELOPMENT POLICY

DOCUMENT (FIRST DRAFT)
Developed By: Startup Ethiopia Ministerial

Committee Technical Team
Addis Ababa, Ethiopia
October 24, 2024
Notice: This document is released for public consultation to supplement the draft Startup
Proclamation. The document should not be considered as the final Government of Ethiopia policy
position.
Please email your comments at [email protected].
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Table of Contents
Chapter One ................................................................................................................................................. 5
1. Introduction............................................................................................................................................. 5
1.1. Background of Startup Ecosystem .................................................................................................... 6
1.1.1. Challenges in the Ethiopian Startup Ecosystem ...................................................................... 7
1.1.2. Prospects in the Ethiopian Startup Ecosystem ...................................................................... 11
1.2. Objectives of the Policy................................................................................................................... 12
1.3. Basic Concepts about Startups and the Startup Ecosystem............................................................ 13
1.4. Methodology framework ................................................................................................................ 14
1.5. What is not a Startup and What is a Startup?................................................................................. 14
1.5.1. What is not a Startup ............................................................................................................. 14
1.5.2. What is a Startup .................................................................................................................... 16
1.6. Startup Ecosystem Builders Definition............................................................................................ 17
1.7. Stage-Based Support Approach ...................................................................................................... 19
Chapter Two ............................................................................................................................................... 23
2. Startups and Startup Ecosystem Builders Designation.......................................................................... 23
2.1. Designation of Startups................................................................................................................... 23
2.2. Designation of Ecosystem Builders ................................................................................................. 24
Chapter Three ............................................................................................................................................ 25
3. Building the Necessary Infrastructure and Administrative Frameworks............................................ 25
3.1. National Digital Startup Portal .................................................................................................. 25
3.2. Work Permits ............................................................................................................................. 26
3.3. Ease of Entry Barriers for Foreign Startups............................................................................... 27
3.4. Capacity Building ....................................................................................................................... 29
3.5. Government Problem-Solution Challenge Competition ................................................................. 30
Chapter Four .............................................................................................................................................. 31
4. Facilitating Financial Support and Fiscal Incentives ........................................................................... 31
4.1. Startup Grant Program .............................................................................................................. 31
4.2. National Credit Guarantee Scheme (NCGS) .............................................................................. 33
4.3. Funds of Funds ........................................................................................................................... 34
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4.4. Fiscal Incentives .............................................................................................................................. 36

Initiatives: ......................................................................................................................................... 36
Chapter Five ............................................................................................................................................... 37
5.1. Strengthening Incubators ............................................................................................................... 38
5.2. Enhancing Accelerator Programs .................................................................................................... 39
5.3. The Role of Ministerial Offices as Ecosystem Builder ..................................................................... 40
5.4. Regulatory Sandbox ........................................................................................................................ 41
5.5. Harnessing the Power of Mainstream Media ................................................................................. 42
Chapter Six ................................................................................................................................................. 43
6. Strategic Considerations for Policy Implementation ............................................................................. 43
6.1. Establishing Institutional Framework.............................................................................................. 43
6.2. Putting the Necessary Legal Framework......................................................................................... 45
6.3. Maintaining Active Participation of the Ecosystem ........................................................................ 46
6.4. Monitoring and Evaluation Framework .......................................................................................... 46
Chapter Seven ............................................................................................................................................ 47
7. Conclusion ............................................................................................................................................. 47
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Executive Summary
The "Startup Ecosystem Development Policy Document" outlines a strategic framework for
fostering a robust startup ecosystem in Ethiopia. Recognizing the critical role startups play in
economic growth, job creation, and innovation, this policy addresses the pressing challenges faced
by founders, including underdeveloped startup culture, funding gaps, and inadequate support
systems.
At the heart of this policy document is the concept of the "Eureka moment," symbolizing the
transformational insights that lead to groundbreaking entrepreneurial ideas. The ahh moment in an
entrepreneurial mindset, a sudden realization, inspiration, insight, recognition, or comprehension
of an idea worth pursuing. This policy emphasizes that innovation thrives on these moments, and
it seeks to create an environment where such creativity can flourish.
The policy primarily aims to enhance Ethiopia's startup ecosystem through several key measures.
It defines startups clearly and introduces a designation framework for targeted support. A stage-
based approach provides tailored incentives from ideation to unicorn status. A National Digital
Startup Portal will centralize resources and streamline processes. The Startup Grant Program offers
financial aid for early-stage startups. The Credit Guarantee Scheme (CGS) supports high-risk
ventures by guaranteeing loans. The Fund of Funds Structure pools resources from both
government and private sectors for capital at different growth stages. Capacity building efforts will
train founders and attract foreign startups and talent by minimizing entry barriers.
The document also recognizes the potential of foreign startups and aims to attract foreign startups
and skilled employee, and ecosystem builders by minimizing barriers to entry to enhance the
overall competitiveness of Ethiopia's startup landscape.
Despite the ambitious aims of this policy, it acknowledges existing challenges, such as inadequate
infrastructure, lack of skilled manpower, and coordination failures among stakeholders. The
establishment of a National Digital transformation Council, composed of key ministerial
stakeholders, will facilitate inter-ministerial coordination and ensure comprehensive support for
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the startup ecosystem. Furthermore, this document also indicates the strategic considerations to
effectively implement the policy initiatives and enhance the performance of startups and
ecosystem builders.
This Policy document aims to serve as a comprehensive roadmap for creating a vibrant
entrepreneurial landscape in Ethiopia by addressing critical issues and fostering a culture of
innovation. The policy aims to enhance the startup ecosystem, drive economic progress, and
position Ethiopia as a competitive player in the global market. Continuous evaluation and
stakeholder engagement will be vital to ensuring the policy's effectiveness and adaptability to
emerging trends and challenges. Through these concerted efforts, Ethiopia can transition into a
dynamic economy characterized by innovation, resilience, and sustainable growth where every
Eureka moment can have the potential to be born and have the opportunity to be transformed into
a global unicorn.
Chapter One
1. Introduction
In the realm of innovation and entrepreneurship, the journey from inception to success often begins
with a singular moment of insight—the "Eureka moment." This phrase, immortalized by the
ancient Greek scholar Archimedes, symbolizes the instant when a profound discovery or
realization strikes, illuminating the path forward amidst uncertainty and possibility.
As the story goes, Archimedes, grappling with a problem set by King Hiero II of Syracuse,
experienced this moment of revelation while immersing himself in a bath. As he observed the
displacement of water from the bathtub into the ground as he enters into the bathtub and realized
its significance as it pertains to measuring the density of an object, he reportedly exclaimed
"Eureka!"—Greek for "I have found it!" This exclamation encapsulates the essence of creativity
and discovery, marking the genesis of countless ideas that have shaped human progress throughout
history.
Today, the spirit of "Eureka" resonates deeply within the startup ecosystem. Entrepreneurs and
innovators experience their own Eureka moments—moments of clarity and inspiration that spark
the genesis of groundbreaking ideas. These ideas, often born out of identifying unmet needs,
solving pressing challenges, or envisioning novel solutions, serve as the lifeblood of startups. They
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represent the initial spark that ignites a journey toward creating value, disrupting industries, and
potentially achieving the coveted status of a unicorn—a startup valued at over one billion dollars.
In exploring the synergy between "Eureka moments" and startup ideas, we uncover a fundamental
truth: innovation thrives on moments of profound insight. The Eureka moment represents the
genesis of entrepreneurial endeavors, where a seemingly ordinary observation or realization
transforms into a visionary concept with the potential to disrupt markets and drive economic
growth. By tracing the lineage from Archimedes' legendary discovery to modern-day startup
success stories, we attempt to illustrate how these moments of clarity serve as the foundational
pillars upon which innovative enterprises are built. They not only inspire the initial spark of an
idea but also provide the motivation and drive necessary to navigate the challenges of
entrepreneurial ventures.
Moreover, linking "Eureka moments" with startup ideas underscores the significance of fostering
environments that cultivate creativity and support nascent innovation. By understanding and
harnessing these pivotal moments, policymakers can design and implement targeted incentives and
support mechanisms that empower entrepreneurs to transform their visionary ideas into tangible
realities. This symbiotic relationship between Eureka moments and startup ideas thus becomes
crucial in shaping vibrant startup ecosystems, where every idea flourish, barriers to entry diminish,
and economic prosperity thrives.
Therefore, this document aims to capture the journey of every startup incapsulated in a framing
titled "From Eureka to Unicorn," where we navigate through the stages of startup growth,
exploring how incentives and support systems facilitate this journey from ideation to achieving
unicorn status.
1.1. Background of Startup Ecosystem

Over the past decade, Ethiopia's Startup ecosystem has experienced significant growth, driven by
increased involvement from the government, development partners, and the private sector. A
significant driver of this progress has been the government’s commitment to economic growth
through entrepreneurship. In 2019, the introduction of the Homegrown Economic Reform (HGER)
program emphasized entrepreneurship as a key component for economic advancement, leading to
the implementation of various supportive policies, programs, and initiatives. Assessment by the
Ministry of Innovation and Technology (MInT) and the Japan International Cooperation Agency
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(JICA) indicates that Addis Ababa has become a central hub for the country's startup scene, with
97% of Ethiopian startups based there (Startup Blink, 2021).
Despite the promising prospects offered by a young and dynamic population, increasing
government support, and active involvement of development agencies, Ethiopia's startup
ecosystem remains in its nascent stages and faces considerable challenges. These include a lack of
clarity on what constitutes a startup, an underdeveloped startup culture, market acceptance risks,
funding barriers, market access issues, regulatory complexities, and a shortage of skilled
manpower, experienced mentors, and ecosystem builders. The following section will highlight
these challenges and prospects in detail.
1.1.1. Challenges in the Ethiopian Startup Ecosystem

One of the primary challenges faced by Ethiopian startups is the lack of clarity regarding what
constitutes a "startup." The absence of a universally accepted definition has led to confusion among
entrepreneurs, investors, and policymakers, which further complicates access to funding,
resources, and support programs. This ambiguity not only affects the startups themselves but also
hinders the development of targeted policies and programs necessary for ecosystem building
(World Bank, 2020).
The absence of a well-defined institutional and regulatory framework poses significant challenges
for startups. Entrepreneurs often face a complex and opaque regulatory environment that hampers
innovation and deters investment. Many startups struggle with obtaining necessary business
licenses and permits, which can be a major deterrent for launching new ventures. According to the
OECD (2019), cumbersome bureaucratic processes and unclear regulatory requirements create
formidable barriers to entry for new businesses. The lack of a unified legal framework tailored
specifically for startups results in overlapping and sometimes contradictory regulations. This
leaves entrepreneurs uncertain about their legal obligations and rights, further complicating their
ability to navigate the regulatory landscape. Without a clear definition of what constitutes a startup,
many regulatory bodies apply traditional business rules to nascent enterprises, disregarding their
unique needs and characteristics. This unpredictable regulatory environment not only creates
confusion but also discourages potential investors who are wary of the associated risks.
To overcome these obstacles, it is essential for the government to prioritize the development of a
comprehensive legal framework that clearly defines startups and addresses their specific needs.
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Streamlining regulatory requirements and establishing consistent, startup-friendly regulations will

significantly reduce bureaucratic hurdles and enhance regulatory clarity. Such reforms will create
a more predictable and supportive environment, fostering innovation, encouraging investment, and
fueling the growth of Ethiopia’s emerging startup ecosystem.
Market acceptance risk is another significant issue. Many startups struggle with product validation
as they seek to introduce innovative solutions to the market. The fear of market rejection often
leads to hesitation in launching products, resulting in missed opportunities for both entrepreneurs
and investors. A report by the International Finance Corporation (IFC) (2021) indicates that
approximately 70% of startups fail to validate their products adequately, largely due to insufficient
market research and testing. Market access and networking challenges further hinder the growth
of startups. Many entrepreneurs face difficulties in entering established markets due to a lack of
connections and networking opportunities. Startups often rely on personal networks for business
development, which can significantly limit their reach and growth potential. A study by the African
Development Bank (AfDB) (2020) emphasizes that strong networking capabilities are essential
for startups to access resources, mentorship, and potential customers.
Financial obstacles are a significant impediment for startups in Ethiopia. Despite growing interest
from both local and international investors, many startups struggle to secure essential funding for
their operations. The World Bank (2020) highlights that only 7% of startups successfully obtain
the necessary financial resources. Startup Genome (2023) reports that the total value of the
Ethiopian startup ecosystem from 2021-2023 was over $87 million, which is only 0.29% of the
global startup ecosystem's total value, and early-stage funding amounted to $8.1 million,
representing just 1.23% of global early-stage funding. Nearly half of the startups (48%) face
significant difficulties in accessing capital, particularly in Addis Ababa. Due to the absence of
well-established venture capital firms and angel investors, many Ethiopian startups has been
relying on informal funding sources like bootstrapping, family support, and grants (JICA, 2023),
exacerbating the challenge and leaving many innovative concepts unfunded.
The lack of skilled manpower is also a critical challenge that hampers the growth of the startup
ecosystem. The educational system in Ethiopia has struggled to keep pace with the rapidly
changing demands of the job market, leading to a shortage of skilled labor in critical areas such as
technology, business management, and innovation (World Bank, 2020). This skills gap affects the
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ability of startups to recruit qualified personnel, thereby limiting their capacity to innovate and
compete effectively. On the other hand, the startups founders have extremely limited professional
experience and little understanding of what it takes to run a business. Furthermore, the founders
of these startups also possess very limited professional experience and a minimal understanding
of the essentials of business operations. Many have not received instruction in fundamental
business management concepts, including how to formulate a viable business model, create
financial projections, prepare effective pitches for investors, and identify and nurture talented
personnel (Munro et al., 2021).
Many institutions, particularly Universities and Technical and Vocational Education and Training
(TVET) colleges, face significant resource and human capital constraints, with approximately 40%
of universities lacking adequate facilities for practical training (World Bank, 2020). Furthermore,
there is a critical shortage of skilled personnel; only 15% of graduates from TVET colleges are
considered job-ready, which directly impacts the quality of support provided to emerging startups
(Ministry of Education, 2021). Additionally, the lack of collaboration among universities,
government institutions, and private entities has led to fragmented support systems that fail to
adequately address the diverse needs of startups, while private incubators often struggle with
sustainability due to funding limitations (Ethiopian Chamber of Commerce, 2021).
The shortage of experienced mentors, investors, and ecosystem builders are also posing a
significant difficulty for startups seeking guidance and resources to realize their potential.
Additionally, the ecosystem suffers from inadequate funding. Despite a growing number of
funding opportunities, many startup founders still struggle to secure the capital needed to advance
their ventures. Issues such as limited investor awareness, a lack of investment-ready opportunities,
and challenges related to currency and investment repatriation contribute to this funding gap
(JICA, 2023). Lastly, Ethiopia ranks 100th in the prestigious Global Startup Ecosystem Index,
highlighting the significant challenges it faces compared to other countries. The index serves as a
crucial tool for comparing startup ecosystems, measuring both the quantity and quality of startups,
supporting organizations, and the overall business environment. Ethiopia's composite score of
0.162 starkly contrasts with leading African nations such as South Africa (3.547), Kenya (1.565),
and Nigeria (1.517). The large discrepancies in scores indicate that simply replicating funding and
ecosystem models from these more established markets without tailoring them to Ethiopia's unique
context would likely be ineffective (Startup Blink., 2021).
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Access to quality data is crucial for the success and growth of startups, yet in Ethiopia, it remains
a significant constraint. For startups to thrive, data-driven decision-making is essential. Quality
data enables startups to validate their business models, optimize operations, and scale effectively.
It allows them to accurately assess market size, target customer segments, and craft competitive
strategies, leading to better business outcomes (Henisz & Zelner, 2010). Reliable data also helps
reduce uncertainties and mitigate the risks associated with new ventures (OECD, 2019).
However, startups in Ethiopia face several challenges due to limited access to comprehensive and
reliable data. The existing data often suffers from fragmentation, obsolescence, and inaccessibility,
exacerbated by bureaucratic hurdles (African Development Bank, 2021). This scarcity of robust
market research, consumer behavior insights, and reliable economic indicators hampers startups'
ability to make informed decisions (World Bank, 2020).
The lack of quality data forces startups to rely on assumptions rather than evidence-based
strategies, increasing the risk of poor decision-making and potential failure. Additionally, the
absence of data transparency impedes investors' due diligence, raising perceived risks and
restricting funding opportunities. Regulatory bodies also struggle to craft effective policies due to
inadequate and outdated data, which creates an uncertain environment that complicates startups'
compliance and growth efforts.
In summary, Ethiopian startups face significant challenges due to a lack of clarity in defining
"startups," an opaque regulatory environment, limited access to quality data, financial constraints,
and a shortage of skilled manpower. The absence of a well-defined legal framework complicates
access to funding and support, while fragmented and outdated data hampers informed decision-
making and investor confidence. Financial barriers and insufficient skilled labor further impede
growth. To address these issues, Ethiopia needs to develop a clear legal definition for startups,
streamline regulations, improve data accessibility, enhance funding opportunities, and strengthen
the educational system to support the startup ecosystem effectively.
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1.1.2. Prospects in the Ethiopian Startup Ecosystem

Despite these challenges, there are substantial prospects for the growth of startups and ecosystem
builders in Ethiopia. There has been a rapidly growing youth population that is increasingly
interested in entrepreneurship and innovation and the demographic trend presents a unique
opportunity for the development of a vibrant startup culture- particularly in technology and digital
services. According to the Global Entrepreneurship Monitor (GEM, 2020), Ethiopia has one of the
highest rates of entrepreneurial intentions among its youth, indicating a growing appetite for
starting new businesses.
Ethiopia's startup ecosystem is supported by a broad array of institutions, which include public
entities, private organizations, and educational institutions. There are approximately 20
government-backed incubators and accelerators, and around 40 universities alongside 120 TVET
colleges that actively foster entrepreneurship through various incubation programs and innovation
hubs. Notable examples include the Ministry of Innovation and Technology, which manages
several innovation hubs across the country, and universities such as Addis Ababa University and
Jimma University, which have established entrepreneurship centers that offer essential resources
to startups. Research institutes, of which there are about 15, play a crucial role in advancing R&D
and collaboration with startups (World Bank, 2020; Ministry of Education, 2021). Most of
incubators and accelerators such as Ice-Addis, Blue-Moon, and X-hub Addis, are operating in
partnership with development donors such as GIZ, MasterCard Foundation, and United Nations
organizations, and therefore influenced by their mandates.
The government's commitment to fostering a supportive environment for startups is a positive

indicator of future growth. Initiatives such as the establishment of innovation hubs,
entrepreneurship training programs, and recent proclamations aimed at streamlining processes for
startups underline a strategic focus on promoting entrepreneurship as a means of economic
development. The Ethiopian Ministry of Innovation and Technology has introduced various
programs aimed at enhancing access to finance, mentorship, and technical support for startups,
which can significantly bolster the ecosystem (Ministry of Innovation and Technology, 2021).
Moreover, substantial financial commitments from international organizations and development

partners have begun to support Ethiopia's entrepreneurial landscape. The Mastercard Foundation,
for example, is investing $150 million in a program aimed at supporting young entrepreneurs in
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Africa, including initiatives in Ethiopia focused on skills development and access to finance
(Mastercard Foundation, 2020). The World Bank has allocated approximately $60 million over
several years to enhance access to finance for small and medium enterprises, with a focus on
increasing the capacity of financial institutions to lend to startups (World Bank, 2020). Similarly,
the United Nations Development Program (UNDP) has initiated the “Innovate for Impact” project
with a budget of $20 million, aimed at providing mentorship, training, and funding for startups
that address social and economic challenges (UNDP, 2021).
These initiatives are vital as they not only provide direct financial support but also help build the
necessary infrastructure, capacity, and networks for startups to thrive. The increasing engagement
of international organizations and development partners reflects a growing recognition of the
importance of entrepreneurship in achieving sustainable development and economic resilience in
Ethiopia.
While Ethiopia's startup ecosystem has prospects for growth due to its young and dynamic
population, increasing government support, and active involvement of international partners, it
remains in its nascent stages and faces significant challenges. These include a lack of clarity
regarding what constitutes a startup, market acceptance risks, funding barriers, market access
issues, regulatory complexities, and a shortage of skilled manpower. Therefore, the startup
ecosystem building policy is highly relevant to address these issues by providing a clear framework
for identifying and supporting startups, streamlining regulatory processes, and enhancing access
to capital and mentorship. By fostering a more structured and supportive environment, the policy
seeks to overcome existing barriers, leverage the burgeoning entrepreneurial spirit, and drive
sustainable economic growth, ultimately transforming Ethiopia into a thriving hub for innovation
and startups.
1.2. Objectives of the Policy

The overarching objective of this policy is to create an enabling environment that would be a fertile
ground for the growth of startups, fosters the culture of innovation and establish the necessary
legal and institutional frameworks that create the enabling environments. The specific objectives
are as follows:
§ Establish clear definitions and criteria for recognizing startups and ecosystem builders to
facilitate targeted support and resource allocation,
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§ Implement comprehensive financial mechanisms, including grants, credit guarantees, and

tax incentives, to enhance access to funding for startups at various growth stages,
§ Create the necessary infrastructure and digital platforms to support startups, streamline
processes, and promote collaboration among stakeholders,
§ Enhance the capabilities of startups through training, mentorship, and access to resources
that enable them to navigate challenges and grow effectively,
§ Inspire innovation and solve key challenges through a periodic government problem-
solution competition,
§ Establish a regulatory sandbox and simplify bureaucratic processes to foster innovation
and reduce barriers to entry for startups,
§ Foster collaboration among incubators, accelerators, investors, and other ecosystem
builders to create a supportive environment for startups,
§ Develop a robust monitoring and evaluation framework to assess the effectiveness of the
policy and its initiatives, ensuring continuous improvement,
1.3. Basic Concepts about Startups and the Startup Ecosystem

To foster a thriving startup ecosystem, it is crucial to establish a clear and unified definition of
what constitutes a startup or at least attempt to create a consensus around a workable definition of
a startup. The ambiguity surrounding this term often hampers the effective allocation of resources
and incentives.
Various jurisdictions have recognized this need and have taken steps to define startups in a way
that aligns with their unique economic contexts. For instance, Senegal’s Startup Act (2021)
describes startups as companies in their nascent stages with significant potential for rapid growth
and scalability. Similarly, Kenya’s Startup Act (2022) emphasizes technology-based innovative
entities with strong growth prospects and disruptive business models.
The European Start-Up Monitor (2015) outlines a startup as a young company, less than a decade
old, focused on innovative technologies or novel business models. In India, the Ministry of
Commerce and Industry (2016) defines a startup as an entity that has been in operation for up to
five years and is engaged in the innovation, development, deployment, or commercialization of
new products or services driven by technology or intellectual property. Banco Santander, a leading
Spanish bank, adds that a startup is a newly established company with a scalable business model
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and significant growth potential enabled by modern technologies. By embracing such clear
definitions, governments can more effectively channel support to startups, ensuring that resources
are directed towards the entities most likely to drive economic innovation and growth.
1.4. Methodology framework

The methodology framework adopted by this policy is based on the Lean Startup methodology,
which emphasizes a streamlined, efficient approach to building a business ecosystem. The
principles of "Lean" are encapsulated in the acronym L-E-A-N: L- “Lightening Regulatory burden
and Barrier to entry”, E-“Exemption from Taxation”, A-“Access to Finance”, and N-“Networking
and Capacity Building”. This methodology aims to create a supportive environment by minimizing
bureaucratic hurdles and simplifying entry processes for startups (Blank, 2005; Ries, 2011). By
offering tax exemptions and financial incentives, the policy mitigates initial financial constraints,
encouraging innovation and growth (Kerr et al., 2014). Furthermore, the framework stresses the
importance of networking and capacity building through strategic partnerships and training
programs, thereby enhancing the overall capability and effectiveness of startups (Mason &
Harrison, 2015; Global Entrepreneurship Network, 2020). This holistic, lean approach is designed
to foster a vibrant startup ecosystem where innovative ideas can flourish and scale efficiently.
1.5. What is not a Startup and What is a Startup?

1.5.1. What is not a Startup
Before delving into the bold definition of what a startup is, it is very crucial to identify what is not
startup to have a solid foundational concept. The reason why we needed to understand what is not
a startup is, to help us to distinguish a startup from other entities. so that we can effectively
designate and channel the incentives.
In the landscape of business and entrepreneurship, distinguishing what is not a startup is crucial
for understanding the dynamics of innovation and market development. A well-established
company that operates with a stable business model, proven market presence, and consistent
revenue streams is not considered a startup. These companies have moved past the initial phases
of experimentation and validation and have achieved significant scale and operational maturity.
They typically focus on maintaining and optimizing their existing products or services rather than
pursuing radical innovation or disruptive changes. Unlike startups, which are characterized by high
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risk and rapid growth potential, established companies operate within a more predictable and
structured environment.
Another category that falls outside the realm of startups is a business that functions solely as a
small, local enterprise with limited ambitions for expansion. Such businesses often focus on
serving a niche market or community without seeking significant growth or scalability. They may
have stable operations but lack the innovative drive or market disruption associated with startups.
For example, a local bakery or a family-owned retail store, while essential to their communities,
do not embody the characteristics of a startup due to their limited scope and lack of aspiration for
rapid growth or technological advancement.
Additionally, non-profit organizations that operate with a focus on social welfare or charitable
activities, without pursuing scalable business models or market innovations, are not classified as
startups. While these organizations may demonstrate entrepreneurial spirit in addressing social
issues, their primary goal is not to achieve financial returns or disrupt markets but to fulfill their
mission through community support and funding. Non-profits often have established processes
and rely on donations or grants rather than seeking venture capital or engaging in rapid market
expansion.
Moreover, public companies are not classified as startups due to their established market presence,
operational scale, and rigorous regulatory compliance. Having advanced beyond the initial growth
phases, these companies are now traded on securities exchange and are bound by stringent
reporting and governance standards. Unlike startups, which thrive on innovation, high risk, and
rapid growth potential, public companies focus on optimizing their established business models,
managing shareholder expectations, and adhering to legal and financial regulations. Their
emphasis on stability, profitability, and maturity sets them apart from the dynamic, high-risk
environment that defines startups.
Finally, companies that have reached the late stages of its lifecycle, such as a mature corporation
or a well-established franchise, is not classified as a startup. These entities have typically achieved
substantial market penetration, possessed extensive resources, and operated with long-term
strategies aimed at sustaining their competitive edge. Unlike startups, which are driven by the
pursuit of initial market validation and disruptive change, mature companies concentrate on
efficiency, risk management, and incremental improvements. Their focus is on maintaining
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stability and optimizing performance rather than navigating the high-risk, high-reward dynamics
characteristic of the startup phase.
1.5.2. What is a Startup

Defining a startup in today's global economy is nuanced and evolving, reflecting the diverse
economic landscapes, regulatory frameworks, and cultural perspectives across different regions.
Broadly, a startup is understood as a newly established business venture aimed at solving specific
problems or meeting market demands, characterized by innovation, scalability, and rapid growth
potential. While definitions may vary, they often consider factors such as operational age, growth
trajectory, and the presence of innovative business models or technologies. Blank (2005) describes
a startup as “a temporary organization designed to search for a repeatable and scalable business
model,” while Ries (2011) defines it as “a human institution designed to create a new product or
service under conditions of extreme uncertainty.” Graham (2005) emphasizes growth as an
essential characteristic, noting that startups are “companies designed to grow fast,” highlighting
the dynamic nature of these ventures.
In Ethiopia, startups are defined as entrepreneurs, pre-registered companies, or other business

entities aiming to implement innovative, disruptive, and scalable ideas. This definition introduces
critical concepts like innovation, scalability, and disruption. Innovation is viewed as both a process
and an outcome, wherein ideas are transformed into marketable products or services, following
Joseph Schumpeter's influential definition that includes launching new products, applying new
methods, and creating or destroying monopoly positions (Schumpeter, 1934). Scalability is crucial
for startup growth; research underscores the development of scalable business models through
customer feedback and lean methodologies (Blank & Dorf, 2012). Moreover, venture capital plays
a significant role in supporting scalable startups, which tend to attract more investment (Kerr et
al., 2014). Disruption is another vital aspect, as startups often target underserved niches with
innovative solutions that challenge established competitors, fundamentally altering industries or
creating new markets.
An inclusive definition of a startup encompasses individuals as well as business entities, reflecting

the broad and evolving nature of entrepreneurship. Notably, startups can enhance social welfare;
companies like TOMS Shoes and Warby Parker illustrate how business models can incorporate
social missions while pursuing profitability.
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Furthermore, promoting foreign startups is crucial for economic growth. Ethiopia's Homegrown
Economic Reform program aims to attract foreign direct investment by reducing entry barriers,
recognizing that successful countries experience high rates of unicorns founded by immigrants.
This highlights the potential benefits of creating a conducive environment for foreign startups in
Ethiopia, a country with a large population and untapped market potential. Such investments could
accelerate ecosystem growth, create jobs, and boost the economy. Overall, acknowledging the
diverse characteristics and potential impacts of startups is essential for fostering a supportive
environment for entrepreneurial innovation globally. Taking into account the concepts discussed
earlier:
A “Startup” means a person that is engaged in the creation of economic value through the
introduction, adoption, transplantation, or reverse engineering of a tech or tech-enabled,
innovative, scalable, and disruptive product(s), service(s), or process(es) with no or limited
operating history.
1.6. Startup Ecosystem Builders Definition

The concept of startup ecosystem builders has gained traction globally as the importance of
fostering vibrant entrepreneurial environments becomes increasingly recognized. Startup
ecosystem builders are individuals, organizations, or institutions that actively contribute to the
development and sustainability of local startup ecosystems. According to the Global
Entrepreneurship Network (GEN), these builders play a crucial role in connecting stakeholders,
including entrepreneurs, investors, government agencies, and support organizations, thereby
facilitating collaboration and resource sharing (GEN, 2020). Furthermore, the Startup Genome
Project emphasizes that effective ecosystem builders nurture talent, provide funding opportunities,
and enhance mentorship, which are essential elements for a thriving startup environment (Startup
Genome, 2020). These builders often include accelerators, incubators, co-working spaces, and
community organizations that aim to create an ecosystem conducive to innovation and economic
growth.
Mainstream media also plays a pivotal role by raising public awareness about startups, providing
coverage of entrepreneurial success stories, and highlighting challenges within the ecosystem. This
media attention can attract potential investors and customers, creating a positive feedback loop for
emerging businesses (Kauffman Foundation, 2019). Co-working spaces have also become
essential components of startup ecosystems, as they provide affordable office options for fledgling
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businesses and create opportunities for networking and collaboration among entrepreneurs. These
spaces often host events, workshops, and mentoring sessions that enhance community engagement
and knowledge sharing (WeWork, 2020).
Private equity funds and venture capital firms are critical in fueling startup growth by providing
the necessary capital to scale operations. According to PitchBook (2021), venture capital
investments have surged globally, particularly in technology-oriented startups, due to their high
growth potential. Angel investors, often seasoned entrepreneurs themselves, provide not only
financial support but also mentorship and guidance to nascent companies. Their involvement can
significantly increase a startup's chances of success by providing strategic insights and connections
in the industry (Mason & Harrison, 2015). Additionally, financial institutions play a crucial role
in the startup ecosystem by offering various financial products tailored to the needs of
entrepreneurs, including loans and grants that can help bridge funding gaps.
Higher education facilities and Technical and Vocational Education and Training (TVET)
institutes are instrumental in nurturing talent and equipping individuals with the skills necessary
for entrepreneurship. By fostering partnerships with local businesses, these educational institutions
can align curricula with market demands, thereby producing graduates who are ready to contribute
to the startup landscape (World Bank, 2021). Research and Development agencies also play a vital
role by promoting innovation through funding and support for research projects that can lead to
new products and processes. Furthermore, local and international non-governmental organizations
(NGOs) contribute to the ecosystem by providing training, resources, and support for
entrepreneurs, particularly in underserved communities (OECD, 2020).
In the context of Ethiopia, startup ecosystem builders can be defined as entities or individuals that
create and support the infrastructure necessary for startups to thrive. This includes fostering
connections among various stakeholders, such as entrepreneurs, investors, academic institutions,
and governmental bodies, to promote collaboration and knowledge exchange. Ethiopian startup
ecosystem builders are tasked with addressing unique local challenges, such as access to funding,
market information, and skills development, while also leveraging the country’s large, youthful
population as a resource for innovation. By focusing on nurturing local talent, providing
mentorship, and facilitating access to capital, these builders contribute significantly to creating an
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inclusive and sustainable startup ecosystem that can drive economic growth and job creation in
Ethiopia (World Bank, 2021).
In Ethiopia, the startup ecosystem is emerging with a unique blend of these components, and local
stakeholders are actively working to create an environment conducive to entrepreneurship.
Mainstream media is beginning to cover the growth of the sector, while co-working spaces like
Iceaddis and xHub Ethiopia provide collaborative environments for startups. The presence of angel
investors, is gradually increasing, Venture capital funds have provided 44.2 million USD in 2023
offering much-needed funding and mentorship (Statista, 2023).
Additionally, financial institutions are starting to recognize the potential of startups, providing
tailored financial products to support their growth. Higher education institutions and TVETs are
focusing on developing entrepreneurial skills among students, while NGOs are working to enhance
access to resources and training for aspiring entrepreneurs. Together, these elements are crucial
for building a thriving startup ecosystem in Ethiopia, aiming to unlock the country's
entrepreneurial potential and drive economic growth.
In light of these concepts, a "Startup Ecosystem Builder" is defined as:

” a person that actively contributes to the establishment, development, and sustainability
of Startups and includes Incubators, Accelerators, Co-Working Spaces, Private Equity
Funds, Venture Capitals, Angel Investors, Financial Institutions, Higher Education
Facilities, Technical and Vocational Education and Training (TVET) Institutes, Research
and Development Agencies, Medias, Local and International Non-Governmental
Organizations.
1.7. Stage-Based Support Approach

In crafting our policy, we adopted a stage-based approach to address the evolving needs of startups
from the pre-seed stage to becoming a unicorn (exit stage). This approach ensures that startups
receive tailored support at each critical phase of their development, facilitating sustained growth
and success.
The below table will summarize the stages and incentives designed to fit them
Stage Objective Key measures

Pre-seed • Encourage idea generation 1. Ideation Support:
and early-stage innovation.
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• Provide foundational • Innovation Hubs: encourage ecosystem

support to nascent startups. builders to support the ideation through
• Validate hypotheses for various programs.
customers, demand and • Grants: Offer grants and organize
offering. competitions to fund promising ideas.
• Register key patents and • Co-Working Spaces: Expand access to
trademarks. co-working spaces and shared facilities.
2. Regulatory Simplification:
• Ease of Registration: Simplify the
process for startup registration and
reduce associated costs.
• Legal Support: Provide access to basic
legal advice and resources to support
founders with company formation and
registration of intellectual property
rights.
Seed Stage • Building a Minimum 1. Financial Support:
Viable product (MVP). • Seed Funding: access to the grant and
• Validate the business credit through the credit guarantee
model and achieve initial scheme.
market traction. • Tax Incentives: offer tax incentives for
• Secure early-stage funding. angel investors and early-stage venture
• Human Capital capital and the startup itself.
Development. 2. Market Access:
• Pilot Programs: encourage pilot
programs in partnership with
established companies and government
agencies.
• Market Research: provide access to
market research and data analytics.
3. Capacity Building:
• Training and Workshops: organize
training sessions on business
development, financial management,
and marketing.
• Business Development Services: Offer
business development services to refine
business models and strategies.
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Growth Stage • Scale operations and 1. Access to Capital:

expand market presence. • Venture Capital Funds: use the fund of
• Strengthen the startup’s funds to access capital.
financial position. • Government-backed Loans: provide
• Market access and product low-interest loans and credit
innovation and guarantees.
development to fit the 2. Infrastructure Support:
market • Tech based Infrastructure: offer tech-
• Enhance operational based market information and business
efficiency and development platform service.
competitiveness. • Tax Incentives: offer tax incentives for
• well established angel investors and early-stage venture
organizational structure capital and also the startup itself.
3. Market Expansion:
• Export Assistance: provide support for
entering international markets,
including export assistance and trade
missions.
• Public Procurement: facilitate access to
public procurement opportunities for
startups.
4. Talent Acquisition:
• Talent Development Programs: invest
in talent development programs and
partnerships with academic institutions.
• Visa Programs: simplify visa processes
for attracting international talent.
Scale up • Enhance operational 1. Advanced Financial Support:
(expansion) efficiency and • Fund of Funds: use the fund of funds
stage competitiveness. to provide substantial capital for
• Prepare for significant scaling operations.
growth milestones, such as • IPO Readiness Programs: offer support
IPOs or major funding for Initial Public Offering (IPO)
rounds. preparation, including regulatory
• Expand into new markets compliance and financial audits.
and customer segments. 2. International Expansion:
• Strengthen brand • Global Networks: build networks and
recognition and market partnerships to facilitate international
presence. expansion.
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• Foster strategic • Cross-border Collaboration: promote

partnerships and cross-border collaborations and joint
collaborations. ventures.
• Optimize organizational 3. Innovation and R&D:
structure and corporate • R&D Incentives: provide incentives for
governance. research and development activities.
• Partnerships with Universities: foster
partnerships with universities for
advanced research projects.
Exit stage • Become a public company. 1. Exit Strategy Support:
• Raise a substantial amount • Advisory Services: offer advisory
capital to sustain the services for exit strategies, including
business. mergers, acquisitions, and IPOs.
• Encourage reinvestment
into the startup ecosystem. • Legal and Financial Guidance: provide
specialized legal and financial guidance
for exit processes.
2. Reinvestment Incentives:
• Reinvestment Programs: encourage
successful entrepreneurs and investors
to reinvest in the startup ecosystem
through tax benefits and matching
programs.
• Alumni Networks: develop alumni
networks to foster mentorship and
investment into new startups.
3. Recognition and Promotion:
• Awards and Recognition: recognize
successful startups through awards and
public acknowledgments.
• Promotion Campaigns: promote
successful startups as role models to
inspire new entrepreneurs.
By adopting this stage-based approach, this policy documents aims to ensure that startups receive
the necessary support at each phase of their development, from inception to becoming unicorns.
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This structured framework not only facilitates sustained growth but also strengthens the overall
startup ecosystem, driving innovation and economic progress.
Chapter Two
2. Startups and Startup Ecosystem Builders Designation
This policy outlines several incentives and benefits specifically targeted at startups and ecosystem
builders, aiming to foster a thriving startup ecosystem. While designation is not mandatory for
participating in the startup ecosystem, startups and ecosystem builders must be designated to
access the incentives and benefits provided by the legal framework. The policy details the process
for the designation of startups and ecosystem builders, providing a streamlined application process
through a National Digital Startup Portal to centralize resources and facilitate communication
among stakeholders. To realize these strategic initiates, the following initiatives are designed.
2.1. Designation of Startups

Objective: Officially recognize startups meeting key criteria to provide targeted support and
resources.
Initiatives:
• Define and communicate the specific eligibility criteria for startup designation, including
the age limit, employee size, and company type.
• Implement a streamlined application process for startups to apply for designation through
the national startup portal, ensuring clarity on how to meet each criterion.
• Set up a dedicated review committee to assess and approve startup designations based on
the established criteria.
• Launch a public awareness campaign to inform startups about the benefits of designation
and encourage them to apply.
• Highlight success stories of designated startups to demonstrate the value of the
designation.
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2.2. Designation of Ecosystem Builders

Objective: Officially recognize ecosystem builders that meet standards to ensure effective
support for startups
Initiatives:
§ Establish criteria for the designation of ecosystem builders, including legal registration,
financial and physical resources, and capacity to support startups,
§ Create a detailed application process for ecosystem builders to prove their qualifications
and resource availability,
§ Set up a dedicated review committee to assess and approve startup ecosystem builders’
designations based on the established criteria.
§ Awareness creation to inform startups ecosystem about the benefits of designation and
encourage them to apply, and
§ Highlight success stories of designated startups ecosystem builders to demonstrate the
value of the designation
Why Choose Designation Instead of Labeling?

In many jurisdictions including Nigeria and Senegal, the term "labeling" is used to identify startups and
channel targeted support. However, in the Ethiopian context, the proclamation employs the term
"designation" instead of “labeling" to reflect a more strategic approach to resource allocation.
In Amharic, "designation" translates to "መሰ፟የም" and carries a connotation of recognition, empowerment,

and ownership. This term implies not only the acknowledgment of a startup but also entrusting it with
significant responsibilities within the ecosystem. It reflects a deeper commitment to supporting startups
and integrating them into the broader ecosystem.
Conversely, "labeling" translates to "መለየ፟ት" in Amharic. This term is more about identifying and
distinguishing startups from other types of businesses, without necessarily implying a deeper level of
support or responsibility.
By choosing "designation" over "labeling," the proclamation aligns with Ethiopia’s strategic goals,
emphasizing the critical role of startups and fostering a sense of ownership and empowerment within
the ecosystem. This nuanced approach aims to enhance the effectiveness of support mechanisms and
integrate startups more fully into the national economic landscape.
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Chapter Three
3. Building the Necessary Infrastructure and Administrative Frameworks
Establishing a robust infrastructure and administrative framework is essential for a thriving startup
ecosystem. Startups require a supportive landscape that enables them to implement and grow their
ideas. Putting the necessary infrastructures should be a priority to create an enabling environment
so that ideas can be born and become unicorns. Thus, to build the necessary infrastructure and
administrative frameworks, strategic initiatives include establishing national digital startup portal,
specialized work permits for foreign talent, easing entry barriers for foreign startups,
comprehensive capacity-building programs in collaboration with educational institutions, industry
experts and government problem-solution challenge competition facilitation. The following
initiatives are proposed to achieve these strategic initiatives to create an enabling environment
conducive to innovation.
3.1.National Digital Startup Portal

Objective: Create a comprehensive digital gateway for startups, ecosystem builders, and
relevant institutions.
Initiatives:
§ Centralized information access for all resources related to startup ecosystems.
o The NDSP will provide a single-window access point for all pertinent information
related to the startup ecosystem. This centralized resource will help entrepreneurs and
stakeholders easily find and utilize relevant data, guidelines, and resources necessary
for establishing and growing startups.
§ Streamlined designation process for startups and ecosystem builders.
o The NDSP will facilitate the expedited and streamlined designation of startups and
ecosystem builders. By centralizing and automating this process, the portal aims to
reduce bureaucratic delays and make it easier for new startups to receive official
recognition and support.
§ Interactive platform for communication and collaboration among stakeholders.
o The NDSP will serve as a platform for interaction between startups, the Ministry of
Innovation and Technology, ecosystem builders, and other relevant institutions. This
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feature will foster better communication, collaboration, and coordination among all
stakeholders involved in the startup ecosystem.
§ Program and Incentive Announcements
o Startups will be able to access announcements and apply for various programs and
incentives through the portal. This function ensures that startups are well-informed
about available opportunities and can efficiently apply for support offered by the
Ministry of Innovation and Technology and other institutions.
§ Feedback and Complaints Handling:
o The portal will also include mechanisms for receiving complaints and
recommendations from the startup ecosystem and the general public. This feature will
enable continuous improvement of the startup support framework by incorporating
feedback and addressing concerns promptly.
§ Additional Functions
o Beyond the core functions outlined above, the Ministry of Innovation and Technology
retains the flexibility to use the NDSP for other relevant objectives related to its powers
and duties under the Proclamation. This adaptability allows the portal to evolve in
response to emerging needs and priorities within the startup ecosystem.
3.2. Work Permits

Objective: Facilitate the recruitment process for foreign talent in designated startups.
Initiatives:
• Establish specialized work permit categories for foreign staff working in startups, focusing
on high-skilled positions crucial for innovation and growth. Differentiate these permits
from those for other sectors to streamline processing,
• Develop talent transfer programs that allow local employees to gain experience from
international experts,
• Develop metrics to assess the effectiveness of the work permit system in facilitating foreign
staff recruitment and its impact on startup growth. Track indicators such as the number of
permits issued, the skills transferred, and the overall success of startups,
• Work closely with immigration authorities to ensure that the work permit process for
startups aligns with national immigration goals and regulations, and
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• Conduct periodic reviews of the work permit system to identify and address any challenges
or inefficiencies, making necessary adjustments to improve the process
Best Experience: Singapore’s Tech Pass program is a strategic initiative aimed at attracting
global tech entrepreneurs and leaders to its vibrant startup ecosystem. This program grants
eligible individuals the opportunity to live and work in Singapore, thereby bolstering the
country’s innovation and technology landscape. By offering this pass, Singapore not only
enriches its local startup scene but also enhances its global competitive edge in technology and
innovation (Singapore Economic Development Board, 2023). The initiative fosters a
collaborative environment where skilled professionals contribute their expertise, driving
growth and dynamism within the tech sector (Tech Pass, 2024).
For Ethiopia, adopting a Tech Pass-like program could provide a significant boost to its startup
ecosystem. Such an initiative would attract skilled professionals and industry leaders from
around the world, bringing valuable expertise and experience to Ethiopian startups
3.3. Ease of Entry Barriers for Foreign Startups

Objective: Attract foreign entrepreneurs, investors and startups by minimizing barriers to entry.
Initiatives:
• Amend the relevant investment legislation to eliminate the minimum capital requirement
of $200,000 for foreign startups. Ensure that the legal framework reflects this change
clearly and comprehensively,
• Update the relevant proclamation (Proclamation No. 1180/2020) to officially remove the
capital requirement and facilitate the entry of foreign startups into the Ethiopian market,
• Revise and simplify the registration and licensing processes for foreign startups. Reduce
bureaucratic hurdles and streamline documentation requirements to expedite startup
entry,
• Establish a single-window service or digital platform where foreign startups, ecosystem
builders and investors can complete all necessary registration, licensing, and compliance
procedures efficiently,
• Enhance support services for foreign startups, including access to local business
networks, mentorship programs, and incubators or accelerators that can help foreign
entrepreneurs integrate into the Ethiopian market,
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• Provide tax breaks, subsidies, or other financial incentives to make Ethiopia a more
attractive investment destination,
• Facilitate partnerships between foreign startups and local businesses to promote
integration into global value chains. Provide matchmaking services to connect foreign
startups with local suppliers, distributors, and customers,
• Provide foreign startups with market research and insights to help them understand local
consumer preferences and market opportunities. This information can guide their product
development and marketing strategies,
• Create programs to engage local consumers with new foreign products and services,
including promotional events, trials, and demonstrations,
• Develop metrics to assess the impact of removing capital requirements on foreign startup
entry, market competition, and economic growth. Track indicators such as the number of
new startups, investment volumes, and job creation, and
• Strengthen regulatory oversight to ensure that the removal of entry barriers is effectively
implemented and that foreign startups comply with relevant laws and regulations.
Best Practice: A notable example of reducing entry barriers for foreign startups in Africa can
be seen in Rwanda's approach to fostering a conducive environment for business development.
The Rwandan government has implemented a series of reforms aimed at simplifying the
regulatory framework, including the establishment of a one-stop-center for business registration
that allows foreign entrepreneurs to complete all necessary paperwork in a streamlined manner.
Additionally, the introduction of the Rwanda Development Board’s "Made in Rwanda"
initiative has encouraged foreign investment by offering incentives and promoting local
partnerships. These efforts have significantly improved Rwanda's ranking on the Ease of Doing
Business Index, attracting numerous foreign startups to the country and creating a vibrant
entrepreneurial ecosystem (World Bank, 2019).
For Ethiopia, adopting similar practices could drastically enhance the ease of entry for foreign
startups. Establishing a comprehensive one-stop-shop for business registration, along with
implementing transparent regulatory procedures, can significantly reduce bureaucratic hurdles.
Additionally, offering incentives such as tax breaks for foreign startups and fostering
partnerships with local businesses can create a more attractive environment for foreign
investors. By focusing on improving the regulatory landscape and promoting entrepreneurship,
Ethiopia can not only attract foreign startups but also stimulate innovation and economic growth
within its borders, replicating Rwanda's successful model (African Development Bank, 2020).
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3.4. Capacity Building

Objective: Enhance the capabilities and effectiveness of designated startups.
Initiatives:
§ Conduct a thorough assessment to identify the specific needs and gaps within the startup
ecosystem. Use this information to tailor training programs, mentorship frameworks, and
support services.
§ Develop and implement training programs focused on key areas such as business
management, business plan development, financial literacy, and technological skills. Tailor
these programs to the needs of startups at various stages, from early ventures to more
mature enterprises, to enhance their capabilities and effectiveness,
§ Collaborate with universities, business schools, and training institutes to offer specialized
courses and workshops focused on entrepreneurship and innovation.
§ Facilitate participation in industry conferences, seminars, and workshops where
entrepreneurs can learn from thought leaders, network with peers, and stay updated on the
latest developments.
§ Establish a mentorship network that connects startups with experienced professionals and
industry experts. This initiative will provide valuable guidance, business development
support, and strategic advice, helping startups navigate challenges and drive growth,
§ Establish strategic partnerships between government agencies, educational institutions, and
private sector entities. These collaborations will enable startups to leverage research
expertise, technical resources, and business networks, enhancing their overall support
structure. While partnerships with established companies will offer mentorship and
business development support, leveraging the strengths of diverse stakeholders in the
ecosystem,
§ Train mentors to ensure they are equipped with the skills and knowledge needed to
effectively support and guide startups. This includes understanding current market trends
and emerging technologies,
§ Establish mechanisms for monitoring and evaluating the impact of the initiatives. Use
feedback and performance metrics to continuously improve and adapt the programs.
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Best Experience: The Small Industries Development Bank of India (SIDBI) initiative The
Indian SIDBI program underscores the significance of integrating capacity building and
mentorship with financial support. This dual approach ensures that startups receive not only
funding but also crucial guidance to navigate the challenges of launching and scaling their
businesses. The program provides training, workshops, and access to experienced mentors,
creating a robust entrepreneurial ecosystem that equips founders with essential skills for success
in competitive markets (World Bank, 2019).
For Ethiopia, adopting a similar model could greatly enhance startup capacity building efforts.
By combining financial support with structured capacity-building initiatives, such as training
programs and mentorship opportunities, Ethiopia can provide startups with the necessary tools
and guidance to thrive. This approach would not only optimize the impact of grants but also
promote sustainable business practices, fostering a more resilient and dynamic startup
ecosystem in the country.
3.5. Government Problem-Solution Challenge Competition

Objective: Inspire innovation and solve key challenges through a periodic government problem-
solution competition
Initiatives:
§ The Ministry of Innovation and Technology will develop an annual calendar for the problem-
solution challenge competition, ensuring it is scheduled and organized at least once a year.
This involves setting dates, venues, and overall timelines for the competition.
§ Define and communicate the eligibility criteria and application process for startups to
participate in the competition. Ensure clear guidelines are provided for startup submissions and
participation.
§ Implement a comprehensive outreach strategy to promote the competition, attract high-quality
startups, and engage relevant stakeholders. Use various channels including social media,
industry events, and partnerships with ecosystem builders.
§ Establish a framework for collaboration with other government institutions interested in
organizing problem-solution challenge competitions. This includes defining roles,
responsibilities, and expectations for each collaborating institution.
§ Coordinate with other institutions to jointly plan and execute competitions, leveraging our
expertise and resources.
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§ Facilitate the sharing of resources such as funding, venue, and promotional channels with other
government institutions to ensure the successful organization of joint competitions.
§ Develop a structured competition format that includes phases such as application, preliminary
judging, pitch presentations, and final evaluations. Ensure the structure is designed to
effectively assess and reward innovative solutions.
§ Establish clear standards and evaluation criteria for the competition, including judging panels,
scoring systems, and assessment benchmarks. Ensure these criteria align with the overall
objectives and desired outcomes of the competition.
§ Provide necessary support and resources for participants, including mentorship, training, and
access to relevant tools or platforms. This support will help startups refine their solutions and
enhance their chances of success in the competition.
§ Define and announce the prize structure, including monetary rewards, investment
opportunities, or other forms of recognition for winning startups.
§ Gather feedback from participants, judges, and stakeholders to evaluate the competition's
effectiveness and identify areas for improvement.
§ Implement mechanisms to track the performance and outcomes of the competition. Collect
data on participant engagement, solution effectiveness, and overall impact.
§ Prepare and disseminate reports on the competition’s results, including success stories,
lessons learned, and recommendations for future iterations.
§ Offer post-competition support to winners and finalists, such as continued mentorship, access
to funding, or opportunities for collaboration with industry partners.
Chapter Four
4. Facilitating Financial Support and Fiscal Incentives
Access to finance is vital for startup growth and development. A key element of the policy is
facilitating financial support and fiscal incentives through strategic initiatives such as a Startup
Grant Program, a National Credit Guarantee Scheme, the establishment of a Fund of Funds, and
tax incentives. Therefore, the following initiatives are designed to achieve these strategic
initiatives.
4.1.Startup Grant Program

Objective: Provide financial assistance to startups in their early stages.
Initiatives:
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• Establish a startup grant program to address pre-seed funding gaps by government budget
• Seek a fund from corporations and development partners interested in supporting
innovation and entrepreneurship,
• Establish clear criteria for startups to qualify for grants. This ensures that support is
targeted to those with the highest potential for impact,
• Develop a user-friendly application process with clear guidelines and deadlines to
encourage diverse startups to apply,
• Use transparent and objective criteria for selecting grant recipients, such as innovation
potential, market need, and team capability,
• Bring together a panel of experts from various fields (e.g., technology, business, finance)
to evaluate applications and ensure fair and informed decisions,
• Conduct thorough due diligence to assess the viability of startups before awarding grants.
This reduces the risk of funding poorly prepared or unsustainable ventures,
• Set grant amounts that are sufficient to support meaningful development and growth,
while being mindful of budget constraints,
• Pair grant recipients with experienced mentors and advisors who can provide guidance on
business strategy, market entry, and scaling,
• Facilitate connections with industry peers, potential partners, and investors through events
and networking platforms,
• Require periodic reports from grant recipients detailing their progress, challenges, and
financial expenditures. This helps ensure accountability and allows for timely intervention
if needed, and
• Publish reports on the program’s impact, including success stories, lessons learned, and
areas for improvement. This fosters public trust and demonstrates the value of the
program.
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Best Practice: One notable best practice for grant support in developing countries is the Small
Industries Development Bank of India (SIDBI) initiative, which aims to provide financial
assistance to startups and small enterprises through various grant programs. SIDBI focuses on
promoting entrepreneurship by offering grants that enable startups to cover initial operational
costs, invest in technology, and enhance their product offerings. By offering tailored financial
products that address the unique challenges faced by startups, SIDBI has successfully
stimulated the growth of numerous innovative businesses across India, highlighting the
importance of context-specific support mechanisms for fostering entrepreneurship (SIDBI,
2020).
Moreover, the SIDBI initiative exemplifies the value of collaboration between government
agencies, financial institutions, and private sector players. By fostering partnerships that
leverage diverse resources and expertise, SIDBI has been able to create a comprehensive
support system for startups. Ethiopia can learn from this model by facilitating collaborations
among its various stakeholders, including government agencies, financial institutions, and
educational institutions, to provide a cohesive framework for startup support. This integrated
approach can lead to a more vibrant entrepreneurial ecosystem that promotes innovation, job
creation, and economic growth (OECD, 2020).
4.2. National Credit Guarantee Scheme (NCGS)

Objective: Mitigate risks associated with lending to startups.
Initiatives:
• Set up the NCGS as an independent legal entity, established through a regulation under the
supervision of the National Bank of Ethiopia. This framework aims to prevent mandate
overlap and improve coordination by clearly defining the CGS's operational scope and
governance structure,
• Develop a robust governance structure for the CGS, including an independent and
competent Board of Directors and a General Manager. The Board will set strategic
objectives, while the General Manager will oversee day-to-day operations and ensure that
the CGS meets its goals,
• Secure seed finance from the government and other sources, such as income from the
scheme’s operations, investments, grants, and contributions from development partners.
• Establish a sustainable financial model that encourages private sector participation and
ensures the CGS remains financially stable,
• Open a window within the National Credit Guarantee Scheme for startups.
• Create a comprehensive risk management framework which align with the National Bank
of Ethiopia framework to assess and manage risks related to the CGS's operations. Focus
on wholesale risk management and establish clear criteria for evaluating borrower
eligibility and monitoring loan use,
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• Ensure that the CGS adheres to prudential regulations and provides capital relief to lenders
while effectively mitigating risks associated with credit guarantees,
• Implement stringent measures to prevent misuse of loans and ensure that funds are used
for their intended purposes. Establish mechanisms for regular monitoring and evaluation
of borrower performance and compliance with loan agreements,
• Design strategies to mitigate the risks of moral hazard and adverse selection. Include
thorough borrower screening processes, clear loan agreements, and monitoring systems to
ensure prudent financial practices and minimize defaults,
• Continuously assess the impact of the CGS on the credit market to avoid distortions and
ensure that it complements rather than crowds out viable businesses. Adjust the scheme’s
policies as needed to promote fair competition and resource allocation and
• Establish mechanisms for ongoing evaluation of the CGS’s performance, including
feedback from stakeholders and beneficiaries. Use this feedback to refine and improve the
scheme, ensuring it meets its objectives and addresses emerging challenges effectively.
Best Practice: South Africa’s Innovation Fund provides a successful example of a National
Credit Guarantee Scheme (CGS) tailored for startups. The fund supports high-risk, innovative
startups by offering credit guarantees to financial institutions, reducing the risk associated with
lending to early-stage companies. This model effectively encourages banks to fund startups
they might otherwise avoid, catalyzing investment in innovative sectors and fostering
entrepreneurial growth (Department of Science and Technology, South Africa, 2020).
Combining these guarantees with capacity-building initiatives, such as financial management
training, would enhance startup founders' financial literacy and loan repayment success. This
approach not only mitigates lender risk but also strengthens the startup ecosystem (World Bank,
2021). The success of South Africa’s model also underscores the value of collaboration between
government entities, financial institutions, and other stakeholders. By fostering partnerships
among banks, venture capital firms, and government agencies, Ethiopia can develop a
comprehensive framework that supports innovative startups, drives economic growth, and
advances technology (OECD, 2020).
4.3. Funds of Funds

Objective: Support startups at various growth stages through pooled fund.
Initiatives:
• Establish a Fund of Funds (FoF) that pools capital from institutional investors, high-net-
worth individuals, government entities, and development agencies,
• Invest the FoF in a range of venture capital (VC) and private equity funds to achieve
diversification across sectors, investment stages, and geographical regions,
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• Design a strategy to target various stages of startup development—seed, early-stage, and

growth-stage—by investing in funds that specialize in these stages. This ensures that
startups at different growth phases receive appropriate support and funding tailored to their
specific needs,
• Collaborate with experienced fund managers who have deep industry knowledge and
networks. Their expertise will help identify and support high-potential startups, ensuring
that the FoF investments are guided by informed insights and robust industry connections,
• Implement rigorous due diligence processes to evaluate the funds within the FoF. Assess
fund managers' track records, investment strategies, and performance metrics to ensure that
only well-vetted funds are included. This increases the likelihood of investing in funds that
support startups with a higher probability of success,
• Allocate a portion of the FoF to emerging venture capital funds that are building their
portfolios. This support helps these newer funds gain traction and invest in promising
startups that might not yet be accessible to larger, established funds, and
• Structure the FoF to invest in funds with varying liquidity profiles. This ensures that capital
is available to meet the funding needs of startups at different stages, enabling effective cash
flow management and continuous support over time.
Best Practice: A prominent example of a successful fund of funds model is the Chilean government's
"Capital Semilla" program, which aims to support high-potential startups by investing in venture capital
funds that specifically target early-stage companies. This program not only provides financial resources
but also emphasizes the importance of mentorship and business development support through the funds
it backs. By pooling resources into a variety of venture capital funds, Capital Semilla creates a more
diversified risk profile and facilitates access to capital for a broader range of startups across different
sectors. This strategic approach has catalyzed innovation and entrepreneurship in Chile, showcasing the
effectiveness of a fund of funds model in nurturing a dynamic startup ecosystem (Chilean Economic
Development Agency, 2020).
By adopting a similar fund of funds that invests in venture capital funds, the Ethiopian government can
leverage private investment while providing critical support to burgeoning businesses. Additionally, it
would be beneficial to integrate aspects of capacity building and support services into this model, as
seen in Chile, to ensure that startups not only receive funding but also the necessary guidance to succeed.
This comprehensive strategy could foster a more resilient entrepreneurial ecosystem, encouraging
innovation, job creation, and sustainable economic growth in Ethiopia (World Bank, 2021).
Page | 35
4.4. Fiscal Incentives

Objective: To boost startup and startup ecosystem growth by implementing comprehensive tax
incentives
Initiatives:
• Collaborate with the Ministry of Finance to develop and enact legislation formalizing
comprehensive tax incentives for startups and ecosystem builders. This should include
income tax exemptions, income tax on dividends, withholding tax, and zero-rated VAT
treatment. Ensure the legislation clearly outlines specific benefits, eligibility requirements,
and application processes to facilitate access and transparency,
• Integrate the tax incentives, loss carry forward and duty-free privileges applications in the
national startup portals for easy submission and tracking,
• Allow startups and ecosystem builders to carry forward operating losses to offset future
taxable income, reducing tax burdens during early growth phases,
• Offer duty-free privileges for importing essential equipment, technology, and raw materials
used by startups and ecosystem builders, lowering operational costs,
• Implement a feedback system to gather input from startups and ecosystem builders on the
effectiveness of fiscal incentives and make improvements, and
• Regularly assess the impact of tax incentives on startup investment levels and ecosystem
growth, adjusting policies as needed.
Page | 36
Best Practices: A prominent example of a country that has successfully implemented tax
incentives to boost startups is Colombia. The Colombian government introduced the "Law
1014" in 2006, which provided tax benefits to innovative startups. This law allows eligible
startups to benefit from an income tax exemption for up to seven years, along with deductions
on expenses related to research and development. As a result, Colombia has seen a significant
increase in the number of startups and entrepreneurial activities, particularly in technology and
innovation sectors. The tax incentives have not only attracted local startups but have also drawn
foreign startups and ecosystem builders, facilitating a vibrant startup ecosystem in the country
(World Bank, 2020).
In the context of developing countries like Ethiopia, adopting a similar tax incentive model
could significantly stimulate startup growth and innovation. By establishing a framework that
offers tax exemptions, loss carry forward and duty-free privileges for startups and startup
ecosystem builders, the Ethiopian government could create an attractive environment for
entrepreneurs. Implementing these tax incentives can lower the financial burden on startups,
allowing them to allocate more resources towards product development and market expansion,
ultimately fostering a more dynamic entrepreneurial landscape (OECD, 2021).
Chapter Five
5. Ecosystem Builders
Startup ecosystem builders are crucial in creating a supportive environment for startups by
providing essential resources, guidance, and networking opportunities. They play a key role in
fostering collaboration among various stakeholders, including incubators, investors, mentors, and
academic institutions, to enhance the growth and success of startups. Therefore, the policy
emphasizes the role of ecosystem builders through strategic interventions aimed at enhancing
incubators and accelerators and leveraging the expertise of ministerial offices. Additional strategic
initiatives include establishing a Regulatory Sandbox and harnessing the power of mainstream
media to foster innovation, ensure compliance, and boost the visibility and credibility of startups.
Accordingly, the following initiatives are designed to implement these strategic initiatives.
Page | 37
5.1. Strengthening Incubators

Objective: Provide startups with essential resources and guidance to provide consistent support
to startup.
Initiatives:
• Create a unified network of incubators across Ethiopia to standardize support services,
share best practices, and foster collaboration,

• Collaborating with incubators Ministry of Innovation and Technology will develop
customized support programs that address the specific needs of startups at different
stages, including early-stage, growth, and scaling, focusing on business model
development, prototype creation, and market validation,
• Incubators offer shared office spaces, administrative support, and essential tools to
reduce overhead costs for early-stage startups,
• Organize events, workshops, and networking sessions to connect founders with
investors, mentors, and industry experts,
• Collaborate with universities, research institutions and TVET colleges to leverage
their research capabilities and innovation resources, and
• Incubators will provide startups with guidance on navigating legal and regulatory
requirements, including compliance, intellectual property, and business registration.
Page | 38
Best Practice: Y Combinator (YC) is one of the most renowned startup incubators globally,
known for its rigorous selection process and intensive mentorship programs. Since its inception
in 2005, YC has funded over 2,000 startups, including successful companies like Airbnb,
Dropbox, and Stripe.
1. Selective Admission Process: YC employs a highly selective admission process,
accepting only a small percentage of applicants. This ensures that they work with highly
motivated and capable entrepreneurs. For Ethiopian incubators, adopting a similar
rigorous selection process can help identify and support startups with the highest
potential (Georgieva, 2016).
2. Mentorship and Networking: YC provides extensive mentorship from experienced
entrepreneurs and access to a vast network of investors, advisors, and alumni. This
network fosters collaboration and learning opportunities, which Ethiopian incubators can
leverage to create mentorship programs that connect local entrepreneurs with successful
business leaders (Suster, 2020).
3. Equity Investment: YC invests a small amount of money (typically around $125,000)
in exchange for equity in startups, which not only gives startups initial funding but also
aligns the incubator’s interests with those of the entrepreneurs. This model encourages
Ethiopian incubators to explore equity arrangements that provide startups with capital
while retaining vested interest in their success (Cohen & Hochberg, 2014).
4. Focus on Product-Market Fit: YC emphasizes the importance of achieving product-
market fit before scaling. They encourage startups to focus on building solutions that
solve real problems for customers. Ethiopian incubators should adopt this approach to
help entrepreneurs validate their ideas and refine their products based on customer
feedback (Blank, 2013).
5.2. Enhancing Accelerator Programs

Objective: Accelerate startup growth through structured support and market exposure.
Initiatives:
• Develop and implement short-term, high-impact accelerator programs offering mentorship,

funding, and networking opportunities,
• Build strong connections with a network of investors and venture capitalists to provide
startups with opportunities for funding and investment,
• Organize regular pitch events and demo days where startups can present their business
ideas to potential investors and industry stakeholders,
• Offer support services including legal, financial, and business development advice to help
startups navigate challenges and scale effectively,
Page | 39
• Develop investment schemes where accelerators provide seed funding in exchange for
equity in startups,
• Conduct workshops on growth strategies, scaling operations, and optimizing business
models, and
• Organize capacity building programs focused on improving the skills and competencies of
both accelerator staff and startup founders.
5.3. The Role of Ministerial Offices as Ecosystem Builder

Objective: Build a cohesive and supportive ecosystem for startup growth
Initiative
• Create platforms for collaboration between government agencies, educational institutions,
private sector, and investors,
• Promote policies that include tax incentives, regulatory reforms, and funding initiatives
tailored for startups,
• Conduct workshops, training sessions, and networking events to enhance the skills and
knowledge of startups and ecosystem players. Support ecosystem builders in organizing
networking events, workshops, and seminars to foster a vibrant startup community,
• Organize annual competitions that encourage startups to develop innovative solutions to
societal challenges,
• Study and implement best practices from renowned global programs,
• Develop quality standards for ecosystem builders based on the services they provide and
the stage of startups they support,
• Ministry of Innovation and Technology will develop and track performance metrics to
evaluate the effectiveness of ecosystem builders to ensure quality standards and identify
areas for improvement,
• Prepare and disseminate reports on the achievements and challenges of ecosystem
builders to inform future policy adjustments,
• Establish framework for tracking the performance and growth of designated startups, and
• Conduct periodic evaluations to assess the effectiveness of the designation and make
necessary adjustments to the support programs.
Page | 40
Best Practices from TechStars for Ethiopian Startup Accelerator

Techstars, a global accelerator founded in 2006, supports startups through mentorship and funding. Its
best practices include:
1. Structured Program: Techstars offers a comprehensive 3-month program with mentorship,
workshops, and networking. This structured approach helps startups refine their business
models. Ethiopian incubators could benefit from adopting a similar, tailored curriculum
(Pauwels et al., 2016).
2. Mentorship-Driven Model: Techstars matches startups with experienced mentors from
relevant industries, emphasizing the importance of mentorship in overcoming challenges and
providing strategic guidance. Ethiopian incubators should integrate this mentorship-driven
approach to support startup development (Cohen, 2015).
3. Demo Day and Investor Access: Techstars hosts a Demo Day where startups present to
investors, gaining exposure and funding opportunities. Ethiopian incubators can implement
similar pitch events to connect local startups with potential investors, boosting investment in
the ecosystem (González-Uribe & Leatherbee, 2017).
4. Community Building: Techstars fosters a strong community among startups, alumni, and
mentors. Ethiopian incubators should focus on building a collaborative environment to
support long-term relationships and resource sharing (Isenberg, 2010).
5.4. Regulatory Sandbox

Objective: To establish a Regulatory Sandbox for startups to test innovations while ensuring
compliance and protection.
Initiatives:
• Develop a structured framework that outlines the guidelines and operational procedures
for the regulatory sandbox. This includes defining eligibility criteria, application
processes, and evaluation metrics,
• Implement measures to enable startups to test and develop innovative products, services,
and business models within the sandbox. This includes providing access to a controlled
environment where they can experiment without the full burden of regulatory compliance,
• Utilize the sandbox to gain insights into emerging technologies and business models. This
will help regulators better understand new innovations and adapt the regulatory framework
accordingly,
Page | 41
• Refine and improve the existing regulatory framework based on findings from the
sandbox. This initiative aims to create a more supportive environment for innovation and
entrepreneurship by addressing regulatory barriers identified during testing, and
• Establish safeguards within the sandbox to protect consumers and maintain market
stability. This includes monitoring activities closely and implementing risk management
strategies to mitigate potential issues during the testing phase.
5.5. Harnessing the Power of Mainstream Media

Objective: To use mainstream media to boost startup visibility, credibility, and growth in Ethiopia.
Initiatives:
§ Establish collaborations with reputable media outlets to regularly feature local startups and
their innovations,
§ Create media partnerships to enhance the visibility and credibility of Ethiopian startups
through targeted coverage,
§ Implement training programs for startups on how to effectively engage with media and
leverage media coverage for brand building,
§ Offer workshops and resources to help founders craft compelling narratives and pitch their
stories to media professionals,
§ Organize media-sponsored networking events and industry conferences to connect startups
with potential partners, investors, and influencers and
§ Establish mechanisms to track and assess the impact of media coverage on startup growth,
funding, and public perception.
Page | 42
Best Practice: Mainstream media plays a crucial role in the growth and development of startups and
ecosystem builders by enhancing visibility, credibility, and engagement within the entrepreneurial
community. Through coverage of success stories, industry trends, and innovative business practices,
media outlets raise awareness about the startup landscape, attracting potential investors, partners, and
customers. For early-stage companies, this heightened exposure is vital, especially when conventional
marketing methods may fall short. Research indicates that media coverage significantly influences
public perception and interest in startups (Kumar et al., 2020).
When startups receive coverage from reputable publications such as TechCrunch, Forbes, or Bloomberg,
they gain significant visibility among potential stakeholders. This media attention not only raises
awareness but also enhances credibility. Being featured in respected news outlets acts as a form of
validation, indicating to stakeholders that the startup is viable and worthy of consideration. Media
coverage serves as a social proof mechanism, bolstering a startup's reputation and legitimacy in the eyes
of the public and investors, which has been supported by studies showing that positive media exposure
can lead to increased investment and partnership opportunities (Mazzoleni & Schulz, 1999; Burchardt
& Lutz, 2021).
Furthermore, mainstream media provides a platform for ecosystem builders to share insights, promote
events, and disseminate valuable resources. This fosters collaboration among various stakeholders,
supporting a vibrant entrepreneurial community. Successful startup ecosystems often include dedicated
media channels, which connect entrepreneurs with relevant information, networking opportunities, and
mentorship. For instance, platforms like TechCrunch and Entrepreneur Magazine not only report on
startup news but also offer resources that foster connections and collaborations within the ecosystem
(Startup Genome, 2020). By leveraging the advantages of mainstream media, startups and ecosystem
builders can significantly enhance their growth potential and drive economic development.
Chapter Six
6. Strategic Considerations for Policy Implementation
This section outlines high-level strategic considerations designed to transform this policy into
actionable steps. It provides a framework to turn the policy’s initiatives —such as startup and
ecosystem builders’ designation, financial and fiscal incentives—into tangible outcomes.
6.1. Establishing Institutional Framework

To effectively implement the incentives provided in the proclamation, coordination among
government institutions from the federal to the regional levels is essential. Therefore, the
Page | 43
proclamation establishes a National Digital transformation Council composed of key ministerial

stakeholders to facilitate inter-ministerial coordination. The council will be structured as follows:
• The Ministry of Innovation and Technology will be the secretary of the council,
overseeing the overall development of the startup ecosystem. It will collaborate with
private sector actors and development partners to support the ecosystem,
• The Ministry of Labor and Skill will establish NCGS as an independent legal entity and
issue work permit for foreign startups and ecosystem builders.
• The Ministry of Trade and Regional Integration will play a critical role in enabling
startups to obtain expedited business registration and trade licenses, thereby allowing
startups to focus their resources on business activities.
• The Ministry of Finance will provide fiscal incentives outlined in this policy to assist
startups. It will allocate the necessary budget for grants and other institutions will be
established by the startup ecosystem development proclamation.
• Ministry of Industry; plays a pivotal role in aligning startup policies with national industrial
development goals, advocating for a favorable regulatory environment, and facilitating
access to markets, infrastructure, and resources. It also capacitates the manufacturing
enterprises to engage on innovative and Scalable means of production to increase the
participation of startups on manufacturing sector.
• Ministry of Revenue; will coordinate with the fiscal incentives provided for startups such
as Tax incentives, loss carry forward and duty-free privileges.
• The National Bank of Ethiopia will oversee the credit guarantee scheme and facilitate
access to finance for startups.
• Ethiopian Investment Commission: facilitate and expedite the entry of foreign startups by
easing up entry barriers.
• The membership of Private sector stakeholders or other government entities will be
determined by the National Digital transformation Council.
• The institutions will also collaborate on additional matters to ensure the successful
implementation of this policy
Page | 44
6.2. Putting the Necessary Legal Framework

Next to the Proclamation the necessary regulations and directive that need to be issued for the
establishment of the proper incentive structures shall be put in place. The Ministry of Innovation
and Technology will take the initiative to draft the following regulations and provide for approval
to the council of Ministers. In addition, the Ministry will draft and ratify the directives and
guidelines for the effective implementation of the Startup Proclamation.
§ Regulations
• Regulations for overseeing and distributing the Startup Grant.
• Ministry of Labour and Skills draft regulations on the operational structure,
governance, and objectives of the Credit Guarantee Scheme.
• Regulations on eligibility and verification processes for tax exemptions.
• Regulations for resolving inconsistencies with the Proclamation.
§ Directives
• Specific directives for managing the Startup Grant Program.
• Directive to establish additional eligibility criteria for Startup Designation.
• Directive to specify and clarify the obligations of Designated Startups.
• Directive on procedures and criteria for Startup Ecosystem Builder Designation.
• Directive to determine additional obligations for Startup Ecosystem Builders.
• Directive on eligibility criteria for Startup Grant applications.
• Directive related to the registration and licensing of Foreign Startups and
Ecosystem Builders, and their entitlements.
• Directive to establish additional eligibility criteria and application processes for the
regulatory sandbox.
§ Guidelines
• Guidelines for user interaction with the National Digital Startup Portal.
• Guidelines for determining the growth stage of Startups.
• Guideline for determining the specific documents and forms required for the
Designation application.
• Guideline on processes and criteria for renewing and suspending Startup
Designations.
Page | 45
• Guidelines for applying for duty-free imports and associated requirements
6.3. Maintaining Active Participation of the Ecosystem

Maintaining the active participation of stakeholders is vital for the sustained growth and success
of the startup ecosystem. To foster collaboration and drive collective progress, it is essential to
clearly define and recognize the roles of each stakeholder, including government bodies, private
sector partners, academic institutions, investors, and entrepreneurs. Engaging these stakeholders
through regular communication, inclusive decision-making processes, and opportunities for
meaningful contributions will ensure their ongoing commitment and investment. This
collaborative approach not only strengthens the support network for startups but also ensure that
the legal frameworks were robust, acceptable, and responsive to the needs of the ecosystem.
Overall, the public consultation and stakeholders’ engagement enhances the innovation landscape,
paving the way for a thriving and resilient startup ecosystem.
6.4. Monitoring and Evaluation Framework

The effective implementation of the Startup Ecosystem Development Policy requires a robust
monitoring and evaluation (M&E) framework. This framework will track progress, assess
outcomes, and facilitate necessary adjustments to ensure that policy objectives are met. The
following KPIs will be employed to evaluate the effectiveness of the policy and its related
initiatives:
• Startup Growth Indicators:

• Number of designated startups receiving support annually. This will be tracked by
the relevant policy implementation body to assess the reach and effectiveness of
support programs.
• Percentage increase in designated and graduated startups each year. This metric will
be calculated by the monitoring and evaluation team or policy evaluators to measure
growth and graduated within the startup ecosystem.
Page | 46
• Funding Accessibility:
• Total funding disbursed through the Startup Grant Program. This data will be
collected and reported by the administering body of the grant program to ensure
transparency and accountability in fund distribution.
• Number of startups benefiting from the Credit Guarantee Scheme. The institutions
mandated to manage this scheme will provide reports on the number of startups that
receive support, facilitating an assessment of the program’s effectiveness.
• Number of startups benefiting from Fund of fund. The institutions managing this fund
of fund will provide reports on the number of startups that receive support, facilitating
an assessment of the program’s effectiveness.
• Capacity Building:
• Number of training sessions conducted for startups and ecosystem builders.
Training programs will be documented by the organizing bodies or educational
institutions involved in capacity building efforts.
• Percentage of startups reporting improved skills post-training. Surveys and feedback
forms will be administered to startups by the M&E team or training coordinators to
evaluate the impact of capacity-building initiatives.
• Economic Impact:
• Number of innovative products and services created by designated startups. This will
be tracked by the M&E team or industry analysts who will collect data on new
products and services developed as a result of the policy.
• Number of jobs created by designated startups annually. Employment data will be
gathered from startup reports and cross-checked by surveys to assess the job creation
impact of the policy.
• Contribution of startups to the national GDP. Economic analysts or government
agencies will use national accounting data and industry reports to estimate the
contribution of startups to the GDP.
Chapter Seven
7. Conclusion
The introduction of a comprehensive Startup ecosystem development policy represents a
transformative step toward fostering a robust and dynamic entrepreneurial ecosystem. By
addressing critical areas such as funding, regulatory support, infrastructure, and continuous
Page | 47
capacity building, this policy lays the groundwork for a thriving startup environment. The strategic
initiatives outlined in this document aim to enhance access to resources, streamline regulatory
processes, and provide essential support to the founder at every stage of their journey.
The success of this policy hinges on the active participation and collaboration of all stakeholders,
including government agencies, private sector partners, educational institutions, and the
entrepreneurial community. By defining and embracing their roles, these stakeholders will
contribute to the creation of a vibrant and resilient startup ecosystem that drives innovation,
economic growth, and job creation.
As we move forward with the introduction of this policy by way of a new Startup Proclamation, it
is imperative to remain committed to continuous evaluation and improvement. Regular
monitoring, stakeholder feedback, and adaptive strategies will ensure that the policy evolves in
alignment with emerging trends and challenges. Through these efforts and the dynamism of the
young and entrepreneurial spirit of the various stakeholders, Ethiopia can aim to cultivate an
environment where startups can be born, survive and thrive, ultimately contributing to a prosperous
and trendsetting.
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win. Cafepress.
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Evidence from the publicity effect. Journal of Business Venturing.
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Retrieved from https://www.genglobal.org
5. Henisz, W. J., & Zelner, B. A. (2010). The Hidden Risks in Emerging Markets. Harvard
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in-emerging-markets]
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Retrieved from https://www.kauffman.org
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7. Kerr, W. R., Nanda, R., & Rhodes-Kropf, M. (2014). Entrepreneurship as

experimentation. Journal of Economic Perspectives, 28(3), 25-
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entrepreneurship and innovation in Africa. Retrieved from https://www.oecd.org
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Driven Innovation: Big Data for Growth and Well-Being. OECD Publishing. Retrieved
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Innovation to Create Radically Successful Businesses. Crown Business.
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capital, credit, interest, and the business cycle. Harvard University Press.
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Page | 49

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For Public Consultation – October 24, 2024

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

STARTUP ECOSYSTEM DEVELOPMENT POLICY

Developed By: Startup Ethiopia Ministerial

Addis Ababa, Ethiopia

October 24, 2024

4.4. Fiscal Incentives .............................................................................................................................. 36

1.1. Background of Startup Ecosystem

1.1.1. Challenges in the Ethiopian Startup Ecosystem

Streamlining regulatory requirements and establishing consistent, startup-friendly regulations will

1.1.2. Prospects in the Ethiopian Startup Ecosystem

The government's commitment to fostering a supportive environment for startups is a positive

Moreover, substantial financial commitments from international organizations and development

1.2. Objectives of the Policy

§ Implement comprehensive financial mechanisms, including grants, credit guarantees, and

1.3. Basic Concepts about Startups and the Startup Ecosystem

1.4. Methodology framework

1.5. What is not a Startup and What is a Startup?

1.5.2. What is a Startup

In Ethiopia, startups are defined as entrepreneurs, pre-registered companies, or other business

An inclusive definition of a startup encompasses individuals as well as business entities, reflecting

1.6. Startup Ecosystem Builders Definition

In light of these concepts, a "Startup Ecosystem Builder" is defined as:

1.7. Stage-Based Support Approach

Stage Objective Key measures

• Provide foundational • Innovation Hubs: encourage ecosystem

Growth Stage • Scale operations and 1. Access to Capital:

• Foster strategic • Cross-border Collaboration: promote

2.1. Designation of Startups

2.2. Designation of Ecosystem Builders

Why Choose Designation Instead of Labeling?

In Amharic, "designation" translates to "መሰ፟የም" and carries a connotation of recognition, empowerment,

3.1.National Digital Startup Portal

3.2. Work Permits

3.3. Ease of Entry Barriers for Foreign Startups

3.4. Capacity Building

3.5. Government Problem-Solution Challenge Competition

4.1.Startup Grant Program

4.2. National Credit Guarantee Scheme (NCGS)

4.3. Funds of Funds

• Design a strategy to target various stages of startup development—seed, early-stage, and

4.4. Fiscal Incentives

5.1. Strengthening Incubators

share best practices, and foster collaboration,

5.2. Enhancing Accelerator Programs

• Develop and implement short-term, high-impact accelerator programs offering mentorship,

5.3. The Role of Ministerial Offices as Ecosystem Builder

Best Practices from TechStars for Ethiopian Startup Accelerator

5.4. Regulatory Sandbox

5.5. Harnessing the Power of Mainstream Media

6.1. Establishing Institutional Framework

proclamation establishes a National Digital transformation Council composed of key ministerial

6.2. Putting the Necessary Legal Framework

• Guidelines for applying for duty-free imports and associated requirements

6.3. Maintaining Active Participation of the Ecosystem

6.4. Monitoring and Evaluation Framework

• Startup Growth Indicators:

6. Kauffman Foundation. (2019). The role of media in supporting entrepreneurship.

7. Kerr, W. R., Nanda, R., & Rhodes-Kropf, M. (2014). Entrepreneurship as