Tag: Accelerators

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McNair Center Startup Ecosystems

Entrepreneurship for All: Washington D.C.

Washington D.C.

Washington, D.C. is known for its politicians and bureaucrats, but it’s also where the top-20 U.S. government contractors are based. In recent decades, high-tech, high-growth entrepreneurship has been on the rise in the U.S. capital. Startup ventures, coupled with a diverse economy, largely fueled by the federal government, have led D.C. to emerge as a strong entrepreneurial ecosystem.

History of Entrepreneurship

The diversified needs of the federal government have led to a varied ecosystem. Feldman 2001 concludes that two unique conditions impacted the development of D.C.’s entrepreneurial culture: underemployed skilled labor caused by federal job cuts and the commercial exploitation of intellectual property rights from publicly funded research.

Changes in federal employment policy through the Civil Service Reform Act of 1978 led the federal government to outsource goods and services in an effort to reduce civil service jobs.

The Federal Technology Transfer Act of 1986 created the Cooperative Research and Development Agreements (CRADAs) as a mechanism whereby nonfederal entities can collaborate with federal laboratories on research and development projects. CRADAs aim to promote technological competitiveness and technology transfer to marketable products.

Biotech found a partner in the federal government through CRADAs. Proximity to federal labs has created an important biotechnology cluster attracting Merck and Pfizer among others, as well as startups MedImmune and Human Genome Sciences, later acquired by GlaxoSmithKline.

Other notable startups that emerged under the public-private sector collaboration include Stinger Ghaffarian Technologies, Inc. (SGT), who provides scientific and IT service solutions to a wide array of federal government agencies nationwide including NASA and the U.S. Department of Transportation.

Government outsourcing opportunities benefitted the Information and Communications Technology (ICT) industry. The earliest ITC entrepreneurs were government contractors, who began working on ARPANET, the predecessor of the internet.

When the federal government removed the commercial restriction on the use of internet in 1989, former contractors became tech startups with ample opportunities to grow their ventures.

Resources in D.C.

AOL is a prominent ICT company launched in the D.C. metropolitan area during the 1990s dot-com boom. AOL is also credited for shaping the region’s entrepreneurial ecosystem. Prior to its relocation to Manhattan, AOL funded Fishbowl Labs, a business incubator located at its Dulles campus. Fishbowl Labs provides resources to startups at no cost and a mentorship program through its employee network.

The company also invested in firms such as the D.C.-based tech hub incubator 1776. The incubator is modeled after 1871 in Chicago and the General Assembly incubator in New York. Notable companies currently working with 1776 include Babyscripts, Cowlar and MUrgency. 1776 organizes networking events for the government innovator community to promote the interconnectivity of startups and D.C.’s main consumer, the federal government.

Washington D.C. boasts four top universities in the immediate area with entrepreneurship programs: The Sustainable Entrepreneurship and Innovation Initiative at American University, Startup Hoyas at Georgetown University, Mason Innovation Lab at George Mason University and The Office of Entrepreneurship and Innovation at George Washington University.

Current D.C. Startups

Washington D.C.’s economy is stable and diverse. As of February 2017, the area had an unemployment rate of 2.5% and the gross product of the area was $471 billion in 2014, making it the sixth-largest U.S. metropolitan economy.

D.C.’s ecosystem has historically been linked to government agencies, but more recently, the startup community has had greater diversity. Notable startups out of D.C. include LivingSocial, iStrategyLabs and CoFoundersLab. Advertising company iStrategyLabs has created devices and advertising campaigns for 21 Fortune 500 companies. CoFoundersLab connects entrepreneurs via an online network.

The success of LivingSocial has invigorated the D.C. ecosystem with a new generation of startups. Borrowing Magnolia, a wedding dress rental business, Galley, a freshly prepared food delivery service, and online custom framing business, Framebridge, are among the ventures founded by LivingSocial alumni.

Venture Capital in Washington, D.C.

The D.C. startup scene is home to a number of influential venture capital firms that help invigorate the ecosystem. Venture Capital investment in D.C. has reached around $350 million in investment for years 2014 and 2016, with investment lower than $200 million in 2015.

According to a report from the Martin Prosperity Institute detailing worldwide VC investment in high-tech startups, D.C. is ranked eighth in the world with a total cumulative venture capital investment of $835 million until year 2012 (the most recent year these detailed data are available).

Data indicating the number of first-round deals in D.C. illustrate a stable ecosystem with an average of 36 first-round deals per year in the last five years.

One of the largest venture capital firms in the world, New Enterprise Associates (NEA), calls both D.C. and Silicon Valley home. In 2015, NEA’s fourteenth investment fund closed with $3.1 billion in investor capital, making it the largest venture capital fund ever raised. NEA invests in technology and health care companies around the world, but continues to support companies in D.C. such as online movie player SnagFilms and software producer Cvent. 

A diverse portfolio of venture capital firms are settled in the ecosystem to guarantee funding sustainability. Fortify Ventures, an early stage technology investment fund, nurtures investors and entrepreneurs. Fortify has received $100,000 in funding from the D.C. mayor’s office. D.C. startup, Social Tables, recently raised $13 million in Series B funding from Fortify Ventures and other investors.

Other notable venture capital firms in the D.C. area include Groundwork VC, a fund for minority founders, New Atlantic Ventures, a firm that invests in early stage startups and NextGen Venture Partners, which transitioned from an angel network into a venture capital firm this year.

D.C. venture capital investment is strong, but compared to areas such as San Francisco, which posted over six billion dollars in venture capital investment, San Jose (approximately $4 billion) and Boston (approximately $3 billion), VC investment in D.C. still has room to grow.

Startup-Friendly Government Policy

Local government policy incentivizes companies to move to or remain in D.C. The District waives corporate income taxes for the first five years and provides new-hire wage reimbursements for startups. However, D.C.’s regulatory environment still implies high costs for obtaining business licenses and permits.

Washington’s venture capital firms, angel networks and private investors cannot compete with the extensive network and resources in established ecosystems like Silicon Valley or the Research Triangle in North Carolina. According to Dow Jones VentureSource, about 50% of all venture capital invested in the United States goes to companies in Silicon Valley.

Despite Silicon Valley’s dominance, D.C.’s location, culture and resources position it as a strong ecosystem. D.C. will continue to take advantage of the resources and opportunities presented by the federal government.

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Accelerators McNair Center

MassChallenge: Connecting Startups and Big Business

MassChallenge was located at One Marina Park Drive until 2014.

Corporations and startups are moving toward early stage interactions. MassChallenge, a highly successful nonprofit accelerator, has been connecting corporations and startups since its 2010  launch in Boston. MC has several US and international locations, which accelerated 372 startups in 2016.

MC delivers positive results and has been listed among the Best Startup Accelerators by the Seed Accelerator Rankings Project, led by Baker Institute Rice faculty scholar Yael Hochberg.  There are over 1,000 MC alumni, who have collectively raised more than $1.8B in outside funding, generated $700M in revenue and created over 60,000 jobs. According to a 2016 MIT study, MC startups are 2.5 times more likely than non-MC startups to hire at least 15 employees and three times more likely to raise $500,000 in funding.

With seven years of history, notable MC alumni includes Ginkgo Bioworks, which designs custom microbes to produce chemicals, ingredients and industrial enzymes. As a startup, Gingko Bioworks raised $154M in funding and signed a deal for 700 million base pairs of designed DNA — the largest such agreement ever made — with Twist Bioscience. Other remarkable graduates of the program include Ksplice, Turo, Sproxil and LiquiGlide.

An Attractive Alternative for Startups

MC is similar to other startup institutions such as Techstars and Y-Combinator. However, the nonprofit differentiates itself by not taking equity. Entrants to the accelerator must be early stage startups, defined as companies with no more than $500K of investment and $1M in annual revenue. As part of the four-month program, selected startups receive mentoring, co-working space, access to a network of corporate partners, tailored workshops and the chance to win a portion of $2M in zero-equity funding. Additional prizes are provided by partners such as The Center for the Advancement of Science in Space (CASIS) and Microsoft’s New England Research and Development Center.

For entrepreneurs in regions with mature ecosystems like Silicon Valley and Boston, MC is one option among an array of accelerators and informal networks. This  density of resources is called  agglomeration, a geographic concentration of interconnected entities increases interactions and the productivity. The MIT study suggests MC acts as a complement to the prior advantages of startups in established ecosystems by providing key resources and access to social capital  and also found evidence that startups founded in regions with higher access to early stage investors had on average higher quality ideas, but that their chances of success were not higher conditional on the quality of their idea.

For startups in nascent ecosystems the resources provided by MC can become the only option to pitch their ideas to investors and advance their company at no cost other than the time invested on the program. Of equal value is the endorsement received as a MC graduate inferring the quality of the startup venture.

A Model Built on Strategic Partnerships

As a nonprofit, MC depends on the support of a network of public, private and philanthropic partners, with the vast majority of their funding coming from corporations. Governments and philanthropic foundations fund MC with the goal to foster regional economic growth. Founders John Harthorne and Akhil Nigam, former consultants at Bain & Company, garnered early support from the Commonwealth of Massachusetts, successful entrepreneurs and large corporations such as Blackstone, Microsoft and the nonprofit Kauffman Foundation.

MC could have faced financial challenges by providing accelerator programs at no cost and with no equity commitment. However, MC was able to become a bridge between large companies’ need for innovation and startups’ need for capital. Large companies have the scale of resources, customer information and market experience, but may lag in innovation. Startups, on the other hand, lack the resources but innovate with sometimes disruptive and successful ventures, frequently taking incumbents by surprise (Airbnb, Uber).

MC serves as a channel between startups and established companies to meet the need for fast-paced innovation. Companies like Bühler and PTC partner with MC to source high-potential startups for the development of advanced technology. Companies can also source tailored programs or tracks for specific needs.

A study done jointly by MC and innovation firm Imaginatik looked at how startups and corporations interact in new collaborative ways. The research team surveyed 112 corporations and 233 startups from various industries. 82 percent of the corporations considered startup interactions important, and 23% stated that these interactions are “mission critical.” Startups have a high interest in working with corporations with 99% stating it is important for them to interact with potential corporate customers, marketing channels and strategic partners.

Expansion

MassChallenge was located at One Marina Park Drive until 2014.

MC communicates its impact and vision to donors by demonstrating the cost-effectiveness of alliances between startups and corporations. A solid accelerator program, global vision, robust network and a sustainable funding strategy have set up MC for success. As stated in the MC Impact Report 2016, the accelerator is committed to running 12 locations annually by 2020, including at least one on each populated continent.

Before establishing an MC accelerator, the metropolitan area is evaluated for the quality of its research universities, urban setting, level of entrepreneurship opportunity and investment capability. As government and private stakeholders partner, a sense of shared ownership becomes crucial to consolidating efforts. This engagement guarantees that the resulting ecosystems are seen as a shared legacy.

The next MC sites are yet to be announced. Currently in five locations with global impact, MC’s 2020 vision is on a path to become a tangible reality.

The author and editor would like to thank Tay Jacobe for assistance with researching and drafting this post.

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McNair Center Startup Ecosystems

Mile-High Entrepreneurship

Boulder has long been considered Colorado’s startup hub, but Denver is emerging as a strong contender. Mentoring and venture capital support have helped Denver’s ecosystem expand rapidly so that it is well on its way to becoming self-sustaining.

Denver has garnered a reputation as one of the best places for high-tech, high-growth ventures.The total number of tech startups located in downtown Denver has increased by 13% in the last two years; 4% above the national average in new startup growth. Denver has collected accolades that ranging from the Best Place for Business and Careers by Forbes to the third Best Place in the Country to Launch a Startup according to Washington D.C.-based accelerator, 1776.

History

Colorado has a history of high-growth entrepreneurship ranging from telecommunications (Dish Cable) to restaurant chains (Chipotle and Quiznos). The state’s venture capital-backed startup activity began in the 1980’s when national venture funds such as Access Ventures, Vista Ventures, Sequel Ventures and Heritage Group invested in local Denver startups. By 2000, Denver was supporting a startup ecosystem, but successful companies left the state or were sold to out-of-state purchasers. VC funding collapsed after the tech bubble burst.

In 2006 Jared Polis, Brad Feld, David Cohen and David Brown established Boulder-based Techstars, which brought the nascent startup ecosystems of Fort Collins, Denver, Boulder and Colorado Springs together. Accepting only 1% of applicants, Techstars is extremely competitive. Graduates of this three-month program average approximately $1.8 million in outside financing. In exchange for 7-10% equity, Techstars provides $18,000 in seed funding, a $100,000 convertible debt and mentorship opportunities. Denver alumni include UsingMiles, FullContact, Revolar and MeetMindful.

Techstars is not the only catalyst for the entrepreneurial community in the region. Former Denver mayor and current Colorado Governor John Hickenlooper, himself an entrepreneur before entering politics, implemented policies that made supporting startups a central focus for economic recovery and growth.

Colorado’s Entrepreneur Friendly Policies

Colorado policymakers has made entrepreneurship a central focus. The state legislature has lowered tax rates and lifted regulatory burdens for the business community. Colorado taxes business at a flat rate of 4.63%, one of the lowest business income tax levels in the country.

Governor Hickenlooper has championed programs such as the Colorado Innovation Network (COIN), which works to connect the 29 Colorado research facilities with entrepreneurs. In 2014, the Colorado Impact Fund was launched, a public-private fund that estimates making 10-15 investments through 2020.

Home-Grown Resources

Since 2010, downtown Denver has added an average of almost 16,000 residents per year, resulting in a population increase of over 13% in the past five years. This remarkable growth has been accompanied with an increase in the number of homegrown startups. As a result, there is a significant number of resources available for Denver entrepreneurs.

Established in 2012, Denver Startup Week draws entrepreneurs from across the country. In 2016, Denver Startup Week attracted 12,500 people from across the country with 300 events, making it the biggest free entrepreneurial event in North America. Entrepreneurs participate in an elevator pitch competition and interact with VC fund representatives.

The Commons on Champa is a high-tech co-working space that brands itself as “Denver’s public campus for entrepreneurship.” Entrepreneurs have access to networking events, panels, workshop and onsite mentors.

The Rockies Venture Club (RVC) helps to bridge the gap between Denver entrepreneurs and investors. RVC is a Denver angel group that provides educational programs. In addition, RVC hosts events where entrepreneurs and investors can meet and make deals.

The University of Denver’s entrepreneurship initiative, Project X-ITE, brings a number of resources to students. Ranked as one of the top 30 entrepreneurial universities in the United States by Forbes, Project X-ITE is a cross-disciplinary initiative focused on the intersection of innovation, technology and entrepreneurship.

The second quarter of 2018 will mark the opening of Catalyst HTI, which will serve a dual role as incubator and accelerator. Catalyst HTI will bring together entrepreneurs in technology and health care to create state-of-the art incubator and accelerator in downtown Denver. Companies such as CirrusMD and Revolar have already committed to joining the community.

Entrepreneurship for Women

In 2013, Denver was named one of the best places for women to start a business as by Nerdwallet. There are several female-focused resources in the city. Denver’s female entrepreneurs have found support from startup accelerator program MergeLane, which specifically invests in female-led companies. Recently, the Commons on Champa also launched Women on the Rise, an initiative aimed to support and celebrate the success of female entrepreneurs.

Other notable resources include The Coterie, Denver’s first women co-working community, and Women Who Startup, which hosts monthly meetings. SheSays, an international trade organization based in the UK, launched in SheSaysDenver in 2014 and counts over 1,000 women as members. SheSaysDenver provides free mentoring and events to women working in technology and business.

Venture Capital

Overall, Denver VC investment is reflective of nationwide trends, with investment decreasing after the Great Recession, and recovering around 2010. Denver firms such as the Foundry Group, Grotech Ventures and Access Ventures are anchoring investment in the ecosystem.
Local VC received a significant increase in 2015 after Welltok raised a massive $45 million round of investment. VC investment has stabilized around $500 million in investments each year since 2014. However, the 2016 Colorado Startup Report notes that the total funding raised in 2016 was distributed across more than 129 different technology companies, indicating a greater distribution of capital. The Downtown Denver Startup Report indicates that in 2015 alone, more than 165 tech startups were founded in Denver in 2015.

Data indicating the number of first round deals in Denver illustrate a stable ecosystem with an average of around 50 first-round deals per year.

Looking to the Future

Denver entrepreneurs have noted that there is a significantly lower amount of early stage fundraising in the ecosystem. However, this is a reflection of a nationwide trend of cautious investing in early-stage investment.

Denver does have early stage VC investors, but in many cases, does rely on angel investors to supply funding. The University of Colorado’s Silicon Flatiron recommends the continued support of Colorado and Denver super-angel funds, also known as Micro-VCs, which are about $2-$10 million in size and specialize in early stage investing.

In the coming years, it is likely that Denver’s ecosystem will reach critical mass and consolidate as an attractive option for local and out-of-state entrepreneurs. With a strong and growing infrastructure for entrepreneurship, Denver’s startup growth and success is likely to continue.

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Read the Houston Entrepreneurship Pipeline Report

This paper examines the startup training institutions in Houston, Texas, and what they are doing to open up the city’s pipeline of startup firms.

Recent academic research has shown that startup training institutions can have an enormous positive effect on an ecosystem’s growth. A good ecosystem pipeline turns out a large quantity of high-quality startup firms that have received top-tier training. Houston’s accelerators and incubators do not perform at the levels of benchmark institutions. The quality of deal flow coming from its accelerators, incubators, and hubs will be crucial to Houston’s future.

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McNair Center Startup Ecosystems

Gateway to Entrepreneurship: St. Louis

You probably know St. Louis as the Gateway to the West, but the city is emerging as a strong entrepreneurial ecosystem. For decades, St. Louis followed the economic development model of attracting and keeping large out-of-town companies with generous tax breaks and subsidies. In the 1990’s, political and business leaders became frustrated with the slow economic growth under these policies and began implementing entrepreneur-friendly policies.

While the city has not abandoned tax breaks and other subsidies to attract big companies, it has adopted an entrepreneurship model driven by state and private efforts. This model appears to be working. Data from the Census Bureau show 9.7 percent of businesses in St. Louis are startups less than three years old. St. Louis can now boast the second best rate of startup growth in the country.

Venture Capital

St.LouisFirstRounds
Author’s calculations based on data from SDC Platinum VentureXpert

It is widely believed that an ecosystem should be producing 30 to 35 deals per year to beconsidered stable. St. Louis saw three consecutive years of 30 or more first-round deals from 2013 to 2015. While 2016 reflects a poor year for St. Louis VC investment and first rounds, this decline reflects a nationwide trend.

StLouisVC
Author’s calculations based on data from SDC Platinum VentureXpert

 

 

St. Louis boasts sizable venture capital investment. Like many ecosystems, St. Louis suffered from the dot-com bust in the early 2000’s, but a strong pattern of VC investment seems to be emerging. How has St. Louis achieved venture capital growth?

History

The first entrepreneurship-focused programs established in St. Louis were the Donald Danforth Plant Science Center and Skandalaris Entrepreneurship Program.

The Donald Danforth Plant Science Center provides support for plant scientists who work directly with the agriculture technology startups. The Danforth Plant Science Center cofounded the Ag Innovation Showcase, the premier agricultural technology and innovation showcase in the nation.

The Skandalaris Entrepreneurship Program began in 2001 at Washington University, but expanded in 2003 to the Skandalaris Center for Interdisciplinary Innovation and Entrepreneurship. The Skandalaris Center provides entrepreneurial training, networking opportunities and a mentoring program.

When the Great Recession hit in 2008, St. Louis suffered. The “corporate jewel” Anheuser-Busch laid off hundreds at their St. Louis headquarters. St. Louis’ per capita personal income shrunk by 5 percent. The metro unemployment rate reached over 10 percent. Despite Danforth Plant Science Center and Skandalaris Entrepreneurship Program, there still was not much positive entrepreneurial output. Researchers and politicians blamed the national economy and the greater time required to establish agriculture-focused startups.

The St. Louis entrepreneurial ecosystem remained largely unsupported until 2012 when the nonprofit Information Technology Entrepreneurs Network (ITEN) began to catalyze the ecosystem. Jim Brasunas, a former telecommunications manager turned entrepreneur, founded ITEN by utilizing the public-private investment fund, Missouri Technology Corporation (MTC).

While ITEN was founded in 2008, many of the programs were not active until two or three years after its founding. Many entrepreneurs credit the development of the entrepreneurial ecosystem to Brasunas and ITEN.

Resources

St. Louis has the requisite components of a successful entrepreneurial ecosystem; highly ranked universities, research-focused centers, accelerators, incubators and venture capital funds. However, the strong private-public partnerships and women-focused accelerators make SSt_Louis_nightt. Louis’ ecosystem unique.

In 2012, MTC put a significant amount of seed money into a new economic development model, Arch Grants. Arch Grants runs a global competition to identify potential entrepreneurs from almost any industry sector. Arch Grants then provides entrepreneurs with $50,000 equity-free grants and pro bono support services if they agree to build their businesses in St. Louis. Over 100 startups have been awarded Arch Grants including RoverTown, which was named the fastest growing tech startup in St. Louis.

Accelerators

Accelerators are key components of any healthy entrepreneurial ecosystem, and St. Louis has a plethora of accelerators. Capital Innovators is a 12 week accelerator program that provides $50,000 in seed funding to startups. The accelerator focuses on IT and consumer product startups, such as LockerDome, Bonfyre and Fluent.

Another notable accelerator is BioSTL. The investment arm of BioSTL, BioGenerator, has worked to grow bioscience startups in the region since 2001. MediBeacon, BacterioScan and Galera Therapeutics are among the startups that have gone through BioGenerator.

SixThirty is St. Louis’ largest and most famous accelerator with corporate partners like State Farm and the St. Louis Regional Chamber. The accelerator provides up to $100,000 in funding and sponsors two cohorts per year. SixThirty’s expertise is venture capital and revenue acceleration for startups that are at the late-seed stage.

St. Louis’ agricultural-technology industry is back, and Yield Lab, opened in 2014, focuses on accelerating this industry. Its nine month AgTech program provides early-stage companies with $100,000 in funding and looks to add value to companies that from a nonfinancial standpoint. The Yield Lab opened a second accelerator in St. Louis’ sister city, Galway, Ireland in January of 2017. Graduates of the Yield Lab include S4, Arvengenix and Holganix.

In 2012, St. Louis ranked a disappointing 25th in a national survey of women’s entrepreneurship. Prosper Women Entrepreneurs (PWE) was born when community leaders realized that the region could significantly improve its economy and entrepreneurial ecosystem if women reached their entrepreneurial potential.

Women now own a higher share of startups in Missouri than in any other state. PWE offers support to a woman-owned company focusing on technology, health care IT and consumer startups. Graduates of PWE include Appticles, Bandura System and SixPlus.

Co-Working Spaces

In addition to accelerators, St. Louis has a significant number of co-working spaces such as Exit 11 Workspace and Hive44.

Founded in 1999, CIC St. Louis is the most famous of the St. Louis co-working space. CIC focuses on biotechnology and bioscience startups. $2.1 billion in VC has been raised by companies originally based at CIC and more than 800 companies call CIC home.

Venture Capitalists

St. Louis has a significant number of venture capitalist firms. While venture capitalist firms invest around the country and world, it is important to have firms in ecosystems as they often provide VC stability. Advantage Capital Partners, BioGenerator and RiverVest Ventures appear to serve as long term midsize anchor funds for St. Louis. Cultivation Capital raised its first fund in 2012. Lewis and Clark Ventures emerged in 2014 and are a midsize fund.

Looking to the Future

St. Louis is emerging as a stable and strong startup ecosystem in the Midwest. Efforts to increase private and public support for resources, as well as funding and tax credits for research, will facilitate St. Louis’ continued growth.

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McNair Center Weekly Roundup

Weekly Entrepreneurship Roundup 4/14

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

How to Make Texas More Startup-Friendly

Iris Huang, Research Assistant, McNair Center for Entrepreneurship and Innovation

McNair Center’s Huang interviews Blake Commagere, entrepreneur, angel investor and startup mentor in the San Francisco Bay Area on how to improve an entrepreneurial ecosystem. Commagere graduated from Rice University in 2003 with a degree in Computer Science. Upon graduation, Commagere moved to Austin to begin his career as an entrepreneur and soon decided to move to Silicon Valley. Commagere has raised over $12 million in VC, started seven companies and sold five.

Commagere describes the pull of talent toward San Francisco as “a virtuous cycle,” where “former successful startup founders become the next generation angel investors and venture capitalists, who fund and help more startups succeed.” Silicon Valley’s concentrated network of VC firms and tech startups provide struggling entrepreneurs with a vast pool of mentorship opportunities, funding resources and talent. Budding startups heavily rely on local tech networks for early-stage support and advice. In order to develop its entrepreneurial ecosystem, Texas cities need to focus on building its tech space.

Additionally, the state’s cities must expand their VC presence. Otherwise, there will always be too many startups fighting for too little capital (as if this isn’t a problem already), and startups will continue to move to cities like San Francisco. Startups depend on local VC firms because many firms refrain from investing in companies outside their primary city. When firms do invest in outside companies, the qualification bar is set much higher.

Medical Device Startups and the FDA

Iris Huang, Research Assistant, McNair Center for Entrepreneurship and Innovation

McNair Center’s Huang takes a look at the FDA approval process for medical devices. The medical device industry is a $140 billion market. For many companies in the industry, obtaining FDA approval is a long and costly path. For some, it’s a barrier. Of the 6,500 companies in medtech, 80 percent are composed of fewer than 50 employees.

A Stanford University survey of over 200 medtech companies found that the average cost for a low-to-moderate-risk 510(k) product to obtain FDA clearance was $31 million. The same survey found that it took these products 31 months from initial communications with the FDA to obtain clearance. For startups, these costs pose significant barriers to entry. Huang aptly summarizes this dilemma: “as the cost of getting to market approaches the average exit value, the medtech funding equation looks less attractive to venture capitalists.”

The FDA approval process acts as an essential screening point in the medtech industry. However, Huang recommends that policymakers consider possible ways to alleviate the significant burdens placed on the businesses involved in the development of these critical technologies.

First Data Joins Silicon Valley Bank In Fintech Accelerator

Tom Groenfeldt, Contributor, Forbes
Silicon Valley Bank (SVB) recently announced a collaboration with First Data, a global payments technology solutions company, on Commerce.Innovated, its fintech accelerator. Commerce.Innovated, founded in 2014, is a four-month long virtual accelerator for startups in the financial services and technologies sector. The accelerator, unlike most early stage accelerators, focuses on startups that have already secured or are in the process of securing seed or Series A funding.

According to SVB’s Reetika Grewal, the accelerator looks for firms with “five to 10 people with an idea they are committed to.” In this stage, startups usually require help with the “operational,” rather than conceptual, front of development. Commerce.Innovated helps fintech firms bring their solutions to market. Since these startups already possess strong leadership with a clear vision for their product, a virtual platform makes sense.

A $150 Million Fund, The Engine, Will Back Startups Others Find ‘Too Hard’

Lora Kolodny, Contributor, TechCrunch

The Engine is a venture fund and accelerator for “advanced technology startups.” The new fund recently closed its debut round at $150 million. Startups in The Engine’s portfolio gain access to one of MIT’s unique resources, The Engine Room, a laboratory for small startups to develop and test their technologies. In addition to to The Engine Room, startups also receive access to laboratory equipment and technologies from organizations in the greater Boston area.

Despite its close affiliation to MIT, The Engine invests “in teams and technologies that hail from a variety of industry and academic backgrounds, not just from the MIT ecosystem.” The Engine supports companies involved in the development of “hard-tech” – so basically anything “from advanced materials and manufacturing technologies to medical devices, robotics, artificial intelligence, nuclear energy, fusion and more.”

Hard-tech startups typically face higher costs, more risk and a longer development period than most B2B or consumer-focused software. These startups often find it difficult to find VCs willing to invest in their innovative, but risky technologies. The Engine, according to the fund’s CEO Katie Rae, is dedicated to lowering the costs of development and testing “hard-tech” and encouraging more entrepreneurs to go into the field.

Tax Reform Must Help Small Businesses, Too

Laurie Sprouse, Reporter, The Wall Street Journal

Laurie Sprouse, a small business owner from Dallas, covers tax reform and small businesses for The Wall Street Journal. As Sprouse points out, small businesses have added two thirds of new jobs to the U.S. economy in recent years. Still, analysts and policymakers continually propose tax overhauls that largely ignore the plight of small firms. Instead, politicians and reporters alike focus on alleviating financial burdens for larger corporations and providing helpful, but insufficient, tax credits for small businesses. According to Sprouse, “Only a plan that benefits businesses of all sizes equally will create the broad economic growth President Trump and Congress seek.”

Stripe Acquires Indie Hackers in Bid to Strengthen Relationship with Entrepreneurs

Ken Yeung, Contributor, VentureBeat

Founded in 2010, tech company Stripe delivers application programming interfaces (APIs) that support electronic payments for consumers and businesses. Recently, the firm announced plans to acquire Indie Hackers, a startup dedicated to creating an internet community for entrepreneurs to share their success stories and lessons. While the financial terms of the deal remain unclear, it seems that site will operate as an independent subsidiary of Stripe.

Indie Hackers founder, Courtland Allen, describes his site as a “community where successful founders could share their valuable stories and insights, and where aspiring entrepreneurs could go for inspiration and advice.” Meanwhile Stripe executives view the deal as an opportunity to grow “the GDP of the internet” by increasing the “overall number” of successful businesses.

In an interview with VentureBeat, a Stripe spokesperson revealed that the company wants to support Indie Hackers’ mission by taking on some of the budding site’s financial burden. In just under a year, the site already runs a monthly profit of $6,000. Going forward, Allen hopes to see Indie Hackers take on a similar role as Y Combinator’s Hacker News.

The Weekly Roundup will return in June. 

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McNair Center Startup Ecosystems

A Tale of Untapped Potential: Cincinnati

When you think of an emerging entrepreneurial ecosystem, you probably think of Austin, Texas or Boulder, Colorado, not a moderately sized city deep in the heart of the Midwest. But Cincinnati’s entrepreneurship ecosystem is positioning itself as a good place to start a high-growth, high-technology startup firm.

Picture of Cincinnati Skyline, Creative Commons

The Fortunate 500 companies that call Cincinnati home, such as Kroger, P&G and Macy’s, have been investing in their local ecosystem through a nonprofit organization. The resulting increase in resources and capital in Cincinnati’s entrepreneurship scene has led industry commentators, including TechInsurance and Entrepreneur.com to enthusiastically expound the city’s positive trajectory. In this blog post, I explore the driving forces behind Cincinnati’s transformation and ask whether it is real.

History of Entrepreneurship

Local and state governments have historically helped maintain the Cincinnati ecosystem. Individual grant programs provided the Cincinnati Children’s Hospital Medical Center, University of Cincinnati and the Cincinnati Regional Chamber with funding for high-tech projects. However, until recently, the Fortune 500 companies have been largely absent from Cincinnati’s entrepreneurship ecosystem, and there was no depth to the ecosystem’s support and service organizations. For example, less than a decade ago, there was not a single startup accelerator anywhere in the region.

Accelerators in Cincinnati

The past few years have seen an emergence of a spate of entrepreneurial resources available in and around Cincinnati. Accelerators  – 12 to 16 week entrepreneurship boot-camp programs for startups that typically end with a pitch day – now span the tristate area of Ohio, Kentucky and Indiana.

Cincinnati now boasts The Brandery, UpTech, OCEAN, First Batch, Founder Institute, a minority business accelerator housed in the Cincinnati chamber of commerce, and two university affiliated accelerators. There are also several incubators in the local area.

The Brandery

The Brandery, located in Cincinnati and founded in 2010, was inspired by successful accelerators such as Austin’s Capital Factory and Boulder’s TechStars. The Brandery offers a three-month program for seed-stage companies that use Cincinnati’s existing strengths: branding, marketing and design. Companies receive $50,000 in seed funding, office space, branding identity, legal support and more in return for 6% equity stake in the startup.

The Brandery has a portfolio of twenty-nine startups. Notably, the Brandery accelerated FlightCar, “a marketplace that allows owners flying out of an airport to rent out their cars to arriving travelers” that was acquired by Mercedes Benz and Skip, “a mobile checkout solution that allows you to scan items as you go through the store and skip the checkout line.” The Brandery has been ranked a top-ten U.S. accelerator.

UpTech and Ocean Accelerator

Launched in 2012, UpTech is a Greater Cincinnati tech accelerator program for data-driven startups. Located across the river from Cincinnati in Covington, Kentucky, UpTech was established as an effort by Northern Kentucky University College of Informatics and the Greater Cincinnati community. Up to ten startups per cohort participate in a six-month accelerator program and receive up to $50,000. UpTech differs from traditional accelerators in that it draws its hundreds of support staff from community volunteers and interns from Northern Kentucky University. Successful UpTech startups include online walking-tourism planning platform, Touritz, and software and data management company, Liquid.

The third and newest accelerator in Cincinnati is three-year-old, faith-based OCEAN Accelerator. Ocean runs a five-month program that provides mentorship, monetary support in the form of a $50,000 note, branding and legal advice. OCEAN claims to be the the only faith-based accelerator in the nation, and its curriculum features weekly bible studies. Alumni of Ocean include Casamatic, a real estate technology company that increases buyer engagement, and Cerkl, a startup that provides personalized email campaigns.

University Resources

The University of Cincinnati and Xavier University both have academic accelerator programs. The University of Cincinnati’s Technology Accelerator for Commercialization provides full-time faculty and staff with the opportunity to develop intellectual property at the University of Cincinnati. In order to be eligible for the TAC program, the technology must be developed at the University of Cincinnati and have a focus on commercialization. Start-up companies are not eligible for the TAC program.

Xavier University offers a business program aimed to boost the Greater Cincinnati economy. Called X-LAB (short for Xavier Launch A Business), the seven-year old competition provides want-to-be entrepreneurs – particularly including students – opportunities to launch a business. The Williams College of Business supports the winners by providing the business expertise of its professors, executive mentors and MBA students.

Seed-Stage Funding

Cincinnati has had stable seed-stage investors for some time. These include CincyTech and Queen City Angels, as well as some early stage venture capitalists and some nonprofits that provide grants to startups. In recent years, CincyTech and Queen City Angels appear to have had some successes and grown considerably, which bodes well for the future of the ecosystem.

CincyTech

1074px-Over-the-rhine-mapCincyTech, a public-private partnership focused on seed stage investments, was the first effort by the local government to jump-start entrepreneurship. Established in 2001, CincyTech’s mission has been to strengthen the regional economy through the creation and expansion of technology companies in Southwest Ohio. CincyTech is now investing out of its fourth and largest fund, a $30.75 million seed-stage fund, which is bigger than its first three funds combined.

CincyTech garnered considerable national attention after providing Lisnr, a company that has invented an ultrasonic technology for transmitting data through sound, with Stage A capital. Lisnr came to fruition aboard the 2012 StartupBus, a competition where participants launch a company in 72 hours on a bus headed to Austin for the South by Southwest Festival. Since Lisnr’s establishment, they have received $10 million in Series B funding from Intel Capital and garnered accolades from CNBC’s Disruptor 50 list, Cannes Lions International Festival for Creativity and Fast Company’s Innovation by Design Awards.

Queen’s City Angels

Likewise, Queen City Angels is the region’s longest running angel group and is currently investing out of its largest fund of $10 million. Queen City Angels provided the initial stage funding for Assurex Health. Now ten years old, Assurex grew out of research at Cincinnati Children’s Hospital Medical Center and the Mayo Clinic. Its singular product is the GeneSight Test, which analyzes twelve genes that influence mental health and psychoactive drugs that treat a spectrum of mental health disorders. Myriad Genetics purchased Assurex Health in April 2016 for $225 million with another $185 million to come when performance stipulations are met.

Coordinating the Ecosystem

Two organizations provide the glue for Cincinnati’s entrepreneurship scene. StartupCincy is a grassroots organizations that first registered its domain name in 2010. Cintrifuse is an example of a successful municipal government intervention in an entrepreneurship ecosystem.

StartupCincy

StartupCincy  describes itself as “the driving force behind [Cincinnati’s] new economy…a rallying cry.” In addition to maintaining a long list of upcoming network, education, accelerator and developer events in the city, Startup Cincy connects venture capitalists and angel investors to startups. StartupCincy is credited by the Cincinnati Business Courier as “one of the most influential groups leading the renaissance of Cincinnati’s startup community.”

Cintrifuse

However, the most important element of Cincinnati’s ecosystem is probably Cintrifuse. Established in 2011 with the goal of creating a sustainable technology driven economy for the Cincinnati metropolitan area, Centrifuse primary manages a fund of funds. This fund of fund has created a network of venture capital funds, including Allos Ventures, Mercury Fund and Sigma Prime Ventures, that invest in Cincinnati startups.

For big companies, like Kroger, USBank, the Greater Cincinnati Foundation and Duke Energy, investment in Centrifuse isn’t just about financial returns. Corporate investors get access to new companies and new ideas, while the startups receive mentorship and connections that help them access potential partners and customers.

Cintrifuse also provides co-working space in Over-the-Rhine, a neighborhood of Cincinnati, and entrepreneur-focused educational programs. More than four hundred companies have gone through Cintrifuse’s programs, and both CincyTech and the Brandery are located in Over-the-Rhine just feet away, providing unique collaboration opportunities.

Cincinnati’s Venture Capital Woes

CincinnatiFirstRound
Author’s calculations based on data from SDC Platinum VentureXpert

Despite all of its great resources, Cincinnati is still not producing enough successful startups to be considered a mature and effective ecosystem. Although there is no consensus among experts, ecosystems that close around thirty to thirty-five deals a year are markedly more stable. Cincinnati falls far below this. While the number of first rounds has been increasing, it appears that the city’s ecosystem may be leveling out at an average of just five first rounds per year.

CincinnatiVC
Author’s calculations based on data from SDC Platinum VentureXpert

The largest barrier to Cincinnati’s emergence as an entrepreneurial ecosystem is probably the quality of its deal flow. Despite the recent increase in startup activity, Cincinnati’s venture capital investment peaked in 2002 at $343 million. The recent maximum was $235 million in 2014, with 2016 reverting to pre-2010 levels. Since the turn of the millennium, the venture capital investment has averaged just $139 million per year. Mature ecosystems, like Austin or Denver, are much bigger.

Untapped Potential

Cincinnati’s entrepreneurship ecosystem is small but does genuinely seem to be growing in an exciting way. From 2000 to 2009, Cincinnati saw an average of around two new venture capital deals each year. From 2010, when the Brandery opened its doors, to the present, the number of Cincinnati based startups receiving venture capital for the first time has more than doubled to almost five each year.

There have been many factors at play: more venture capital, more seed stage investment, more mentorship and engagement with established firms, the arrival of accelerators, a co-working space, and specialist training and professionalization programs, and, just possibly, that the Over-the-Rhine neighborhood has achieved a critical mass of startups in close proximity. These factors appear to be working together to reinforce each other and grow the region’s startup ecosystem and the local economy. Cincinnati is surely a startup city to watch!