Investment Promotion in the Startup Age: How Agencies Win Founders, Funds and Capability Centres

For most of its history, investment promotion meant persuading a manufacturer to build a factory. The agency offered land, tax holidays and a fast permit; the investor offered capital expenditure and jobs; both counted the announcement. That model still exists, but it no longer describes the most valuable flows into India or the Gulf. Today’s mobile investment is a technology company choosing where to put its second engineering centre, a fund choosing where to domicile, a founder choosing which visa to apply for, and a multinational choosing which Indian city will host its next two thousand knowledge workers. Winning those decisions requires a different agency — and, as this article argues, a different definition of what “investment” means.

The idea in brief. Investment promotion works: the best evidence suggests that targeted, well-run agencies substantially raise inflows into the sectors they pursue. But the object of promotion has changed. Capital expenditure has been joined — and for many jurisdictions overtaken — by capability: the engineering centres, funds and founders whose location decisions are driven by talent, ecosystem and ease of operating rather than by land and tax. Agencies that win in the startup age sell a talent proposition, provide aftercare as seriously as attraction, coordinate the whole of government behind a single window, and measure retained jobs and expansions rather than memoranda signed. India’s national agency and its competing states, and the Gulf’s national IPAs and free zones, are converging on this model from opposite directions.

Does investment promotion work? The evidence

It is fair to ask whether the whole enterprise of investment promotion is worth its budget, and the question has a reasonably clear answer. Torfinn Harding and Beata Javorcik’s 2011 study in the Economic Journal, using data on sector targeting by agencies in developing countries, found that sectors explicitly targeted for promotion received substantially more foreign direct investment than non-targeted sectors — on the order of double — with the effect concentrated in countries where investors face the highest information and bureaucratic costs. Promotion works, in other words, because it reduces the cost of finding out and the cost of getting things done; where those costs are already low, promotion adds less.

Riccardo Crescenzi, Marco Di Cataldo and Mara Giua’s 2021 analysis in the Journal of International Economics examined European agencies and found that investment promotion is effective at attracting greenfield projects, with effects that depend on the agency’s resources and the quality of the surrounding institutions. Louis Wells and Alvin Wint’s much earlier World Bank work, Marketing a Country, had already established the practical lessons that still guide agency design: a clear mandate, autonomy from line ministries, private-sector-style staff and a focus on a manageable set of target sectors. The OECD‘s mapping of agencies across its members confirms how much variation in resources, governance and function remains, and UNCTAD‘s work through its IPA Observer series tracks the sector’s evolution, including the growing weight of aftercare and sustainability mandates.

The evidence base is strongest for the traditional object of promotion — greenfield projects with measurable capital expenditure. The newer flows are less well studied, precisely because they are harder to count. That is the first thing an agency in the startup age has to fix.

The object has changed

Three kinds of mobile investment now dominate the decisions that matter to India and the Gulf, and none of them is a factory.

Capability centres. The global capability centre — a company’s own offshore engineering, data, finance or research operation — is the defining inbound investment of India’s past decade. Industry estimates compiled by NASSCOM and Zinnov put the count of such centres at well over 1,700, employing close to two million people and growing at a pace of several dozen new centres a year. The capital expenditure per centre is modest; the value — high-wage employment, skills, export services, local supply chains — is large. Indian states have noticed: several, including Karnataka and Uttar Pradesh, announced dedicated capability-centre policies in 2024 with targets for new centres, tier-two city incentives and talent commitments, and others are following. Article 02 in this series explains why India hosts these centres; the point here is that attracting one is an investment-promotion task with almost none of the traditional levers — no land to allocate, little tax to forgo — and all of the new ones.

Funds and financial firms. The Gulf’s financial free zones — the DIFC in Dubai, ADGM in Abu Dhabi, Qatar’s financial centre, Bahrain’s long-standing financial-services base — and India’s GIFT City compete for fund domiciliation, family offices, fintech licences and, increasingly, venture-capital vehicles. The decision variables are regulatory quality, tax treatment, talent availability and proximity to capital and deals. Saudi Arabia’s regional-headquarters program, which from 2024 tied access to government contracts to the presence of a regional headquarters in the kingdom, is the most assertive recent use of demand-side leverage to win this kind of investment.

Founders. The smallest investment in capital terms and potentially the largest in outcome. Golden and startup visas, founder-friendly incorporation, sandboxes, and access to funds and customers are now standard instruments across the Gulf, and India’s Startup India framework provides recognition, tax benefits and a fund-of-funds. The founder is also the most mobile investor of all: a company that incorporates in one jurisdiction can move its centre of gravity to another within a year if the talent or capital proves easier to find there.

The founder proposition, itemised

Because founders are the most mobile and least capital-intensive investors, jurisdictions have been quick to build instruments for them, and the instruments have converged. What differs is execution: how many days each step actually takes, and whether the pieces connect.

A jurisdiction that offers five of these well and two badly will be judged on the two. Founders talk to each other, and the bank that took four months is the story that travels.

Free zones: the jurisdiction within a jurisdiction

The Gulf’s free zones — and India’s answer in GIFT City, whose financial-services regulator has built a distinct rulebook for funds, fintech and financial firms — are investment promotion made concrete: a bounded space in which incorporation, regulation, ownership rules and tax are tuned for a target investor. Their strength is speed and clarity; a founder or fund manager knows exactly what applies. Their weakness is fragmentation: a company inside a zone can find itself outside the wider market’s rules on hiring, banking or selling, and a jurisdiction with many zones can present an investor with many small propositions rather than one large one. The agencies that use zones best treat them as products within a single national proposition, with the promotion team selling the country and the zone together, and with aftercare that follows the investor across the boundary when it grows.

Reading the flows honestly

Headline FDI statistics remain the scoreboard by which agencies are judged, and they should be read with care. UNCTAD‘s World Investment Report series shows India’s inflows peaking during the pandemic-era surge and falling back sharply in 2023, while the UAE’s inflows have risen steadily to become among the largest in the developing world — a divergence that reflects global capital conditions, deal timing and the different composition of the two economies’ inflows as much as promotional performance.

Two cautions follow. First, aggregate FDI is dominated by large transactions — acquisitions, reinvested earnings, intra-company loans — that have little to do with promotion. Second, and more important for the startup age, the flows that agencies now compete for are often invisible in FDI statistics: a capability centre staffed through a local subsidiary, a founder relocating with an idea rather than capital, or a fund domiciled in a free zone may register small or zero inflows while creating substantial economic activity. An agency that judges itself by the FDI headline will under-invest in exactly the flows that matter most.

The Indian and Gulf agencies, converging from opposite directions

India’s national agency, Invest India, was built as a professional, sector-organised promotion and facilitation body — a single point of contact that guides investors through a federal system in which most of the levers sit with states. The states themselves compete vigorously, with their own agencies, incentive policies and single-window systems, and the capability-centre policies of 2024 mark the moment that competition moved decisively from factories to talent. India’s challenge is coordination: making a hundred agencies and ministries feel to an investor like one.

The Gulf agencies started from the opposite position — small, unified jurisdictions with strong central authority and abundant capital — and have been building depth. Bahrain’s Economic Development Board, established in 2000, was among the first in the region to organise promotion around sectors and to pair it with a labour fund (Tamkeen) that subsidised the hiring and training of nationals; Saudi Arabia’s Ministry of Investment, created in 2020 from the earlier investment authority, works alongside a family of enterprise, venture and technology agencies under Vision 2030; the UAE combines federal promotion with emirate-level agencies and a dense network of free zones, each a jurisdiction within a jurisdiction. The Gulf’s challenge is the mirror image of India’s: not coordination but pipeline — building the talent depth and market scale that make a capability centre or a founder’s company viable once it has landed.

The convergence point is the same for both: a talent-led proposition, whole-of-government facilitation, aftercare that retains and expands what attraction wins, and measurement that counts what actually arrived.

The playbook for winning capability centres, funds and founders

The following playbook is written for a jurisdiction — a state, an emirate, a national agency — that wants to win the new flows. It draws on HexGn’s work with investment-promotion agencies and ministries across the corridor and on the operating practices of the agencies that win consistently.

1. Build the talent evidence first. A company deciding where to put an engineering centre wants to know how many data engineers it can hire in a year, what they cost, and who else is hiring them. A jurisdiction that can answer with data — talent maps, graduate output by discipline, compensation benchmarks, attrition norms — has already won half the conversation. Most cannot.
2. Target decisions, not sectors. The unit of promotion is a specific company with a live location decision, identified through corporate announcements, advisers and existing investors. Agencies that wait for inbound enquiries are competing for the decisions that have already been made elsewhere.
3. Design the landing. For a capability centre, the landing is the first fifty hires: leadership, workspace, entity, compliance and the founding team, delivered as a package with named partners. A jurisdiction that can show a credible ninety-day landing plan beats one that offers a larger incentive and a longer form.
4. Make founders’ lives easy. Visas, incorporation, banking and licensing in days rather than months; a sandbox where regulation is uncertain; and a visible, honest guide to what the jurisdiction does and does not offer.
5. Institutionalise aftercare. Expansions by existing investors are the cheapest investment any jurisdiction will ever win. Account management, quarterly problem resolution and an expansion pipeline should absorb a third of an agency’s effort, not an afterthought.
6. Use the ecosystem as the product. Founder programs, campus pipelines and research commercialisation (articles 31, 33 and 34) are not separate from investment promotion — they are the proposition. A jurisdiction that can show a company the founders it will partner with, the graduates it will hire and the research it can license is selling something an incentive cannot buy.

Measuring an agency in the startup age

The metrics that traditional agencies report — enquiries, memoranda, announced capital expenditure and announced jobs — are inputs and promises. The startup-age agency needs a scorecard built on what arrived and stayed, in the spirit of the measurement principles set out in article 32:

• Qualified pipeline: named companies with a live decision, staged by probability and expected size.
• Landings: centres, funds and founders that began operating, with the date operations began — not the date of the announcement.
• Retained employment at 12 and 36 months, verified through payroll or statutory data, against the announced figure.
• Expansions: growth in existing investors’ headcount and mandates, attributable to aftercare.
• Cost per retained job, including incentives forgone — the number a finance ministry will eventually demand.
• Time to operate: days from decision to first employee on payroll, the metric investors themselves use to compare jurisdictions.

A composite case: the state that competed on incentives and lost on talent

A composite from several engagements; details altered.

A state investment agency in India had a strong record in manufacturing and set out to win capability centres with the same toolkit: a capital subsidy, a rental incentive and a fast-track single window. Its pitch documents were incentive schedules. It lost three consecutive decisions to a neighbouring state whose incentives were smaller. The debrief with the companies was unambiguous: they had chosen on talent — depth in specific engineering disciplines, evidence of graduate pipelines, peer centres nearby, and a credible plan for the first fifty hires — and the losing state had offered none of that evidence because it had never assembled it.

The rebuild started with data. The agency commissioned a talent map of its major cities by discipline, compensation and attrition, built a database of peer centres and their hiring patterns, and partnered with universities to document graduate output in the disciplines investors asked about. It designed a ninety-day landing package with named partners for entity, workspace and leadership hiring. It reorganised its promotion team around named target companies rather than sectors, and created an aftercare function whose first act was to visit every existing centre in the state and ask what would make them expand. Within two years the state had won its first capability-centre landings in a decade, two of which came from expansions by investors the aftercare team had visited, and its pitch documents no longer led with incentives.

What could go wrong

• Incentive escalation. Jurisdictions bid against each other for the same decision with money, and the winner overpays. Antidote: compete on talent evidence and landing quality; cap incentives per retained job.
• Announcement accounting. Announced jobs reported; delivered jobs never checked. Antidote: retained employment at 12 and 36 months as the reported figure.
• Single window, many doors. The window exists but the ministries behind it do not answer. Antidote: whole-of-government service standards with named escalation.
• Aftercare neglect. All effort goes to new wins; existing investors leave quietly. Antidote: a resourced aftercare function with an expansion target.
• Talent claims without data. The pitch says “abundant talent”; the investor’s advisers know better. Antidote: measured talent maps, refreshed annually.
• Founder programs disconnected from promotion. The agency’s own ecosystem programs are run by a different department and never appear in the pitch. Antidote: one proposition, one team.

Questions investment ministers actually ask

“Do incentives matter?” At the margin, between otherwise equal locations, yes. For capability centres, funds and founders, the locations are rarely otherwise equal, and talent, ecosystem and ease of operating decide first. Spend on those before spending on incentives.

“Why are our FDI numbers down when our pipeline is up?” Because FDI statistics count capital, and the investments you are winning are capability. Report landings, retained jobs and expansions alongside FDI, and explain the difference.

“How do we compete with a larger neighbour?” By specialising. A jurisdiction that is the obvious choice for two or three disciplines — because its talent maps prove it and its landings show it — wins decisions a generalist cannot.

“What is aftercare worth?” Usually the majority of new jobs in a mature jurisdiction come from expansions by existing investors. Aftercare is the highest-return activity most agencies under-resource.

“Where do founder programs fit?” In the pitch. They are proof that the jurisdiction produces the partners, hires and deal flow an investor will need — and they are cheaper than any incentive.

Methodology & data notes

FDI inflow figures are approximate, drawn from UNCTAD’s World Investment Report series, and are revised between editions; the trajectories are the point, not the decimals. Capability-centre counts are industry estimates by NASSCOM and Zinnov and vary with definitions of what constitutes a centre; the growth trend is robust across sources. The effects of investment promotion reported from the academic literature are summarised approximately; readers should consult the papers for estimates and conditions. State capability-centre policies are as announced by the respective governments and evolve. The composite case combines several engagements with details altered. Companion articles cover the India–Gulf corridor (article 36), ecosystem measurement (article 32) and why India hosts the world’s capability centres (article 02).

References & further reading

• Harding, T. & Javorcik, B. (2011) — Roll Out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows, Economic Journal
• Crescenzi, R., Di Cataldo, M. & Giua, M. (2021) — FDI inflows in Europe: Does investment promotion work?, Journal of International Economics
• World Bank — Wells, L. & Wint, A., Marketing a Country: Promotion as a Tool for Attracting Foreign Investment (FIAS)
• UNCTAD — World Investment Report series and investment-promotion research
• WAIPA — World Association of Investment Promotion Agencies
• OECD — Mapping of Investment Promotion Agencies
• Invest India — national investment promotion and facilitation agency
• DPIIT — FDI statistics and policy, India
• Bahrain Economic Development Board and Ministry of Investment, Saudi Arabia — Gulf investment promotion
• NASSCOM and Zinnov — India GCC landscape reports

HexGn works with investment-promotion agencies and ministries across India and the Gulf on the talent evidence, landing design and ecosystem programs that win capability centres, funds and founders — and on the aftercare that keeps them.