Tag: Venture Capital

The Top 200 U.S. Startup Cities for 2020

Post author By Ed Egan
Post date March 15, 2021
No Comments on The Top 200 U.S. Startup Cities for 2020

The 200 top U.S. startup cities for venture capital (VC) investment for 2020 provide few surprises. The top four startup cities are the same for the third year in a row, and San Francisco holds on to its top spot for its 14th year. However, there are some changes to explore from the industry’s ongoing evolution and the COVID-19 crisis.

Rank	Location	$mil.	Deals	Funded	+/-
1	San Francisco, CA	12,482	216	1,328	0
2	New York, NY	7,056	195	1,178	0
3	Boston, MA	3,651	41	304	0
4	Cambridge, MA	4,565	40	227	0
5	Seattle, WA	1,850	41	230	2
6	San Diego, CA	3,230	38	196	2
7	Palo Alto, CA	1,352	31	259	-2
8	Mountain View, CA	4,645	21	143	4
9	Los Angeles, CA	1,279	29	248	-3
10	Austin, TX	799	27	229	-1
11	Chicago, IL	818	26	189	1
12	San Jose, CA	945	23	127	-1
13	Irvine, CA	3,077	14	59	19
14	South San Francisco, CA	1,781	14	72	4
15	Philadelphia, PA	757	13	131	-5
16	Redwood City, CA	1,609	11	111	1
17	Santa Clara, CA	760	14	90	2
18	Denver, CO	709	16	82	7
19	Menlo Park, CA	624	16	95	-5
19	San Mateo, CA	875	11	103	-5
21	Atlanta, GA	551	17	102	-5
22	Houston, TX	656	13	71	2
23	Santa Monica, CA	452	12	94	-3
24	Berkeley, CA	616	12	54	12
25	Boulder, CO	414	13	73	-2
25	Oakland, CA	429	13	71	-4
27	Columbus, OH	573	9	50	23
27	Sunnyvale, CA	372	9	85	-5
29	Waltham, MA	496	7	41	27
30	Salt Lake City, UT	470	8	35	7
30	Washington, DC	281	10	53	4
32	Bellevue, WA	657	3	45	-5
33	Burlingame, CA	593	5	31	-4
34	Dallas, TX	268	9	43	-6
35	Portland, OR	181	8	53	-9
36	Baltimore, MD	172	6	50	42
37	Fremont, CA	404	4	23	1
38	Emeryville, CA	414	4	21	15
38	Pittsburgh, PA	237	2	135	-7
40	Culver City, CA	682	2	25	-10
41	Somerville, MA	280	4	25	0
42	Durham, NC	167	5	39	-4
43	Campbell, CA	239	5	24	0
44	San Carlos, CA	258	7	20	0
44	Wilmington, DE	141	9	28	14
46	Arlington, VA	113	9	27	20
47	Los Altos, CA	158	3	35	-7
48	Florence-Graham, CA	57	13	48	33
49	Jersey City, NJ	304	4	14	21
50	Nashville-Davidson, TN	128	3	41	-2
51	Miami, FL	120	5	24	18
52	Ann Arbor, MI	109	3	41	-20
52	Tampa, FL	328	2	20	28
54	Indianapolis city, IN	80	6	32	-20
55	Raleigh, NC	73	7	33	-4
56	Milpitas, CA	159	5	14	48
57	Carlsbad, CA	114	3	24	-16
58	New Haven, CT	196	2	18	13
59	Lincoln, NE	177	2	18	35
60	King of Prussia, PA	130	3	16	40
61	Sandy Springs, GA	363	2	12	-1
62	Sacramento, CA	104	3	16	51
63	Walnut, CA	145	2	17	8
64	Charlotte, NC	596	1	21	-20
64	Goleta, CA	282	2	11	58
66	Tysons Corner, VA	77	2	26	-17
67	Newton, MA	96	2	16	84
68	El Segundo, CA	102	2	15	-3
69	Newport Beach, CA	452	1	13	34
69	Phoenix, AZ	58	2	18	-23
71	Rockville, MD	128	2	11	142
72	Cupertino, CA	64	2	17	40
73	St. Louis, MO	37	2	35	-12
74	Hawthorne, CA	2,336	2	5	53
75	Burlington, MA	32	4	21	-21
76	Minneapolis, MN	25	5	23	-17
77	Scottsdale, AZ	103	1	16	21
78	Kirkland, WA	52	2	11	100
79	North Fair Oaks, CA	306	2	5	147
80	Framingham, MA	107	1	15	12
81	Cary, NC	1,793	1	6	358
82	Carmel, IN	32	3	12	29
83	Plano, TX	145	1	10	-16
84	Cleveland, OH	19	3	23	46
85	Eden Prairie, MN	269	1	7	192
86	West Hollywood, CA	29	2	13	-31
87	Pasadena, CA	22	2	18	-31
88	St. Petersburg, FL	57	2	6	263
89	South Plainfield, NJ	160	3	4	539
90	Gaithersburg, MD	138	1	7	-19
91	Newark, CA	97	1	8	95
91	Pleasanton, CA	17	3	16	-28
93	Orlando, FL	31	2	9	121
93	Rochester, NY	50	1	12	-17
95	Wellesley, MA	126	1	7	-24
96	Hillsborough, CA	234	2	4	532
97	University, FL	189	2	4	278
98	Madison, WI	14	2	30	-13
99	Santa Barbara, CA	69	1	8	7
100	Boca Raton, FL	65	1	8	57
101	St. Paul, MN	52	1	9	156
102	Mercer Island, WA	151	2	4	47
103	Mill Valley, CA	19	3	10	28
104	Woburn, MA	32	1	14	-57
105	Albuquerque, NM	11	3	20	-1
106	Alameda, CA	21	2	9	-17
107	Aliso Viejo, CA	30	1	12	1
108	New Orleans, LA	32	1	11	-24
109	Addison, TX	22	2	8	284
110	Marina del Rey, CA	24	3	6	92
111	Dover, DE	23	3	6	429
112	Boise City, ID	20	2	8	3
113	Skokie, IL	16	3	8	103
114	Lake Forest, CA	52	1	6	355
115	Albany, NY	11	4	10	3
116	Richmond, VA	24	1	11	47
117	Nashua, NH	71	1	5	322
118	Beverly Hills, CA	14	2	10	-39
119	Bend, OR	35	1	7	129
120	Providence, RI	18	1	13	-4
121	Irving, TX	26	1	8	307
122	Lewes, DE	20	3	5	169
123	Charleston, SC	51	1	5	15
124	Chapel Hill, NC	23	2	5	416
125	Solana Beach, CA	46	1	5	175
126	Long Beach, CA	23	2	5	414
127	Centennial, CO	23	2	5	204
128	Birmingham, AL	25	1	7	95
129	Reston, VA	7	2	18	-12
130	Fort Collins, CO	42	1	5	165
131	Santa Fe, NM	14	2	7	-17
132	Calabasas, CA	27	1	6	44
133	Coral Gables, FL	36	1	5	137
134	Alpharetta, GA	9	2	10	266
134	Santa Clarita, CA	65	1	4	256
136	Stanford, CA	11	2	7	20
137	Omaha, NE	4	4	23	-41
138	Provo, UT	300	0	14	-86
139	Greenwood Village, CO	12	4	5	489
140	Eagleview, PA	55	1	4	109
140	Hayward, CA	234	0	16	-65
142	Northbrook, IL	24	2	4	253
143	Lexington, MA	220	0	14	-81
144	Burlington, VT	12	1	10	6
145	Gainesville, FL	42	1	4	232
145	Morrisville, NC	19	1	6	62
147	Charlottesville, VA	11	1	11	22
147	Westport, CT	19	1	6	240
149	Missoula, MT	23	1	5	154
150	West Palm Beach, FL	23	1	5	106
151	San Antonio, TX	8	1	13	-63
152	Hoboken, NJ	12	2	5	337
153	Draper, UT	15	3	4	591
154	Foster City, CA	293	0	8	-86
155	Winter Park, FL	63	1	3	473
156	Bedford, MA	15	1	6	-54
157	Redmond, WA	272	0	8	-26
158	Fayetteville, AR	6	2	7	135
158	Union City, CA	17	2	4	382
160	Basking Ridge, NJ	57	1	3	245
160	Creve Coeur, MO	182	0	9	-35
162	San Bruno, CA	250	0	8	-1
163	Daly City, CA	5	2	8	4
163	Tucson, AZ	7	1	11	53
165	Industry, CA	52	1	3	463
166	San Ramon, CA	77	0	13	49
167	Fulton, MD	10	1	8	-33
168	Huntington Beach, CA	45	1	3	321
169	Farmington, CT	4	2	9	249
170	Memphis, TN	2	2	25	68
171	Cottonwood Heights, UT	11	1	6	-72
171	San Juan Capistrano, CA	5	1	14	197
173	Watertown Town, MA	137	0	8	-91
174	Glendale, CA	7	1	9	226
175	Portland, ME	9	1	7	-34
176	Santa Cruz, CA	625	0	5	263
177	Arlington, MA	7	2	5	58
178	Paradise, NV	6	3	5	450
179	Lehi, UT	6	1	9	-102
179	Mesa, AZ	20	1	4	128
179	Portsmouth, NH	20	1	4	361
182	Chandler, AZ	5	2	6	307
183	Newark, DE	6	1	9	-31
183	Trumbull, CT	18	1	4	357
185	San Luis Obispo, CA	10	2	4	443
186	Hoover, AL	30	1	3	222
187	Fort Worth, TX	17	1	4	95
188	Kansas City, MO	2	2	11	17
189	Vista, CA	26	1	3	77
190	White Plains, NY	11	3	3	1034
191	San Leandro, CA	186	0	5	147
192	Reno, NV	5	1	8	208
193	Corte Madera, CA	24	1	3	435
194	Saratoga, CA	79	0	6	-100
195	North Bethesda, MD	59	1	2	549
195	Orem, UT	4	2	5	266
197	Silver Spring, MD	4	2	5	-58
198	Poway, CA	55	1	2	546
199	Bethlehem, PA	2	2	9	51
200	Manhattan Beach, CA	5	1	6	93

Trends for Startup Cities

Breaking Records

Twenty-twenty was a record year in terms of dollars invested, though a small number of very high-value deals enlarged the aggregate amount. A trend of billion-dollar rounds that began with Lyft in 2017 has continued into 2020. (Yes, Facebook had a billion-dollar round in 2011, but there weren’t any others for six years.) Some billion-dollar rounds are, at least notionally, seed or early-stage investments, like those into JUUL Labs, Quibi, and Rivian Automotive. Most are later stage rounds supporting firms like Uber, WeWork, and Epic Games as they try to find their exits.

There were four billion-dollar rounds in 2020. These included investments in Rivian, Waymo, SpaceX, and Epic, who had already taken a billion-dollar round in 2018. Epic Games is the main force behind Cary’s, and North Carolina’s, drive up the rankings.

COVID-19 Bump

Even without the billion-dollar rounds, U.S. venture investment levels are now above the dot-com boom’s heights in both nominal and real terms: Both 2018 and 2019 beat 2000 in nominal investment amounts. Twenty-twenty was the first to boast a higher amount than 2000’s U.S. venture capital investment adjusting for inflation.

There were reasons to think that the COVID-19 pandemic might cause a retrenchment in investment. In particular, the U.S. stock markets collapsed from February 12th to November 16th, 2020. Concern over returns to capital might have led L.P.s to reconsider new investments in alternative assets. There was also speculation that some L.P.s might renege on existing commitments to venture funds. Instead, the market for venture capital seems to have had a COVID-19 bump.

Concentration Among Startup Cities

America has had a long-term trend towards greater concentration of venture capital dollars, deals, and startups within the top 10 startup cities. Over the last decade, the share of venture capital dollars invested in the top ten startup cities rocketed up. It went from about 30% in 2010 to almost 60% in 2018. Other measures of venture activity followed a similar trend. But this seems to have changed in 2020.

Greater concentration could be problematic if some cities are at or past their efficient capacity. For example, Palo Alto has the highest startup density in the U.S. and seems over-crowded with startups. (New York, though, looks like it still has plenty of room for more.) Then greater equality in venture capital across startup cities would enhance growth. So, it’s somewhat enheartening to see the top 10 startup cities’ share back below 50%. Presumably, lockdowns, travel restrictions, and everyone getting used to teleconferencing reduced the benefits to locating in the Bay Area or Route 128 ecosystems.

Is Houston a Startup City?

Houston, Texas, ranked 22nd among U.S. startup cities in 2020. That’s the Space City’s highest ranking since 2002. In 2016, it was ranked 54th, so Houston’s startup ecosystem has had an astronomical recent rise. Moreover, the city’s 2020 ranking components are now fairly evenly balanced: Houston ranked 19th for new deal flow, 24th for dollars invested, and 25th for active startups. (That new deal flow is driving Houston’s ranking suggests good things to come; follow-on rounds should assure more money and active startups in subsequent years.)

Why am I still reluctant to describe Houston as a startup city? Because Houston is the 4th largest metro area by population, the 7th largest by GDP, and boasts that it is home to 4,600 energy-related firms. It contributes just under half a trillion dollars to the U.S. economy each year.

In 2020, H-town added 13 new startups to its venture ecosystem, bringing its total headcount of actively-financed firms to 71. These firms collectively received a little over $650m. So, until someone works out how high-growth-high-tech and oil-and-gas go together, Houston will remain just the Energy Capital of the World. (Also, the space sector moved to California several decades back.)

A Historic Fall

I have written extensively about Houston’s fall in the rankings and the policy initiatives that exacerbated it, as well as the attempts to reform Houston’s startup economy that followed.

The short story is that Houston realized it had a problem with creating and retaining new high-growth, high-tech firms in the late 1990s. The city’s “solution,” announced in 1998 and launched in 1999, was the Houston Technology Center. The HTC then lead Houston to the largest and fastest ranking decline of any former top 20 startup city.

Fortunately, starting around 2011 and picking up pace in 2014, some new initiatives took hold in Houston. These were a mix of private firms and non-profits that were (mostly) unaffiliated with the HTC. Then, in 2016 a group of VCs and serial entrepreneurs with ties to the city started Station Houston, the city’s first startup hub.

Policy Takes Time

It takes a couple of years for a new initiative to take effect: On average, a startup is just under a year and a half old when it receives its first seed round, and over two and a half if its first round is a Series A. So the effects of policy in 2018 are just now starting to be felt. Twenty-eighteen was a big year for bad startup policy in Houston:

The City of Houston Task Force on Technology and Innovation was dissolved.
The HTC was repurposed and rebranded as Houston Exponential, and then took over control of the city’s startup policy process.
Rice University announced that it was (unilaterally) creating an innovation district around one of its properties in Midtown. (I estimated the long-term economic cost as more than $600m.) It later named it the Ion.
Station Houston’s board voted in a high-principal as their new CEO, turned Station into a non-profit, and announced Station was moving into the Ion and outsourcing its operations.

Market Forces

Of course, many other things were going on in Houston’s startup ecosystem in or around 2018, and some of them were positive. So, on balance, it looks like Houston’s prognosis is fair-to-good, despite its abysmal policy history.

First, deal flow surged to record highs in 2018. Houston was getting around six new deals each year from 2010 to 2016. In 2017, Houston got nine first-time venture investments, and in 2018 it got 17, before falling back to 13 new deals each year in 2019 and 2020. The two drivers of this boom were Station’s efforts before its takeover and Houston’s biotech scene, which finally found some legs: Liongard and Arundo Analytics were both Station residents that secured a first-round of VC in 2018 (and went on to raise almost $50m combined), and life science startups Vivante Health, Wellnicity, and Trilliant Surgical all got their first rounds that year. (Data Gumbo, a client of The Cannon, also got its first round in 2018.)

Second, many for-profits, non-profits, academics, and policymakers across the state were working hard to build high-growth, high-tech expertise and capabilities in Houston in 2018. This effort has translated into a wealth of new initiatives, programs, and ecosystem support organizations in 2020. Credit is particularly due to Lori Vetters, who led efforts to reach out to non-Houston accelerators despite being shunned by many Houston startup scene members for her lack of high-growth, high-tech pedigree. (Lori replaced Walter Ulrich and tried to reform the HTC.) Both the Texas Foundation for Innovative Communities in Austin and my team at the McNair Center for Entrepreneurship and Innovation also deserve honorable mentions.

Building Better Biotech

The Texas Medical Center Innovation Institute (TMC-II) got off to a rough start with its various initiatives, which included the TMCx, JLabs@TMC, and the AT&T Foundry. For instance, publicly-traded firms generally don’t attend startup accelerator programs, but Bellicum Pharmaceuticals was an early client of JLabs@TMC. Bellicum was the HTC’s sole IPO and listed on the NASDAQ. (It’s worth noting that JLabs@TMC has removed Bellicum from their publicly-available client lists. And that the TMC-II still appears to report Bellicum’s IPO proceeds in their “raised to date” stat.)

Nevertheless, the TMC-II’s program quality increased materially in late 2016 and reached a decent standard a few years later. Furthermore, John Reale, the former CEO of Station Houston, founded Integr8d Capital and shifted his focus to life science startups in 2018. He later became the entrepreneur-in-residence at the TMC-II as well. J.R. was crucial to Houston’s first market-driven reformation effort and is likely an essential factor in its second one too.

The Green Mountain State

I also keep tabs on things going on in Vermont’s startup scene. Vermont is home to a tiny but growing startup ecosystem. In the 1990’s Vermont got around one new deal a year, and by the 2010s, Vermont averaged two and a half new deals a year. The U.S. doubled its deal flow over the same period, so, proportionately, Vermont is outpacing U.S. national growth. But in absolute terms, Vermont doesn’t have much. Since its first deal almost forty years ago, Vermont has received 125 rounds of VC., totaling just over $400m, into 56 companies. A top 30 city can comfortably achieve those numbers in a few months.

Agglomeration Powers Startup Cities

Historically, Vermont’s startups were mostly spread out down the I-89 east from Burlington. Vermont’s startup success stories include Dealer.com and Seventh Generation in Burlington, SunCommon in Waterbury, Keurig Green Mountain, which was up the road in Stowe, and Northern Power Systems in Barre. The jewel in the Green Mountain crown, though, is Casella Waste Systems in Rutland. (Casella has a surprising number of patents.)

Most of Vermont’s venture capital has gone into companies in Burlington though, which has increasingly dominated the state’s tech scene. This trend towards fewer startups outside of the Queen City is both good and bad. In the long-term, denser agglomeration is a powerful force for startups. But in the short-term, having fewer non-Burlington startups means having fewer startups. Until Burlington ups its game, or non-Burlington startups return, the state looks set to stay in the ebb part of its gentle ebb-and-flow in the bottom end of the U.S. startup state rankings.

Up and Down

Burlington is the only place in Vermont to make the top 200 startup cities list in recent history, and it has done so every year from 2014 to 2020, except 2016. Rutland, Vermont, made the top 200 list in 1994. Twenty-twenty is Burlington’s second-best year ever. (It has lagged well behind Burlington, Massachusetts since the 1980s, but has bested Burlington, North Carolina, handily every year since 1998.) But, with a rank of 144th and just one new deal and two follow-on rounds, it’s hard to describe the People’s Republic of Burlington as a real startup city.

Among the 50 states, the District of Columbia, and Puerto Rico, Vermont has consistently ranked in the mid to late-thirties. In 2020, there were no new deals and no follow-on rounds outside Burlington, and Vermont takes 40th place in the U.S. startup state ranking.

Startup Cities Ranking Methodology

The startup cities ranking uses an open methodology that anyone can use and recreate, and data on the top 200 startup cities from 1985 to 2020 is freely available.

This article’s results are based on data from Thomson Reuter’s VentureXpert, who survey venture capitalists. The rankings consider only data on “growth venture capital. ” Growth venture capital is seed, early, or later-stage investment into privately-held, (predominantly) high-tech high-growth startups. (The main alternative is transactional venture capital, which includes investments into publicly-traded firms and large non-tech incumbents).

The reported rankings are a rank-of-ranks over three measures that capture related but different aspects of a city’s startup ecosystem:

The amount of venture capital dollars invested.
The number of new deals (i.e., startups receiving VC for the first time).
The number of actively-funded startups (i.e., startups receiving stages of VC and working towards an exit).

Tags Cary, Covid-19, Houston, Top 200 Startup Cities, Venture Capital, Vermont

Slider

Read the Top U.S. Startup Cities For 2016 Report

Post author By Ed Egan
Post date March 9, 2018
No Comments on Read the Top U.S. Startup Cities For 2016 Report

The top seven cities in the U.S. for startups in 2016 were San Francisco, New York, Boston, Cambridge, Palo Alto, Austin, and Seattle. These cities each received $2 billion in investment, had 58 new deals, and had 479 active VC-backed startups on average in 2016.

While these well-known startup cities continue to dominate the landscape, startup clusters are forming all over the U.S. Policymakers in many cities that historically were not associated with high-growth, high-tech firms are now clearing succeeding in cultivating startups, as a strategy to boost their local economies.

Tags Cities, Public Policy, Rankings, startup cities rankings, Startups, Venture Capital

Slider

Read the Houston Growth vs. Transactional VC Report

Post author By Ed Egan
Post date March 8, 2018
No Comments on Read the Houston Growth vs. Transactional VC Report

Houston’s high-tech ecosystem can only flourish if it attracts more growth venture capital investments, according to the latest McNair Center for Entrepreneurship and Innovation issue brief, “Growth vs. Transactional Venture Capital in Houston, Texas.”

A realistic, but aggressive, goal for Houston would be around a 15 percent year-on-year increase in growth venture capital. This would allow Houston to reach roughly $170 million in growth venture capital by 2022.

According to the report, “Houston would then likely become a top 25 U.S. city for high-growth, high-technology startups, though its ecosystem would still be emerging and startups would remain a very small part of Houston’s economy.”

Tags Economic Growth, Houston, Houston Exponential, Public Policy, Venture Capital

McNair Center Startup Ecosystems

Ranking Startup Activity in Cities

Post author By Diana Carranza
Post date February 20, 2018
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Are startup hubs exclusive to a handful of U.S. cities? Or is high-technology entrepreneurship spreading throughout the country? To answer these questions, the McNair Center recently published The Top 100 U.S. Startup Cities in 2016, ranking startup activity by tracking venture capital deals in U.S. cities. The report found that roughly 70% of startup activity is concentrated in 50 American cities. While the top seven U.S. cities for entrepreneurship are San Francisco, New York City, Boston, Cambridge, Palo Alto, Austin and Seattle, startup clusters are also forming in many American cities.

There are several rankings of startup activity. While these rankings use different methodologies, the results point toward the same trends in startup activity. This blog post compares the McNair Center’s methodology and that of rankings published by the Kauffman Foundation, City Lab /Martin Prosperity Institute and Startup Genome. We also identify the consistent themes across the rankings.

Kauffman Foundation: Startup Activity by Rate of New Entrepreneurs

The Kauffman Foundation ranks U.S. metropolitan areas by new business creation activity and the number of people engaging in business startup activity, using the following three metrics: the rate of new entrepreneurs, the opportunity share of new entrepreneurs and startup density.

The rate of new entrepreneurs measures the percentage of the adult population of an area that became entrepreneurs each month. Opportunity share of new entrepreneurs provides the percent of new entrepreneurs who were employed before starting their business; this metric tracks entrepreneurs who started their own businesses because they saw a market opportunity. Startup density is the number of startup firms per 1,000 companies. Startup firms are defined here as as small businesses that are less than one year old and employee one person in addition to the owner. This web-based ranking is dynamic, and the data can be downloaded. Users have several options such as measuring startup activity by larger or smaller states and by growth entrepreneurship. While the overall rank is a weighted average, users can also change the ranking for each individual measure.

City Lab / Martin Prosperity Institute: Measuring Global Venture Capital

A 2016 ranking prepared by City Lab with the help of the Martin Prosperity Institute provides the geography of venture capital investment in high-tech startups for more than 200 U.S. metro areas for 2016. This analysis ranks metro areas in terms of the total dollar amount of VC investment, as well as their share of national venture investment. The ranking provides individual rankings for venture capital investment, deal share and venture investment per capita. According to their findings, “No matter how you slice it, venture capital-backed high technology remains spiky, and if anything, it may be getting spikier.”

The Martin Prosperity Institute’s 2015 ranking, The Rise of the Global Startup City, finds that the U.S. accounts for nearly 70% of total venture capital worldwide, followed by Asia (14.4%) and Europe (13.5 %). Both the 2016 and 2015 rankings rely on venture capital investment in absolute numbers and percentage as their key measure for startup activity.

Startup Genome: Global Focus with Eight Success Factors

Startup Genome has identified eight factors that drive the growth of high-technology firms: funding, market reach, global connectedness, technical talent, startup experience, resource attraction, corporate involvement, founder ambition and strategy. Startup Genome’s ranking assesses 55 startup ecosystems across 28 countries and ranks the top 20 for 2017. Analyzing roughly 100 metrics that measure the eight external and internal factors, Startup Genome measures startup performance by growth over the first years of operation.

The top five regions in the 2017 ranking are Silicon Valley, New York City, London, Beijing and Boston. Startup Genome finds that greater global connectedness leads to higher ecosystem performance. Startups’ ability to reach out outside their own ecosystems highly correlates with attracting global customers.

McNair Center for Entrepreneurship and Innovation: Measuring U.S. Venture Capital

Our research paper analyzes startup activity based on three venture capital metrics: the dollars invested, which measures the total amount of growth-oriented venture capital invested into startup firms in a city; the number of new deals, which looks at the number of startups that received their first-ever round of venture capital financing; and the number of startups backed by venture capital, which gauges the overall scale of a city’s ecosystem.

We ranked cities on each of these three measures for 2016 and then assigned them an overall rank by equally weighting the component metric rankings. Our methodology is similar to the global ranking produced by City Lab/Martin Prosperity Institute, but we create a composite ranking of U.S. cities based on the weighted average of each measure, while City Lab/Martin Prosperity Institute publishes individual rankings for each metric.

Common Trends

The top 20 cities for each ranking is compiled in Figure 1. Across all the rankings, startup activity is highly concentrated in a handful of U.S. cities. The global assessment done by Startup Genome shows that the U.S. leads the world in high-technology entrepreneurship.

Other trends include:

• San Francisco ranks number one for McNair and City Lab/Martin Prosperity
• New York City takes the second spot for McNair, City Lab/Martin Prosperity and Startup Genome
• Boston-Cambridge, San Francisco Bay Area/Silicon Valley, Austin, Seattle, Chicago and Los Angeles are consistently the U.S. cities with the highest rankings across the four studies
• California cities are spread all over the rankings, confirming the spillover effect in the San Francisco Bay Area
• San Francisco and Silicon Valley are at the top of all of the rankings except for the Kauffman Foundation. The Kauffman Foundation ranking measures entrepreneurship by new business creations, which combines small businesses and startups. For example, the Houston metropolitan area has the 9th spot on the Kauffman Foundation ranking, yet it is not shown as part of the top 20 in any other of the rankings. This result reflects a high rate of small business creation in Houston, not its startup ecosystem.

Figure 1. Top 20 Cities across 4 Rankings

Conclusion: Why Is Venture Capital Our Preferred Measure?

Venture capital provides comparable and systematic information on investment that can be directly linked to specific geographical locations. The amount of venture capital invested in an area shows the supply of financial capital available in the ecosystem.

Venture capitalists invest in high-tech, high-growth startups, not small businesses. This difference is key to assessing the innovation taking place in any given area. High levels of venture capital indicate that there is a healthy demand for this kind of financial capital. This increased competition creates the virtuous cycle that feeds a top ecosystem.

Tags entrepreneurship ecosystem, High tech high growth, spillover effect, startup cities rankings, startup hubs, Venture Capital

McNair Center Startup Ecosystems

Houston’s Next Step: The Role of Funds of Funds in Venture Capital

Post author By Taylor Jacobe
Post date November 13, 2017
No Comments on Houston’s Next Step: The Role of Funds of Funds in Venture Capital

Recently, Houston Exponential announced plans to create a venture capital Fund of Funds (VC FOF) to support the local entrepreneurship ecosystem. This strategy has been used by other cities and regions, such as Michigan and Cincinnati, to spur local startup growth. Private firms also offer VC Fund of Funds. What does this type of fund look like, and how has it played out in other locations?

The Basics

FOFs are funds that invest in multiple smaller funds. The increased diversification that they offer investors makes them attractive. However, there is a risk of overlap with FOFs; the many funds that make up the FOF may invest in the same entities. FOFs also may carry additional fees over a traditional fund because the the investor also has to pay the fees for the funds that constitute the larger FOF.

A VC FOF specifically invests in multiple venture capital funds. These venture capital funds then invest in local startups, entrepreneurs, and small businesses investment. FOFs diversify investors’ portfolios by ensuring investment in a wide variety of companies. Many venture capital funds make up VC FOFs, so their success depends on what investments the constituent VC funds make. In the private sector, the advertised appeal of VC FOFs is diversification, early liquidity, and enhanced fund returns.

FOFs can also exist through firms that typically invest in mature companies and buy all of each company’s equity, known as “Buyout FOFs.” The Chicago Booth Review claims that VC FOFs offer more diversification than Buyout FOFs, with an average of 7 more individual funds in each VC FOF. The research also indicates that VC FOFs are “more likely, through fund selection and/or access, to overcome their additional layer of fees” than buyout FOFs. This suggests that VC FOFs may bring investors higher value than buyout FOFs.

Impact on Cities

The trend towards creating VC FOFs to boost local innovation began about a decade ago. In 2008, Michigan created the Renaissance Venture Capital Fund. The premise behind the fund was simple: “Venture capital is important for economic growth and [Michigan is] underserved in the amount of venture capital available to fund exciting new ideas and technologies.” By investing specifically in VC funds that are active in Michigan, the Renaissance VC Fund provides the necessary capital for Michigan startups to grow and thrive.

Currently, the fund claims to receive a 21:1 return on every dollar they invest. With this success, they have grown; the fund has offices in both Ann Arbor and Detroit. Figure 1 shows the spike in investment and deals following the introduction of the Renaissance Fund. However, investment and deals seemed to have tapered off in recent years. Nonetheless, the new plateau does seem to be slightly higher than the average values before the fund was introduced.

Figure 1: Michigan saw large increases in investment in 2010 and 2011. Deals then peaked in 2013. Michigan introduced the Renaissance Fund in 2008.

In 2012, Cincinnati created a fund modeled on Michigan’s Renaissance Fund. Cincinnati-based corporations, like Kroger and Proctor & Gamble, created the Cintrifuse Early Stage Capital Fund I, LLC, which exclusively makes seed and early-stage investments in local startups.

According to Cintrifuse, the fund has resulted in a net increase of $24 million in value to the city. Figure 2 shows the spike in deals in both 2012 and 2014. Investment also peaked in 2014, relatively soon after the fund’s introduction. Nonetheless, the introduction of this program seemed to have no noticeable impact on Cincinnati’s overall GDP in 2012 and afterwards. The number of deals and amount invested have also declined substantially since 2014.

Figure 2: Cincinnati’s VC deals spiked in 2012 and 2014. The city created Centrifuse in 2012.

What Will This Mean for Houston?

VC Fund of Funds seem to carry benefits for both investors and local VC/startup culture. However, no plan to boost growth is a guaranteed success. Michigan and Cincinnati have demonstrated that it is difficult to maintain momentum with these funds. These cities’ experiences teach us that the fund needs to place a sustained emphasis on providing capital to the local region. McNair Center research indicates there are about 50 VC firms in Houston. This means that there are firms for which the FOF can provide capital. These VC firms can then disburse funds to local businesses.

On the other side of the equation, Houston will need local entrepreneurs and startups in which VC can invest. According to McNair Center research, there are approximately 20 startups active within the 610 loop. However, looking outside the loop to the greater Houston area, there is an abundance of startups. Nonetheless, the industries in which these startups focus may not be as desirable for investors as others. Houston’s startups do not tend to focus on one specific industry, although medicine and energy are popular. Since tech is one of the most desirable fields for investment right now, Houston’s tech startup scene may need to develop further if a VC FOF is to succeed.

Both sides of this equation need to be present in order for VC FOF to successfully boost the city’s innovation scene. If this is the case, there is hope that a VC FOF could provide a welcome boost to Houston’s ecosystem.

Tags Ann Arbor, CentriFuse, Cincinnati, Detroit, Ecosystem, Entrepreneurship, fund of funds, Houston, Houston Exponential, Investment, michigan, renaissance fund, Venture Capital

McNair Center Startup Ecosystems

Entrepreneurship for All: Washington D.C.

Post author By Diana Carranza
Post date June 29, 2017
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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.

McNair Center Startup Ecosystems

Mile-High Entrepreneurship

Post author By Diana Carranza
Post date June 14, 2017
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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.

Tags Accelerators, Co-Working, Denver, Economic Growth, Entrepreneurial Ecosystem, Entrepreneurs, Entrepreneurship, Government, Innovation, John Hickenlooper, Mentoring, Policy, Startup, Technology, Techstars, VC, Venture Capital, Women

McNair Center Startup Ecosystems

Gateway to Entrepreneurship: St. Louis

Post author By Eliza Martin
Post date April 26, 2017
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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

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.

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 St. 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.

Tags Accelerators, Agriculture, AgTech, Co-Working, Early Stage, Economic Growth, Entrepreneurial Ecosystem, Entrepreneurs, Entrepreneurship, Government, Innovation, Missouri, Policy, St. Louis, Startup, Technology, VC, Venture Capital, Women

McNair Center Weekly Roundup

Weekly Entrepreneurship Roundup 4/14

Post author By Meghana Gaur
Post date April 14, 2017
No Comments on 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.

McNair Center Rice Entrepreneurs Startup Ecosystems

How to Make Texas More Startup-friendly

Post author By Iris Huang
Post date April 11, 2017
No Comments on How to Make Texas More Startup-friendly

Over the last decade, Blake Commager (@commagere) has raised over $12 million in venture capital funding, started seven companies and sold five—including the first version of Facebook Causes and some of the most popular apps on Facebook, such as Zombies and Vampires. Born and raised in Midland, Texas, Commager graduated from Rice in 1999 and moved to the San Francisco Bay Area in 2003.

Commagere is the CEO of MediaSpike and an angel investor, advising several startups in the Bay Area. His varied experience in the tech startup space, from founder to investor and mentor, gives him a comprehensive perspective on the Silicon Valley startup ecosystem. As Commagere worked at a startup and tried to start a company in Austin before moving out to Silicon Valley, I was interested in learning why he chose to move out to the Bay Area and what Texas could do to better support startups.

Iris Huang: What brought you to the Silicon Valley?

Blake Commagere: I had always been interested in solving the problem of address book updating. In 2003, a friend of mine and I were working on our own company in Austin, and while doing competitive analysis, we found out Plaxo, a startup in Mountain View, California, was trying to solve the same problem. I liked their solution and they already had funding so I moved here to join the company.

I also felt the pressure to move to the Bay Area. By virtue of having a high concentration of tech talent, the Bay Area created a gravitational pull for even more tech talent. You see that with a lot of industries—they blow up largely in a few cities and as the ecosystem develops around them, the momentum increases, which makes it harder for other cities to compete. The more talent it has, the more successful the industry becomes in the region, the more new talent comes. The concentration of talent creates a virtuous cycle—in the Bay Area, the former successful startup founders become the next generation angel investors and venture capitalists, who fund and help more startups succeed.

The concentration of talent in the Bay Area has two main advantages:

The sheer concentration of talent and ecosystem make the process of building a startup easier, not a lot easier, but even if it’s just 2 percent easier, that makes all the difference. Given how hard it is to build a company, anything that makes it a little easier can be incredibly important. The high concentration of talent in the Bay Area makes it easier for startups to hire good employees. Startups will also have an easier time meeting people who can provide advice and introduce them to investors.

The large tech community in the Bay Area also provides a lot of emotional support, which turns out to be extremely important for startup founders. What’s unique about entrepreneurship is the combination of the high level of stress and lack of experience and resources. It’s very intimidating as an entrepreneur when you have a dozen things you have to do today but you have no idea how to do any of them. No business school teaches you what you need at a startup day to day. Sometimes other founders can’t help you either, but at least, you can commiserate with them. For example, after you pitch to a dozen VCs and no one wants to invest, you can talk to your community—they’ve all been through the pain so they understand how you feel. The therapeutic value of the commiseration is really important. You won’t feel so lonely, which, in addition to the hardship of building a company, could be overwhelming.

IH: How can Texas cities become more friendly to founders?

BC: A good ecosystem for startups cannot be developed overnight. It takes several entrepreneur/venture capital cycles—maybe over 20 years.

Someone should have a laser focus on building the tech community so entrepreneurs no longer feel alone in their journey. What entrepreneurs are trying to do is just too overwhelming to do on their own. They will leave for somewhere that has a supportive community if they can’t find the mentorship and network locally. In Austin, most of the time meetings happen by chance. Serendipity is unreliable—someone needs to build a tight knit community and make sure the support network is well-organized.

Someone has to bring capital there. No matter how great the idea is, you need to have money to fund it and make it happen. The number of VC firms and the amount of VC funding in Texas are limited (Note: total VC funding in Austin is $834 million, as compared to $25 billion in Silicon Valley according to the MoneyTree Report from PricewaterhouseCoopers). In Silicon Valley, there are so many funds; a startup can be rejected by a dozen of the top VC firms and still be able to raise funds from hundreds of other VCs. However, in Austin, if you pitch to Austin Ventures and they say no, your fundraising is over.

Also, with a small number of VCs, their time is limited so they can only invest in a small number of companies. Imagine if there are 100 great startups that deserve to be funded but there are only six general partners in your region. Simply for lack of VCs, some of these companies won’t get what they need to survive.

IH: Why is it necessary to raise VC funds locally?

BC: Silicon Valley VCs are unlikely to invest in startups in Texas. VCs have strong motivation to invest in nearby companies because the nature of venture capital investing—95 percent of startups fail—forces them to use their time wisely. VCs usually take board seats at the startups they invest in. Every board seat they take is an opportunity cost, preventing them from taking others. When VCs invest in startups in other cities, they have to travel for board meetings. So the time they spend on that board seat is longer and the opportunity cost for that investment is higher. That’s why you can’t expect Bay Area VCs to invest in Texas startups and when they do, the bar might be three times higher for Texas startups than Bay Area startups.

Funding is not the only value VCs provide for startups; their professional network plays an important role in helping startups succeed as well. However, VCs’ network is geographically dependent. If the startups are far away, they will not be able to benefit from VCs’ powerful network. This lowers their chance of success. This also discourages VCs from investing outside their primary cities.

Raising a fund to start a VC firm in Austin or Houston could be challenging—the new VCs will have to take the extra step to convince potential limited partners that “there is a reason and opportunity to invest here,” instead simply joining all the other VCs are in the Bay Area. However, this is what has to happen. Ideally, the new VCs have built their career and network in Texas for many years, which gives them the motivation and ability to raise a fund locally.

IH: How can Texas cities retain local talent?

BC: It all comes back to the availability of VC funding. Frequently I see announcements that a city is hoping to make the city more attractive to startups with programs for office space or professional services. None of that is a big expense compared to your employee costs. Some people argue that since everything is more expensive in the Bay Area, it makes sense to stay in Austin or Houston. For example, with $1 million funding, you might be able to hire 10 employees in Houston, but in the Bay Area, you can only hire 5 employees with similar credentials. However, this is an unrealistic comparison. In Houston, you are more likely to get $0 funding so really you can’t hire anyone while in the Bay Area, you might be able to get $1 million and hire 5 employees.

Each entrepreneur has their own timeline—when they need to raise funding, if there’s no funding available in Austin or Houston, they either have to shut down their startups or move to the Bay Area and raise money here. Right now everyone just follows the gravity and moves to the Bay Area because that’s the easiest. Texas is losing the tech talents and startups that create so many jobs to the Bay Area. It is very important to break the cycle. Step one is to stop the talent drain with VC funding and keep startups here. As the ecosystem matures, the long-term goal is to make it as easy to raise funding in major Texas cities as in the Bay Area.

Tags Austin, Blake Commagere, Entrepreneurial Ecosystem, Entrepreneurs, Entrepreneurship, Houston, Innovation, McNair Center, Rice, Rice University, San Francisco Bay Area, Silicon Valley, Startup, Technology, Texas, VC, Venture Capital