Challenges and opportunities: the role of development-oriented public banks in supporting innovation startups in Northeastern Brazil

ABSTRACT

This article explores the role of public banks in fostering the development of early-stage startups in Brazil’s Northeast region. Using a neo-Schumpeterian approach, it examines both financial and non-financial instruments employed by these banks to support technological innovation and economic development. The research adopts a qualitative methodology, involving semi-structured interviews with representatives of banks, startups, and other innovation ecosystem stakeholders. The main findings highlight that, although public banks offer a range of support mechanisms, their effectiveness is hindered by rigid financial instruments, limited flexibility, and an inadequate regional focus. This study identifies the need for adaptive strategies, including more flexible financial products and enhanced non-financial support, such as mentoring and networking opportunities. These insights suggest policy adjustments to better align public banking practices with the dynamic needs of early-stage startups, thereby promoting sustainable regional development.

KEYWORDS
Public banks; Startups; Innovation; Regional development

1. Introduction

Understanding the role of public banks in supporting early-stage startups is essential for promoting innovation and development in peripheral regions such as Brazil’s Northeast. Seed-stage or nascent startups operate under important levels of uncertainty, lack collateral, and often experience negative cash flow—factors that hinder their access to traditional financing (BLOCK et al., 2018; LEONEL; FERREIRA, 2022).

From a neo-Schumpeterian perspective, innovation is seen as the engine of economic development, and innovative entrepreneurs are considered agents capable of breaking stagnation by introducing new productive combinations (SCHUMPETER, 1934; HANUSCH; PYKA, 2007).

For such innovations to thrive, the financial system—especially public banks—must play an active role in addressing market failures (BERTOCCO, 2008; ÜLGEN, 2014). Unlike commercial banks, developmental public banks can assume risks, financing neglected sectors, and promoting territorial inclusion (MAZZUCATO; PENNA, 2016; OCAMPO; ORTEGA, 2022).

However, little is known about how early-stage startups, particularly in less developed regions, interact with existing public instruments. In the case of the Northeast, challenges such as limited venture capital, low ecosystem density, and structural disparities reinforce the need for a tailored analysis of banking policies and their degree of territorial alignment (FERNÁNDEZ-ARIAS; HAUSMANN; PANIZZA, 2020; MELO; ANDRADE; ARAGÃO, 2017; IAMMARINO; RODRIGUEZ-POSE; STORPER, 2019).

Considering this, the present study seeks to answer the following research question:

How do federal public banks support the development and growth of seed and early-stage startups located in Brazil’s Northeast region?

The general objective is to explore how the instruments provided by public banks are applied to and absorbed by early-stage startups in the Northeast. The specific objectives are:

1. To map the types of support public banks offer to startups;

2. To assess the accessibility and adequacy of instruments for early-stage startups;

3. To identify challenges and recommend improvements in support strategies.

This investigation adopts a qualitative approach, relying on semi-structured interviews conducted with bank managers, startup founders, and intermediary actors within the Northeastern innovation ecosystem. The analysis follows content analysis methodology (BARDIN, 2000), combining theoretical and empirical categories.

The article is organized into five sections in addition to this introduction. Section 2 presents the theoretical foundation, discussing the Schumpeterian logic of innovation, financing challenges faced by early-stage startups, and the developmental role of public banks. Section 3 outlines the regional context of Brazil’s Northeast, highlighting its structural asymmetries and the low density of its innovation ecosystem. Section 4 details the methodological procedures, focusing on sampling, data collection instruments, and analysis techniques. Section 5 discusses the main empirical findings, structured around three pillars: financial support, non-financial support, and the degree of alignment with theoretical expectations. Finally, Section 6 offers the concluding remarks, theoretical and practical implications, policy recommendations, and suggestions for future research.

2. Theoretical framework

It is well established in literature - particularly through various evolutionary theoretical studies - that innovation, understood as technological change, plays a significant role in promoting economic development (DOSI, 1982; ROMER, 1990).

The evolutionary theory of economic development holds that innovative processes, driven by entrepreneurs, play a central role in disrupting the equilibrium and predictability of the economic system, resulting in structural transformations (SCHUMPETER, 1934).

Within this context, the social function of entrepreneurs stands out, as they are responsible for introducing new combinations—known as technological innovations—which may involve: (i) the introduction of a new product or a new quality of a product; (ii) the introduction of a new method of production; (iii) the opening of a new market; (iv) the acquisition of a new source of raw materials or intermediate goods; and (v) the creation of a new industrial organization with a monopolistic position (SCHUMPETER, 1934, p. 66).

The Schumpeterian cycle, which drives economic development, is intricately linked to emerging technologies. However, these technologies - often led by small, disruptive firms - frequently do not reach their full development potential, as funders tend to avoid such initiatives due to their important level of uncertainty (LEONEL; FERREIRA, 2022).

According to Linton and Walsh (2013), overcoming this dilemma is essential for the full realization of Schumpeterian combinations, reinforcing the role of emerging technologies as catalysts for economic growth—even at the regional level, by generating employment and income in the territories where they are deployed.

In this context, the strategic availability of banking finance becomes crucial - a theme that will be further explored in the following sections.

2.1 Startup stages: financing in the “seed” and “startup” phases

Startups are technology-based firms characterized by agility, adaptability, and high growth potential, but they go through different stages before becoming sustainable (GHEZZI; CAVALLO, 2020). Although there is no universal classification of the startup life cycle (CAVALCANTE; RAPINI; LEONEL, 2017), this study adopts a framework that outlines four stages — seed, startup, growth, and later stage — based on financial needs and organizational maturity.

Access to financing is particularly critical in the early stages. Singh and Mungila Hillemane (2023) stress that startups rarely turn to conventional banks, relying instead on non-professional investors, such as business angels and venture capital funds, although the inexperience of these actors often intensifies information asymmetries and inefficiencies (WELTER; HOLCOMB; MCILWRAITH, 2023). Moreover, both financing sources and investor behaviors vary significantly across countries (SKAWIŃSKA; ZALEWSKI, 2020; LEONEL; FERREIRA, 2022).

In the “seed” stage, startups often operate without revenue, facing negative cash flows and high uncertainty, usually working from laboratories or the founders’ homes. The main focus lies in technology development, proof of concept, and preliminary prototyping. However, the lack of collateral and revenue makes financing difficult (LEONEL; FERREIRA, 2022). In the “startup” stage, even with initial market testing and revenue generation, risks remain high, and limited access to bank credit constrains their ability to raise the resources needed to scale products, expand infrastructure, and hire specialized professionals.

2.2 Banks and startup financing

2.2.1 General role of banks in providing credit and financing

The analysis of startup financing is fundamental to understanding how different financial institutions can influence the development of early-stage companies. The literature highlights that a well-structured financial system can stimulate innovation by channeling resources to promising ventures and facilitating risk-taking, which has become a central principle in understanding the dynamics of economic growth (LEONEL; FERREIRA, 2022).

According to Schumpeter, capital plays a crucial role in this process, alongside the financial system (LEONEL; FERREIRA, 2022, p. 135). Ülgen (2014) adds that, in a Schumpeterian economy, the core of development lies in business innovations, with emphasis on the monetary and banking system, considering capital as a highly relevant endogenous variable intrinsically linked to the internal dynamics of the economic system.

At the microeconomic level, Czarnitzki (2006) demonstrates that small and medium-sized enterprises that accessed public financing showed higher spending on research and development than those without such support, reinforcing the idea that financial development fosters economic growth by promoting innovation.

Thus, from a neo-Schumpeterian perspective, banks are not mere financial intermediaries; they act as central agents in the process of creative destruction and innovation, playing an essential role in granting credit to entrepreneurs and companies with innovative ideas, thereby promoting long-term sustainable economic development (MEIERRIEKS, 2014).

2.2.2 Traditional commercial banks and other sources of financing

Traditional banks, with their standard methods for assessing risk, struggle to deal with the uncertainty inherent to startups. As a result, they tend to act more cautiously given the high probability of default, the lack of tangible collateral, and the insufficiency of financial records (BLOCK et al., 2018; LEONEL; FERREIRA, 2022; CAVALCANTE; RAPINI; LEONEL, 2017).

Studies show that these issues directly affect the early stages of these innovative firms: lack of capital is repeatedly cited by entrepreneurs as the main barrier (BRAGGION; DWARKASING; ONGENA, 2018); difficulties in obtaining credit often led many to halt new projects (GARCÍA-QUEVEDO; SEGARRA-BLASCO; TERUEL, 2018); and bank financing rejections at this stage significantly increase the likelihood of business closure (CRESSY; BONNET; CRESSY, 2018).

Thus, alternatives such as venture capital, angel investors, and crowdfunding stand out (WILTBANK et al., 2009; LI; HSIEH; ZENG, 2023), as they provide financial resources outside traditional — and often inaccessible — channels. While angel investors bring both capital and strategic support, crowdfunding platforms enable startups to raise funds from multiple investors, though they also face limitations tied to uncertainty and information asymmetry (BONINI; CAPIZZI, 2019; WELTER; HOLCOMB; MCILWRAITH, 2023).

2.3 Development banks and their role in promoting startups – concepts and challenges

In the literature, the line separating development banks and traditional banks is at times a tenuous one (DE LUNA-MARTÍNEZ; VICENTE, 2012). Despite the variety of terms used to designate financial entities focused on development (SUN et al., 2023; ZHANG, 2022; MARODON, 2022), there is broad agreement on their fundamental role in mitigating risks in critical areas, whether through long-term lending (BARBOZA et al., 2023) or indirect channels such as state-backed incentives (TORRES; ZEIDAN, 2016). Their importance is also underscored in smoothing economic cycles by providing credit to businesses excluded from private banks or capital markets, thereby extending the State’s reach within the financial system (OCAMPO; ORTEGA, 2022).

While several studies highlight the role of these banks in correcting market failures and responding to crises, Macfarlane and Mazzucato (2018) argue that they are also capable of shaping and steering markets to address social and technological challenges. Cases from Germany, China, and the European Union demonstrate how they foster innovation, sustainable development, and inclusive economic growth.

Even so, there remains a lack of precise evaluation regarding the effectiveness of existing tools for emerging firms, particularly when considering a regional and interconnected perspective. Research aligned with neo-Schumpeterian theory emphasizes that fostering technological entrepreneurship in areas marked by significant regional disparities (MELO; ANDRADE; ARAGÃO, 2017; IAMMARINO; RODRIGUEZ-POSE; STORPER, 2019) enables the creation of policies better suited to local demands, thereby promoting more balanced economic development.

Along these lines, Gutierrez et al. (2011) point out that microenterprises and startups rank among the primary targets of development banks, even though few studies explore this dynamic. Recent cases, such as the BNDES Garagem program (RIECHE et al., 2020), illustrate these initiatives by supporting early-stage impact startups through accelerators financed with public funds — a strategy designed to bypass the “internal limitations” faced by innovative companies (KIRCHHOFF; LINTON; WALSH, 2013).

Além and Azevedo (2018), in their analysis of the Korean Development Bank, KfW (Germany), and Bpifrance (France), demonstrate that these institutions not only provide long-term financing but also enable access to subsidies and public funds (CASTALDO; DE LUCA; BARILE, 2021). Similarly, Wonglimpiyarat (2016) shows how Chinese banks, tied to the central government, follow policies that encourage the expansion of credit for small and medium-sized enterprises.

As public institutions, managed wholly or partially by governments, they face limitations such as excessive bureaucracy (IONESCU; LĂZĂROIU; IOSIF, 2012) and risks of discontinuity stemming from political shifts. MacFarlane and Mazzucato (2018) add challenges related to the need to foster balanced public–private partnerships, integrate risk–benefit assessments, and measure socioeconomic impacts. Even so, evidence points to their strong potential in financing startups, particularly in the seed and early stages. Mazzucato and Penna (2016) emphasize that, beyond financial capital (venture funds), these banks provide social capital (networking and co-governance), promoting more flexible instruments tailored to the specificities of startups (HAASE; EBERL, 2019). Such initiatives generate Schumpeterian rents and drive regional development (KRAUS et al., 2021; HASAN et al., 2015; CAYUMIL FERNÁNDEZ et al., 2022) thereby contributing to the reduction of territorial inequalities.

The literature also highlights the regulatory and fiduciary constraints faced by development-oriented public banks. Although mandated to assume greater risks than commercial lenders, their instruments remain bound by prudential rules—collateral, audited financials, eligibility filters, and compliance reporting—which limit flexibility at seed and early-startup stages (CAVALCANTE; RAPINI; LEONEL, 2017; LEONEL; FERREIRA, 2022; GODKE VEIGA; MCCAHERY, 2019; HU et al., 2022; GABOR, 2021). These constraints do not preclude a developmental mandate but require innovative designs, such as guarantee schemes, risk-sharing portfolios, or hybrid grant–loan instruments.

At the same time, effectiveness depends on complementarity with broader support systems—state research foundations, incubators, accelerators, and university TTOs—that provide pre-screening and technical validation, reducing informational asymmetries before firms approach banks (MAZZUCATO, 2013). This interaction is especially relevant in regions with less dense ecosystems, such as the Northeast.

2.4 Theoretical expectations

Based on the literature, four theoretical expectations guide this study (Table 1).

TABLE 1
Summary Framework of Critical Dimensions

Critical Dimension	Theoretical Expectation	Authors
Holistic Support for Startups	Beyond funding: development banks should provide networking, mentoring & training, plus flexible tools that assume innovation risks.	Mazzucato and Penna (2016); Rieche et al. (2020); Além and Azevedo (2018)
Preference for Mature Ecosystems	Banks tend to prioritize context with stronger innovation systems to increase the chance of finding promising startups.	Mazzucato and Penna (2016)
Regional & Social Focus	Programs should target less-developed areas to reduce disparities and promote inclusive growth.	Wonglimpiyarat (2016); Hu et al. (2022); Marodon (2022);
Institutional & Cultural Fit	Early-stage startups, operating amid uncertainty, need fast, flexible, low-bureaucracy instruments to engage with public banks.	Cavalcante, Rapini and Leonel (2017); Leonel and Ferreira (2022)

• Source: Elaborated by the author.

1. In line with Mazzucato and Penna (2016), it is expected that public development banks act as an “entrepreneurial state,” assuming risks that the private sector is unwilling to take. Accordingly, such institutions should design instruments that support innovative ventures across the entire innovation chain - from basic research to seed financing, commercialization, and market entry;

2. Also following Mazzucato and Penna (2016), the challenge for these institutions is not to provide abundant credit to all SMEs, but rather to identify and nurture young, technology-based firms through mechanisms such as venture capital, networking, and co-management. This suggests that public banks tend to favor interventions in more mature ecosystems, where the likelihood of identifying promising startups is greater;

3. Complementarily, the role of public development banks is influenced by governmental objectives and economic development policies (WONGLIMPIYARAT, 2016). Given their social mandate - distinct from that of private banks (HU et al., 2022) - they are also expected to develop support programs targeted at startups located in less developed regions, with a focus on socially relevant projects and strategic sectors (MARODON, 2022);

4. Finally, considering the specific characteristics of early-stage firms - marked by ideation, prototyping, and constant change (CAVALCANTE; RAPINI; LEONEL, 2017; LEONEL; FERREIRA, 2022) - these firms are expected to exhibit low propensity to engage with rigid and bureaucratic institutions. This reinforces the demand for support mechanisms that are more flexible, dynamic, and better adapted to the uncertainties of the entrepreneurial process.

3. Regional and empirical context

The choice of the Northeast as the territorial focus of this study is justified by its strategic relevance in the national effort to decentralize innovation, combining high entrepreneurial potential with pronounced structural vulnerabilities. Although the region accounts for approximately 27% of the Brazilian population, it contributes only about 13.6% to the national GDP, according to IBGE’s Contas Regionais do Brasil (INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATÍSTICA, 2023). This structural imbalance reflects not only lower levels of income but also limited access to innovation support mechanisms and a relatively low startup density.

According to the Associação Brasileira de Startups (2023), Brazil hosts approximately 13,000 active startups, of which only 12.3% are in the Northeast — around 1,600 companies — while the Southeast concentrates more than 55%. Sectorally, the region presents greater representation in agritech, edtech, and healthtech, reflecting both its economic structure and pressing social demands. Figure 1 illustrates the unequal territorial distribution of startups across Brazil.

FIGURE 1
Mapping of the Brazilian Startup Ecosystem.

The region is also served by a diverse set of public financial institutions. These include:

• Banco do Nordeste (BNB), a regional development bank that manages the Fundo Constitucional de Financiamento do Nordeste (FNE);

• Banco Nacional de Desenvolvimento Econômico e Social (BNDES) and Finep, which operate nationally with dedicated innovation funds and credit lines;

• Federal public banks with nationwide presence, such as Caixa Econômica Federal and Banco do Brasil, which also carry a developmental mandate.

Together, these actors constitute the main development-oriented financial architecture available to startups in the Northeast. Formally, all include innovation and development as part of their institutional mission, yet the degree of articulation with early-stage ventures varies significantly depending on the instrument, sector, and territory.

Figure 1 illustrates this unequal distribution across the national territory.

This asymmetry becomes even clearer when analyzing the determinants of the entrepreneurial environment. According to the Entrepreneurial Cities Index (ECI), published by the National School of Public Administration, the Northeast scores below the national average across all pillars — regulatory environment, access to capital, infrastructure, innovation, market, human capital, and entrepreneurial culture. While regions such as the Southeast and South surpass an average score of 6 (on a scale of 0 to 10), the Northeast remains around 4.8.

Figure 2 compares the average performance of the Brazilian regions.

FIGURE 2
Average Score of Entrepreneurial Determinants by Region of Brazil.

In sum, the Northeast concentrates roughly one in eight Brazilian startups, relies primarily on four major public financial actors (BNB, BNDES, Finep, and the federal banks), and continues to face lower entrepreneurial ecosystem scores compared to national averages. Despite these challenges, the region also embodies high social demand, sectoral niches with strong potential, and a significant presence of public banks with developmental mandates.

It is important to stress, however, that the Northeast is not a homogeneous bloc. States such as Pernambuco, Ceará, and Maranhão present distinct industrial structures, innovation capabilities, and ecosystem maturity. This study adopts a broader regional perspective to capture general patterns and tendencies, positioning the Northeast as a relevant empirical field for analyzing how public banks adapt to foster innovation within peripheral and structurally diverse contexts.

4. Methodological procedures

4.1 Sampling process

Conceptually, sampling techniques are divided into two groups: probabilistic and non-probabilistic. In non-probabilistic sampling, the selection of the sample is not aimed at being statistically representative of the population. Instead, the researcher applies subjective approaches, drawing on expert knowledge and personal experience to choose the elements to be included (PACE, 2021).

In this study, a non-probabilistic sampling approach was adopted, in which a specific subgroup of the population was deliberately selected based on the available information. The empirical universe comprises early-stage startups and development-oriented financial institutions operating in the Brazilian Northeast, as well as ecosystem actors such as incubators, accelerators, and support organizations. Interviewees were selected through purposive sampling, with the aim of capturing diverse perspectives from the demand side (startups), the supply side (public banks), and intermediaries (innovation agencies and ecosystem facilitators).

It is important to note that the sample did not include managers from public banks operating strictly outside the Northeast region. These include Banco do Estado do Espírito Santo, Banco do Estado do Pará, Banco do Estado do Rio Grande do Sul, Banco da Amazônia, and Banco de Brasília. As pointed out in Departamento Intersindical de Estatística e Estudos Socioeconômicos (2023), the exclusion of these banks is justified by their institutional focus on supporting and promoting businesses within their respective regions.

To ensure alignment between the empirical data collected and the research objectives, the mapping of interviewees was organized according to their roles in relation to each objective, as presented in Table 2.

TABLE 2
Approach strategy in relation to specific objectives

Interviewee Profile	Objective I	Objective II	Objective III
Managers, mentors, and executives from public development banks	X
Founders and partners of startups		X	X
Intermediary actors in the innovation ecosystem		X	X

• Source: Elaborated by the author.

After applying these delimitations, a total of 31 semi-structured interviews were conducted — 14 with startup founders, 5 with representatives from three public development banks (B1–B3), and 14 with ecosystem actors (see Table 3 for details).

TABLE 3
Summary of Interviewee Groups and Key Characteristics

Group	No. of Interviewees	Participant Profile	Main Location
Public Banks Coding: B1.E1, B1.E2, B1.E3, B2.E, B3.E	5	Managers, mentors, and coordinators	B1: National Scope B2: Regional Scope B3: National Scope
Startups 1 Coding: S1 to S14	14	CEOs, co-founders, technical leads	AL, RN, BA, CE, PB, SE, MA, PE
Other Ecosystem Actors Coding: D1 to D12	12	Hub managers, consultants, public sector technicians	CE, RN, BA, PE

• ¹
  The interviewed startups operate in diverse sectors, including information technology, healthtech, fintech, education, and sustainable solutions. Bank representatives are kept anonymous due to confidentiality requirements.
• Source: Elaborated by the author.

Finally, it is important to recognize that the sampling approach adopted — based on convenience and relying substantially on networks and digital groups within innovation ecosystems — may have introduced a degree of selection bias. This strategy tends to capture actors already embedded in or connected to established networks, potentially overlooking entrepreneurs who are more geographically or digitally isolated. As a result, certain nuances related to less-connected startups, particularly those with limited access to ecosystem resources or weaker digital engagement, may not have been fully captured. While this does not diminish the relevance of the insights obtained, it does suggest caution when extending these findings to broader contexts.

4.2 Research instruments

To address the research question, a descriptive-exploratory study was conducted. According to Gil (2008), social researchers engaged in practical actions generally carry out descriptive research, whereas exploratory research is particularly useful when the chosen topic is relatively unexplored, making it difficult to formulate precise and operational propositions. Its main objective is to offer an approximate overview of the subject under investigation.

This study adopts a qualitative approach; in line with Bogdan and Knopp Biklen (1994), qualitative researchers tend to analyze their data inductively.

Considering the existence of more than one Brazilian public bank with distinct characteristics (DEPARTAMENTO INTERSINDICAL DE ESTATÍSTICA E ESTUDOS SOCIOECONÔMICOS, 2023), and aiming to enhance the study's credibility, this research adopts a multiple case study method, given that the research question is essentially qualitative in nature (EISENHARDT, 1989), and descriptive-exploratory (GIL, 2008).

4.3 Data collection

Data was collected through online semi-structured interviews, conducted with flexibility and few direct questions, which allowed participants to speak freely about the topics, thereby encouraging depth and the emergence of multiple perspectives (GIL, 2008). The interview protocol followed the guidelines proposed by Jacob and Furgerson (2012) for qualitative research, including a presentation of the study, informed consent, open-ended questions to stimulate narrative responses, and a cordial closing that reinforced the possibility of future contact.

Participants were invited through messages sent via WhatsApp to digital groups from entrepreneurial communities located across various sub-regions of the Northeast of Brazil. The main inclusion criterion for startups was being in the early stage of development at the time of first contact. The selection of public bank representatives and other ecosystem actors was based on their roles, experience, and active participation in the innovative ecosystem in the Northeast, complemented by snowball sampling as additional recommendations emerged during the process.

Table 3 below presents a summary of the interviewee groups, highlighting the number of participants, their profiles, and their predominant location.

4.4 Data analysis

Data were analyzed using Bardin’s (2000) content analysis in three stages-pre-analysis, material exploration, and interpretation. Transcripts underwent floating reading and thematic coding supported by NVivo. A single-coder thematic analysis (the author) was applied, anchored in the theoretical expectations (Table 1) and open to emergent categories.

For each instrument mentioned in interviews, evidentiary excerpts were extracted and one of three labels assigned by explicit rules:

Match (clear positive excerpt from startups and corroboration by another group - bank or ecosystem actor - indicating practical adequacy in access, timing, ticket size, or early-stage fit), Partial Match (relevance acknowledged but with binding limitations - e.g., collateral, timing, territorial scope - materially restricting early-stage use), or No Match (convergent inadequacy/inaccessibility - e.g., incompatible requirements, slow procedures, lack of dissemination).

For added security, illustrative coded quotations were used during the analytical process with anonymous identifiers (only IDs S#, D#, B#). The dataset was reviewed twice to check the consistency of the labels. All materials were handled under confidentiality restrictions and are therefore not publicly disclosed.

Categorization combined theory-driven (Table 1) and emergent dimensions, capturing expected patterns and unforeseen elements. The final stage drew inferences aligned with the research objectives and theoretical framework, considering regional specificities and actor diversity.

5 Results and discussion

For analytical purposes, the instruments were classified according to the degree of compatibility perceived by the interviewees with the actual needs of early-stage startups (see section 4.4).

5.1 Relevance of banking support to early-stage startups

The support provided by public banks to startups in their early stages was recognized as relevant by all interviewed groups — representatives from the banking sector (B1, B2, B3), other ecosystem actors (D1, D3, D4, D5, D9, D10, D11, D12), and startup members (S1, S4, S5, S6, S8, S9, S10, S12, S13, S14). This shared understanding backs up the initial theoretical expectation highlighted by Mazzucato and Penna (2016), who describe development-focused public banks as acting like an “entrepreneurial state,” taking on risks and supporting the entire innovation process, especially in areas where private entities are hesitant to step in.

For bank representatives, supporting early-stage startups isn’t just a strategic move; it’s a core part of their institutional mission. This aligns with Ülgen’s (2014) view of banks as key players in economic transformation, going beyond simple intermediation. Meanwhile, other ecosystem players pointed out that public banking support is vital for sparking innovation cycles and creating new markets, echoing the mission-driven approach discussed by Mazzucato and Penna (2016) - particularly in regions where private investment is still wary.

However, insights from various players in the ecosystem also tie into the second theoretical expectation: public banks tend to step in more decisively when they’re dealing with more developed innovation systems, which boosts their chances of finding high-potential ventures (MAZZUCATO; PENNA, 2016). This idea even holds true in a more peripheral area like the Northeast, showing selective engagement patterns that resonate with existing literature.

From the perspective of startups, public banks play a crucial role in helping businesses stay afloat. Entrepreneurs frequently mention the lack of steady revenues, the high technological risks tied to solutions still being tested, and their geographic isolation as major hurdles in attracting private investment. These stories align with the fourth expectation outlined by Cavalcante, Rapini and Leonel (2017) and Leonel & Ferreira (2022), which point out the common hesitation of early-stage startups to work with public institutions due to bureaucratic delays and sluggish responses—issues that can be particularly harmful in fast-paced innovative settings.

Interviewees also referred to concrete financial mechanisms currently in place — such as regional development funds, national guarantee schemes, and startup-oriented programs from federal innovation agencies. These instruments were acknowledged as relevant policy commitments, yet founders emphasized that their design often misaligns with seed-stage needs, given collateral requirements, ticket sizes, and lengthy approval processes.

Additionally, while many view support from public banks as a badge of legitimacy that can draw in more investors and partners, several participants (S3, S5, S7, S8, S9, S10, S12, S13, S14, D11) pointed out a disconnect between what these institutions say they aim to do and what they achieve. The critiques highlighted issues like inflexible tools and slow processes, showing that current practices often cling to outdated banking models that just don’t fit the needs of emerging, innovative businesses.

In line with the third theoretical expectation put forth by Wonglimpiyarat (2016), Hu et al. (2022), and Marodon (2022), some actors explicitly advocated for a more robust territorial and social orientation in public bank programs. They stressed the importance of directing efforts toward less developed areas through strategies that prioritize sectors with strategic and social significance. This reinforces the call for a greater embrace of risk-tolerant, patient capital strategies, along with comprehensive non-financial support, as highlighted in the mission-driven frameworks suggested by Mazzucato and Penna (2016).

5.2 Financial support: instruments, access, and dissonances

The existence of a diversified portfolio of financial instruments — including credit lines, investment funds, innovation procurement programs, and economic grants — does not, according to most interviewees, translate into mechanisms truly suited to early-stage startups. This sentiment echoes the second theoretical expectation, suggesting that while public banks are well-positioned to embrace entrepreneurial risks and back high-tech ventures (MAZZUCATO; PENNA, 2016), they frequently prioritize more established ecosystems to improve their odds of connecting with promising companies.

This critical view was shared by startups (S1, S3, S4, S5, S7, S8, S9, S10, S12, S13, S14) and ecosystem actors (D1, D3, D4, D5, D7, D8, D11, D12), and was even acknowledged by a banking representative (B3). Concerns have been raised about the strict eligibility criteria, such as collateral requirements and detailed financial histories, along with a heavy reliance on traditional risk assessments. These aspects stand in stark contrast to the mission-driven approach suggested by Mazzucato and Penna (2016), which calls for tools that are designed to embrace uncertainty and support the entire innovation cycle.

Startups also pointed out that financial products often resemble typical market offers, missing out on personalized incentives that could support innovative efforts. This observation somewhat reflects Ülgen’s (2014) idea of Schumpeterian development, where financial systems should ideally foster innovation through risk-sharing mechanisms — something only partially observed in this context.

Beyond the general acknowledgment of these instruments, interviewees provided concrete illustrations of their limitations and potential. Bank managers (B1, B2, B3) highlighted that requirements such as audited financial statements and collateral are not only mandated by prudential regulation but also reinforced by risk-averse institutional cultures that reduce flexibility and slow disbursement. Startup founders (S3, S5, S7, S8, S9, S10) emphasized the need for faster, smaller, and more customized financial instruments to match the volatility of early-stage ventures. Ecosystem actors (D4, D9, D11) further noted that even when mechanisms exist, their accessibility is undermined by lengthy approval timelines and mismatches between available ticket sizes and the modest demands of nascent firms. These contrasting perspectives reveal that the gap is less about the absence of instruments and more about their operational design and implementation.

Additionally, bureaucracy was identified as a significant barrier, with overly complex and fragmented procedures that don’t align well with startups in their early stages of ideation or validation. These findings support the fourth theoretical expectation (CAVALCANTE; RAPINI; LEONEL, 2017; LEONEL; FERREIRA, 2022), indicating that startups may be hesitant to engage with public institutions that are characterized by slow and rigid processes.

Moreover, startups outside major centers reported compounded barriers, including limited local support, low awareness of programs, and standardized requirements that overlook regional disparities. These concerns resonate with the third expectation, informed by Wonglimpiyarat (2016), Hu et al. (2022), and Marodon (2022), which point to the need for policies attentive to territorial inequalities — a dimension perceived as insufficiently addressed.

Ultimately, even though economic grants were potentially game-changing, interviewees highlighted that they are quite complicated. Processes can be lengthy, and strict compliance rules often make it difficult for startups to gain access. Other players in the ecosystem observed that these funds frequently fail to meet the demand and are spread thin across uncoordinated requests, which diminishes their overall effectiveness.

Table 4 synthesizes these findings.

TABLE 4
Evaluation of Financial Instruments Offered by Public Banks to Startups in the Northeast Region of Brazil

Financial Instrument	Prevailing Perception	Main Reported Limitations
Investment Funds	No Match	Low accessibility. Focus on mature companies.
		Limited dissemination; high selectivity.
Financing/Innovation Lines	No Match	Requirement of guarantees.
		Traditional banking logic.
		Bureaucracy.
		Incompatible deadlines.
Public Procurement for Innovation	Partial Match	Lengthy processes.
		Small scale.
		Specific niches.
		Low local institutional
		capacity.
Non-reimbursable Funds (or Grants)	Partial Match	High complexity.
		Long stages.
		Risk of technical default.
		Difficult requirements.

• Source: Elaborated by the author.

5.3 Non-financial support: articulations, programs, and challenges

The support offered by public banks beyond financial assistance — including acceleration programs, innovation hubs, mentoring, and networking events — was widely recognized as relevant by startups (S3, S4, S6, S8, S10, S11, S13), ecosystem participants (D2, D4, D10), and bank representatives (B2, B3). This aligns with the theoretical expectation that development-oriented banks should not only provide capital but also comprehensive support to strengthen entrepreneurial capacities (MAZZUCATO; PENNA, 2016; RIECHE et al., 2020).

Acceleration and mentoring programs were frequently cited as valuable for improving technical skills, refining business models, and expanding strategic networks. Entrepreneurs (S4, S6, S10) stressed that mentorships helped them gain confidence in pitching to investors, while ecosystem actors (D4, D10) emphasized the spillover effects of capacity-building activities on the broader regional ecosystem. However, participants also highlighted that these programs tend to follow generic and short-lived formats, with limited continuity, and are concentrated in large urban centers — a gap that reinforces regional inequalities rather than reducing them (WONGLIMPIYARAT, 2016; MARODON, 2022).

Innovation hubs and collaborative spaces were described as important entry points for startups to access resources and networks, but interviewees (S3, S8, D2, D5) noted that access is often selective, with high entry costs or competitive processes favoring startups already embedded in strong ecosystems. Founders from peripheral areas underscored that distance and lack of localized infrastructure make participation costly, reducing inclusivity and weakening the territorial mandate of development-oriented banking institutions.

Institutional partnerships were another recurring theme. While public banks often cite collaboration with universities, incubators, and state agencies, interviewees (D3, D5, D8, B2) observed that these partnerships are generally sporadic and poorly institutionalized, depending heavily on individual agreements rather than systemic strategies. As a result, promising startups with limited visibility frequently remain excluded. These findings echo Cavalcante, Rapini and Leonel (2017) and Leonel and Ferreira (2022), who highlight the rigidity of institutional practices and their misalignment with the fast-paced dynamics of early-stage ventures.

Taken together, these insights reveal that the main challenge is not the absence of non-financial support instruments, but rather their restricted territorial reach, limited customization, and weak coordination with local ecosystems. As interviewees repeatedly stressed, stronger articulation with state foundations, incubators, and universities could externalize part of the screening and capacity-building process, reconciling regulatory constraints with the realities of nascent firms in the Northeast.

Table 5 below synthesizes the modalities and main limitations identified, while Table 6 consolidates the broader alignment (and misalignment) between theoretical expectations and empirical findings.

TABLE 5
Evaluation of Non-Financial Instruments Offered by Public Banks to Startups in the Northeast Region

Non-Financial Instrument	Description	Prevalent Perception	Main Reported Limitations
Institutional Partnerships	Coordination with universities, hubs, and regional support entities.	Partial Match	Sporadic actions.
			Low continuity.
			Weak inter-institutional articulation.
Acceleration and Mentorship Programs	Capacity building through workshops, mentorships, and thematic bootcamps.	Partial Match	Low capillarity.
			Generic formats.
			Difficulty of access for startups from the countryside.
Innovation Hubs and Collaborative Spaces	Physical facilities and networks for technical support, pitch sessions, and networking.	No Match	Concentration in large urban centers.
			Entry costs.
			Selectivity in access.

• Source: Elaborated by the author.

TABLE 6
Alignment Between Theoretical Expectations and Empirical Findings

Critical Dimension	Theoretical Expectation	Empirical Finding
Holistic Support for Startups	Non-financial + flexible financial instruments; risk-taking “entrepreneurial state” (MAZZUCATO; PENNA, 2016)	✓ Programs exist but are limited in depth.
		✓ Financial tools remain rigid.
Targeting of Ecosystem Maturity	Preference for more structured environments to find promising startups	✓ Selective engagement in mature ecosystems; peripheral startups face low access.
Regional Focus & Social Impact	Support for startups in less developed regions; reducing disparities	✕ Actions insufficient; do not overcome regional inequalities.
Institutional & Cultural Adaptation	Processes tailored to agile, uncertain early-stage ventures; minimal bureaucracy	✕ Bureaucracy, traditional instruments, weak adaptation to startup dynamics.

• Note: ✓ indicates partial alignment; ✕ indicates significant gap relative to theoretical propositions.
• Source: Elaborated by the author.

Interviewees repeatedly stressed that stronger articulation with local support structures — state foundations, incubators, and universities — would improve banks’ ability to identify viable projects at earlier stages. By externalizing part of the screening and capacity-building process, such coordination could reconcile regulatory constraints with the realities of nascent firms in the Northeast.

Taken together, the evidence summarized in Table 6 reinforces that non-financial instruments exist but remain shallow, concentrated, and weakly connected to local ecosystems. This suggests the need for deeper institutional adaptation and territorial coordination if public banks are to fully assume their developmental role.

6. Final considerations

6.1 Theoretical implications

The findings of this study reinforce what the literature already indicates: public banks play a crucial role as development agents, especially in areas where the institutional structure is weak. However, it also becomes clear that there is a persistent disconnect between the ideals of the “entrepreneurial state” (MAZZUCATO; PENNA, 2016) and the reality of these institutions' performance in supporting startups at the early stages of their entrepreneurial journey.

Simply offering financial and non-financial tools is not enough if these structures are rigid, inflexible, and out of step with the evolving economic landscape. A gap between "theory" and "practice" was noted: although theoretical ideas about development institutions suggest that they should be proactive, willing to take risks, and capable of shaping and creating markets, reality shows that Brazilian public banks still cling to traditional and conservative methods that do not effectively meet the needs of early-stage startups in the Northeast region.

In this context, the study makes a significant contribution by demonstrating that the effectiveness of public development finance institutions—such as Brazilian public banks—in fostering innovation does not depend solely on their official existence or the legal definitions of their functions. Instead, their success depends largely on profound institutional changes that can align their structures, practices, and tools with the evolving dynamics and challenges of innovation.

This alignment becomes even more vital in less developed areas, such as Brazil’s Northeast, where the State's role as a catalyst is especially important due to the lack of private investment and the limited availability of support systems for innovative entrepreneurship—particularly when you compare it to larger urban centers.

6.2 Practical and policy implications

The effectiveness of public banks’ support to early-stage startups is not necessarily linked to the diversity of instruments offered, but rather to how these instruments are structured, operationalized, and adapted to the specificities of firms and territories.

While there is no single path to fostering innovation, and the absence of a focus on early-stage segments does not invalidate a public bank’s relevance, the findings of this study suggest a set of actionable guidelines that may enhance their developmental impact. These are grouped below by level of urgency and feasibility:

6.2.1 Short-term actions (high urgency and feasibility)

• Revise financial instruments to allow for more flexible guarantees, extended terms, and alternative risk assessment models tailored to the uncertainty faced by early-stage startups.

• Adjust performance indicators, expanding evaluation criteria to include non-financial outcomes such as ecosystem strengthening, job creation, and regional development.

6.2.2 Medium-term actions (moderate complexity and impact)

• Promote integrated support mechanisms that connect financial tools with non-financial services — including acceleration, mentoring, and local ecosystem engagement — to foster holistic startup development.

• Incentivize partnerships with regional actors, improving coordination between public banks and local innovation agents (universities, incubators, public agencies).

6.2.3 Long-term actions (structural and systemic in nature)

• Foster territorial sensitivity by designing specific programs and eligibility criteria for low-density regions, valuing social and regional impact to reduce spatial inequalities in finance innovation.

These recommendations do not suggest a universal solution but represent strategic improvements grounded in the empirical reality analyzed, acknowledging institutional diversity and the heterogeneity of innovation ecosystems.

6.3 Limitations and directions for future research

The main limitation of this study lies in its qualitative nature and non-probabilistic sampling, which restricts the generalizability of the results. Furthermore, the geographic focus on the Northeast region of Brazil does not allow for direct extrapolation to other regions, although it provides relevant insights into peripheral contexts.

Additionally, although the study focuses on the Northeast as a whole, it does not delve into the specific characteristics and dynamics of individual states within the region. Future research could explore these intra-regional differences in greater depth, providing a more granular understanding of how local economic structures and institutional capacities influence the effectiveness of public banking instruments.

Future research is suggested to:

1. Conduct comparative analyses between different regions within the country or among developing countries;

2. Deepen the study of the institutional logic of public banks, exploring their internal decision-making mechanisms;

3. Longitudinally evaluate the impacts of hybrid policies (financial and non-financial) on the performance of startups supported by public banks.

Acknowledgements

I, Gustavo, express my sincere gratitude to my wife, Quezia, for her unwavering support, and to my mother, siblings, and my uncle, Mauro Negrão, for their constant encouragement and care. I am especially grateful to Dr. Solange Leonel for her valuable guidance throughout the master’s program and for coauthoring this article, as well as to Professor Dr. Raquel Meneses, whose co-supervision during the master’s program was essential.

Data Availability Statement

The interview data used in this study are confidential and cannot be shared.

• Source of funding:
  The authors declare that there is no funding.

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Edited by

• Declaration of Editor Responsible for the Evaluation Process
  Os editores Wilson Suzigan (Editor-chefe) e Renato de Castro Garcia (Editor-adjunto) foram responsáveis pelo processo de avaliação, acompanhando e gerenciando todo o processo até a aprovação deste artigo para publicação.

Publication Dates

• Publication in this collection
  25 Mar 2026
• Date of issue
  2026

History

• Received
  16 July 2025
• Reviewed
  28 Oct 2025
• Accepted
  08 Nov 2025