With a new emerging public administration approach, Public Value Governance, the local public authorities struggle with reinventing and developing their organization to become more innovative and collaborative. In trying to solve increasingly more complex challenges, while at best keeping their resources and budget constant or declining, they are turning to civil actors to involve them in different arenas of innovative co-creation. However, this collaboration is complex and challenging. Both the public authorities and civil society are struggling to find a prosperous and professional collaboration. This empirical paper, based on interactive qualitative research, position itself within public innovation and due to its context and focus contributes to the development of knowledge on social and collaborative innovation. In trying to understand how the innovation system works on a micro-level the case study follows a one-year project focusing on working against segregation and creating safety among children and youth in a socio-economic vulnerable area in a Mid-Swedish municipality. The research focuses on challenges with collaboration when a municipality and civil society actors are working together trying to solve a societal challenge. The results are presented through eight themes, including challenges regarding; the concept collaboration, who is collaborating with whom, a poor understanding of and knowledge about each other’s entities, organization and leadership, power relationships and competition, who is included, confusions on direction and who is doing what, as well as collaborative formats. In addition, the paper presents five overriding suggestions on what needs to be strengthened to achieve collaborative agency.