By Amelia Gandara | EnterpriseCorp
Over the last six months, GLI’s EnterpriseCorp met with leaders of startup ecosystems throughout the Midwest and Southeast. Each city has its own dynamic mix of private and public thought leaders, investors, mentors, support organizations and entrepreneurs. We found five “raw ingredients” that, when combined, can have a transformational impact on an entrepreneurial ecosystem.
The talent discussion is getting more attention in Louisville, from entry-level STEM talent training to meetups on how to recruit senior level software developers. Without a density of tech jobs, tech workers will be drawn to other communities that offer them a back-up plan and/or a full career without having to move to another place.
In the talent discussion, we can’t underestimate the impact of educational institutions. In the academic year of 2013-2014 at the University of Louisville, only 26 students graduated with bachelor’s degrees in computer science/computer engineering and only 17 with a master’s in the same field. At larger schools like Ohio State University, there are more than 400 computer science graduates every year. OSU’s student enrollment may be triple that of U of L’s, but the size of their CS program is one of the factors making Columbus one of the fastest-growing cities in the United States. While it isn’t the only driver of economic growth, it certainly creates a dense talent pool.
Lack of capital will forever be the unifying complaint of nearly every entrepreneurial ecosystem. Looking at the data for Louisville, there has been a slight increase recently in the number of companies able to raise rounds between $750k and $4.5 million, but a majority of these are by experienced entrepreneurs. In contrast, the number of very early stage investments (less than $100k) has dropped by almost 50 percent over the last three years, which signals fewer dynamics in the startup scene locally. Many middle American cities are dealing with the same issue. Building from the very early stage up, Louisville’s angel investors can assist by recruiting friends within their peer circles to get involved.
As early stage funding is available to help startups get off the ground, focus can be placed on building relationships with larger equity-based funding sources outside of Louisville. An example of an ecosystem doing this well would be the Research Triangle area of North Carolina, which has stayed committed to its life science roots, securing 75 percent of their institutional investment from outside their region in 2015.
All investment information for Louisville is currently collected manually via my colleague Lisa Bajorinas, director of the Kentucky Innovation Network at EnterpriseCorp who reports on local capital raises and exits at Venture Connectors monthly. One way every entrepreneur and investor can assist now is to add their investment data to Crunchbase.
Impressions are everything. Louisville is doing an excellent job of marketing itself as a cultural hotspot, which helps a great deal with economic development and tourism. But more importantly, it helps attract talent and locals’ perception of staying in Louisville. This city is fortunate to have multiple publications and platforms that actively follow individual startup achievements. That press allows StartupLouisville.com to focus on event and resource management. In addition, we should consider ways to market the assets of Louisville’s entrepreneurial community, the network being developed regionally, and the wins of individual startups on the national stage.
Many growing startup communities have dedicated publications. If you want to see how they are doing and stay abreast on their own challenges, I recommend Entrepreneur Quarterly (St. Louis), Starland News (Kansas City) and Cintrifuse/#StartupCincy (Cincinnati).
A healthy startup ecosystem must have a density of service providers that are ‘startup friendly.’ Entrepreneurs need many of the same service providers as most businesses, such as legal, accounting, branding/marketing, design and software development. Louisville is fortunate to have accounting firms, such as Strothman and Company, and Bill Strench, who assist with almost every startup term sheet in the city. However, being able to work within a startup’s timeframe and budget demands is difficult, so volume isn’t as important as having a small contingent of experts specializing in helping early stage entrepreneurs.
Most of the research from entrepreneurial think tanks, such as Kauffman Foundation, suggest government efforts for scalable startups should shift from public investment funds to removing legal barriers that make entrepreneurship so risky. On the investor side, the Kentucky Angel Tax Credit has been a huge success in encouraging angel investors statewide to take a chance on early stage companies. On the entrepreneur side, GLI is currently advocating for legislation in favor of public benefit corporations, which open opportunities for impact investors and social entrepreneurs.
Every city, including Louisville, has some of these raw ingredients. Some communities are lucky enough to have all of them. However, it is the consistent mixing of these ingredients that grow the ecosystem over time. A startup scene is only as good as its weakest link. Investing in great founders is the primary driver, but constant effort on these raw ingredients will prove which communities become truly thriving hubs of entrepreneurial density.
About the author: Amelia Gandara is EnterpriseCorp’s director of commercialization and engagement at Greater Louisville Inc., the city’s chamber of commerce.