Tag: Venture Capital

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McNair Center Weekly Roundup

Weekly Roundup on Entrepreneurship 4/7

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:

The Carried Interest Debate

Tay Jacobe and Jake Silberman, Research Assistants, McNair Center for Entrepreneurship and Innovation

McNair’s Jacobe and Silberman analyze the ongoing discussion surrounding carried interest. A complicated concept in the financial sector, carried interest refers to the profits earned on a private investment fund that are paid to fund managers. Private investment funds include VC, PE and hedge funds.

Debate arises from carried interest’s subjection to the capital gains tax rate. The capital gains tax rate caps taxes on carried interest at 20 percent. Critics of the so-called carried interest “loophole” argue that the government should tax carried interest at the standard federal income tax rate of 39.6 percent. Supporters of maintaining the capital gains tax rate for carried interest claim that it acts as a performance incentive for fund managers.

During the 2016 presidential campaign, Trump criticized the massive profits that investment fund managers earned from carried interest. Since taking office, President Trump has not commented on his administration’s plans for taxation on carried interest. The House Republican’s 2016 Tax Reform Proposal proposes a “reduced but progressive” capital gains tax on carried interest. As Jacobe and Silberman note, such a plan would likely cause fund managers’ net incomes to go up.

Looking Forward: Why the VC Industry Needs More Female Investors

Dana Olsen, Reporter, PitchBook

PitchBook’s Olsen analyzes the need for promoting gender diversity in VC firms. Despite modest gains in diversification at many VC firms, most firms are yet to make substantial change. In 2016, only 17 percent of global VC deals involved companies with female founders, while only 9 percent were female-led at the time of backing. Admittedly, these statistics reveal improvements from 2007, when these numbers stood at 7 and 6.8 percent, respectively.

According to Olsen, “the most efficient way to increase the number of female-founded companies that receive VC funding is to have more female venture capitalists.” Aileen Lee, prominent venture capitalist and founder of Cowboy Ventures, believes that “women who have more numbers on the investment team invest in more women.” Another obvious way to increase rates of female entrepreneurship is to introduce educational programs that spark girls’ interest in STEM-related fields at an early age.

A Dearth of I.P.O.s, but It’s Not the Fault of Red Tape

Steven Davidoff Solomon, Contributor, The New York Times

University of California, Berkeley School of Law’s Professor Davidoff Solomon writes for the New York Times on the recent decline in IPOs in the U.S. Many politicians point to over-regulation of the private market as an explanation, evidenced by the line of interrogation at the confirmation hearing of President Trump’s nominee to head the SEC, Jay Clayton. Since 1996, the number of publicly listed firms on the NYSE has been cut by nearly half. Furthermore, the number of IPOs has decreased from 706 in 1996 to only 105 in 2016.

Professor Davidoff Solomon proposes a number of theories for explaining the dropoff in deal-making activity – none of which involve government regulation. Firstly, Davidoff Solomon suggests that “structural changes in the market ecosystem” might be encouraging increased mergers and acquisitions in public and private markets, respectively. Alternatively, the dropoff in IPOs could potentially be caused by a decline in attractiveness of small offerings as the public. In 1996, 54 percent of new offerings were considered large, compared to only 4 percent in 2016. According to Davidoff Solomon, the “market for new issues has moved toward liquidity and bigger stocks.”

And in the Startup News…

New Clerky Tools Help Startups Hire and Raise Funds without Running into Legal Problems

Lora Kolodny, Contributor, TechCrunch

Founded in 2011, Clerky is a San Francisco-based startup that builds software to assist startups and their attorneys with legal paperwork. The startup, founded by former attorneys, focuses almost exclusively on providing legal templates and software for high-growth startups. Originally, Clerky’s services centered around helping startups incorporate their company online. Now, Clerky is looking to expand its services beyond business formation, with its latest two online tools Hiring and Fundraising.

By using Clerky, startups can spend their cash on higher level services and advice, rather than costly legal paperwork. For example, many startups spend thousands of dollars on attorney’s fees for handling seed rounds finances. With Clerky, however, companies can pay $99 in return for six months of unlimited issuances of SAFEs and convertible notes. Many of Y Combinator’s co-founders have used Clerky’s Formation tool to launch their business. Now, they can also rely on the firm’s software throughout their various growth stages and funding rounds.

Dropbox Secures $600M Credit Line with IPO on Horizon

PitchBook News & Analysis

Last week, the Weekly Roundup series covered a PitchBook article on a relatively recent trend in startup financing: debt. Debt financing is not uncommon for startups that are looking to go public. IPO are costly, and opening up lines of credit gives a company some cash without “diluting equity stakeholders.” However, many startups without IPOs in their near future are increasingly accumulating debt; according to PitchBook News and Analysis, funding rounds that were at least partially debt brought in $14 billion in deal value in 2016.

Dropbox, the latest tech unicorn to announce debt financing ahead of an upcoming IPO, is a well-known startup that provides users with cloud-based storage services. Dropbox reportedly secured the $600 million line of credit ahead of a possible offering in 2017.

With Mulesoft’s successful IPO in March, 2017 could deliver a good year for tech enterprise. Cloud-based identity management firm Otka is another enterprise tech firm set to go public within a few weeks.

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McNair Center Weekly Roundup

Weekly Roundup on Entrepreneurship 3/24/17

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:

Congress Turns Its Attention to Entrepreneurship and Innovation — But Does It Take Effective Action?

Anne Dayton, Research Manager, McNair Center
The 115th Congress has passed 3 bills this legislative session relating to entrepreneurship and innovation. The tally seems abnormally high considering that only 10 bills have been passed in total since Congress first convened on January 3rd, While this wave of legislation might appear to indicate that Congress has set its sights on promoting entrepreneurship and innovation, the McNair Center’s Anne Dayton notes that out of the three bills passed by Congress, only one substantiates effective policy.

Out of the three bills passed, Dayton highlights the TALENT Act as likely to “make a real world impact.” The TALENT Act essentially codifies and formalizes the Presidential Innovation Fellows program, an initiative originally introduced by President Obama. The bill falls under House Majority Leader McCarthy’s Innovation Initiative for spurring higher rates of innovation in the private sector. For more insight into the work done by Innovation Fellows, check out Julia Wang’s post for the McNair Center on President Obama’s efforts to generate an “innovation nation.”

The other two acts, Promoting Women in Entrepreneurship and INSPIRE, aim to support women in entrepreneurship but are unfortunately, according to Dayton, “devoid of meaningful changes to public policy.” If you’re interested in how policy can increase women in STEM and innovation-based fields, check out this post from McNair’s Tay Jacobe.

Notwithstanding the results of the recent legislation, Dayton acknowledges that “all three acts passed Congress with bipartisan support”; hopefully these unified efforts are a function of “a shared interest in furthering innovation in government and expanding access to careers in entrepreneurship and STEM” among U.S. politicians.

In Silicon Valley, a Voice of Caution Guides a High-Flying Uber

Katie Benner, The New York Times, Reporter

Bill Gurley is a general partner at prominent Silicon Valley VC firm, Benchmark. Gurley spotted Uber early on, claiming a 20 percent stake in the successful ride-hailing app six years ago. Since Benchmarks original investment in Uber in 2011, the startup’s value increased 1,100-fold. Despite the startup’s huge successes, Uber has run into a host of problems in recent weeks, including legal disputes, stiff competition from rival ride-sharing app Lyft and negative press attention for employee allegations of sexual harassment and discrimination.

In light of the startup’s series of blunders, Gurley decided to take a more hands-on approach in advising Uber’s damage control strategy and will reportedly assist in the search for a COO for the startup. Since joining Benchmark, Gurley has been involved in the firm’s profitable investments into GrubHub, OpenTable and Zillow. However, with a successful public offering, Uber could become Gurley’s greatest tech investment yet.

Gurley is famous in Silicon Valley for his often unorthodox and unpopular advice to successful tech firms. During the dot com boom, he advised tech startup Net Gravity to go public as soon as possible, rather than to delay their IPO for further funding rounds. According to Gurley, “taking on too much venture funding…can fuel a lack of discipline” and lead to the absence of “rigorous financial and operational controls” among startups.

Will the Gig Economy Make the Office Obsolete?

Diane Mulcahy, Harvard Business Review, Reporter

Harvard Business Review’s Mulcahy reports on the potential of the gig economy going forward. In a traditional economy, companies demand employee attendance – in other words, the five day, eight-hour workweek. Under a gig economy, however, companies value employee performance over attendance and allow employees to disconnect their work from the office space. Options that allow employees to work remotely or in co-working spaces cut real-estate costs for employers and provide productive and flexible work environments for employees.

According to Mulcahy, “the most impactful lesson that traditional companies can learn from the gig economy is to judge all workers, including employees, on their results, not on when and where they do their work.” Perhaps entrepreneurs and startups might take a hint from the benefits of the gig economy. For most firms, and especially small businesses, labor is the most costly input into the production process. In fact, according to a study from CBRE, the average U.S. company spends roughly $12,000 per employee per year on office space alone. A survey of 8,000 employees conducted by McKinsey’s Global Institute reveals that employees who work outside of the typical office lifestyle report higher levels of satisfaction and productivity.

MuleSoft Stock Soars after Latest Tech Unicorn IPO

Mikey Tom, PitchBook, Contributor

PitchBook’s Tom covers MuleSoft’s IPO from last Friday. The IPO secured the VC-backed startup a market cap slightly above $3 billion. Mulesoft is 2017’s first large tech enterprise to go public. The San Francisco-based company develops software platforms that integrate data, devices, and APIs (application programming interfaces). Although 2016 was a slow year for public offerings (in comparison to M&A deals), Tom predicts that 2017 could reverse this current trend in VC exits. Tom predicts that the market’s “warm” reception to Mulesoft public offering could signal a shift in the “public market’s appetite for enterprise.” Just last week, tech unicorn Okta filed for its IPO. Okta provides identity management technologies, a hot sector in the tech industry right now.

How Spotify Is Finally Gaining Leverage over Record Labels

Josh Constine, TechCrunch, Reporter

Music-streaming startup Spotify has come a long way since its founding in 2008. In 2012, Constine wrote an article for TechCrunch explaining how Spotify’s success has always hinged on the cooperation of record labels; as a result of Spotify’s limited bargaining power in negotiating with artists, the startup pays huge royalties to their record labels. Despite limited leverage over record labels, the popular company now boasts over 50 million paid subscribers. In his latest post for TechCrunch, Constine notes several ways that Spotify has fundamentally shifted the power balance between streaming platforms and record labels.

First, Spotify has become a vehicle for music discovery, with its Discover Weekly feature shaping a many listener’s music preferences. Going forward, Spotify might take further advantage of the selection process for these recommended playlists to gain bargaining power when negotiating with artists. Currently, Spotify attributes a large proportion of the total royalty payments for many large record labels. If record labels want to rethink their partnership with Spotify now, they will potentially jeopardize a substantial stream of revenue. What’s more, Spotify has recently made moves to diversify its service offerings to include videos, limit content access by offering a tiered subscription system for new releases, and own the rights to the music it streams so that it can eliminate royalty payouts completely for some artists.

According to Constine, if Spotify successfully capitalizes on these strategies, the startup may achieve lower royalty rates and negotiation power before going public.

A Physician’s Open Letter to Health Tech Startups

Dr. M. Christine Stock, Guest Author, VentureBeat

In her post for VentureBeat, Dr. Christine Stock sends a clear message to health tech startups: start inviting physicians “innovation process.” According to Dr. Stock, who is a tenured professor of anesthesiology at Northwestern University, doctors want to be involved in the process that will transform how medicine is practiced going forward. The current model of implementation leaves physicians out of the development process.

Dr. Stock comments that “many new technologies work well after the period of adaptation,” but “leaving end-users (physicians) out of the product development process leads to unanticipated problems such as unintuitive and frustrating workflow, taxing documentation requirements and nonsensical and inaccurate cut-and-paste progress notes.” To increase the productivity of physicians during the rollout period and more effectively promote the well-being of their patients, tech startups should openly communicate with physicians. Through feedback from medical professionals, tech innovators might realize that flooding doctors with a flurry of new digital tools often leads to poor workflow and patient dissatisfaction on the consumer end of the chain.

Dr. Stock also notes on areas of the medical field that urgently demand innovation from the startup sector, including patient ownership of personal medical information and creating an open platform for EMR (electronic medical records) systems, so that healthcare providers can easily access medical records from and communicate with providers using different systems.

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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!

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McNair Center Women

Wanted: More Women Entrepreneurs

Introduction

The increase of women in the workforce in the twentieth century drove U.S. GDP growth to new highs. However, as U.S. growth slowed, so did the rate of women entering the workforce. Pushing for equal representation in fields where women have been historically underrepresented may be the key to stimulating our economy.

Women’s entrepreneurship is one of these fields. Lauded by the Kauffman Foundation as an “economic tailwind that will give a boost to twenty-first-century growth” in the global economy, there is a lot of excitement surrounding the potential of women in entrepreneurship. By looking at characteristics of successful women entrepreneurs, we may gain a better understanding of how to make entrepreneurship more accessible to women.

Characteristics of Successful Women Entrepreneurs

The Kauffman Foundation and Stanford University uncovered some interesting results by surveying 350 founding CEOs, presidents, chief technology officers, and leading technologists of tech startups founded between 2002 and 2012. First, women in tech entrepreneurship are highly educated. Ninety-four percent have at least a bachelor’s degree and 56 percent have graduate degrees. Their educational training centers around business, the liberal arts, and STEM. Female entrepreneurs clearly represent a highly educated slice of the population. In comparison, only 33 percent of women in the United States possess a bachelor’s degree or higher; further, only 12 percent of women possess a graduate degree.

Performance

Research shows that female entrepreneurs experience success. On average, female entrepreneurs of all types (not just tech industries) perform seven percent better on the Kauffman Opportunity Entrepreneurship Share than male entrepreneurs. The KOES tracks the percent of new entrepreneurs who come from prior employment each year; these entrepreneurs leave their jobs to start businesses because they identified market opportunities. This indicates that women are better at identifying the market “gaps” where entrepreneurs thrive. Furthermore, women start their equally successful companies with 50 percent less capital than their male counterparts.

Nonetheless, some research finds that women entrepreneurs perform worse than men. Studies by Fundera found that women-owned businesses earn 30 percent less annual revenue than men. This could be creating a vicious circle, though; when companies make lower revenue, it is harder to access credit, making it more difficult to increase revenue in the future.

Gender Gaps

If women entrepreneurs tend to experience success, why are there so few women involved in entrepreneurship as a whole? Female-owned businesses only represent 16 percent of employing firms. Even then, these firms tend to be small, usually with employee counts in the single digits. Among high-growth, high-technology firms, women represent a mere 10 percent of founders.

https://www.flickr.com/photos/ges2016/27831680936
Penny Pritzker (U.S. Department of Commerce Secretary), Ruth Porat (CFO and Senior Vice President of Google and Alphabet Inc), and Ann H. Lamont (Managing Partner at Oak HC/FT) speak at the Global Entrepreneurship Summit in June 2016

Female entrepreneurs cite lack of available financial capital, lack of mentors or advisors, and the high requirements for time and effort as some of the toughest challenges in starting their businesses. Seventy-nine percent of women surveyed by the Kauffman Foundation reported using their own personal funds to start their business.

Male founders are more than three times as likely as female founders to secure financing through angel donors or VCs. Research at Babson College indicates that this difference may be linked to gender discrimination: “Because women entrepreneurs do not conform to the ‘role’ of the entrepreneur in the high growth venture, role incongruity may lead to greater perceived risk on the part of venture capital investors.”

Supporting Female Entrepreneurs

If women entrepreneurs are unable to secure funding on an equal basis with men, it may be impossible to ever see equal gender representation in entrepreneurship. We need to address gender-based biases of VC firms and other investors. Recruiting more women to the venture capital industry could help reduce unintended gender discrimination when making investments. Employee bias training programs may also help in this process.

Private and nonprofit efforts to encourage women’s leadership and entrepreneurship can be helpful as well. Initiatives like Women’s Entrepreneurship Day, the Women’s Entrepreneur Festival, and the Microsoft’s Women Think Next network are all examples of non-governmental programs that try to address women’s representation issues. Lean In Circles—small support groups made up of women in local communities and around the world— also serve as valuable tools to promote women’s economic involvement.

Government programs may also be successful in jump-starting greater women’s involvement in entrepreneurship. The City of Atlanta provided 15 women entrepreneurs the opportunity to incubate their businesses for 15 months through their the Women’s Entrepreneurship Initiative in 2016. On a federal level, implementation of more programs like the State Department’s African Women’s Entrepreneurship Program may benefit women, especially those in minority groups. One of the greatest challenges for women entrepreneurs is finding mentorship opportunities; local and state government initiatives to pair mentors with women entrepreneurs could help address this problem.

The U.S. economy is at a tipping point. In early 2016, Forbes magazine pointed out that female entrepreneurs are an “under-tapped force that can rekindle economic expansion.” However, despite strong evidence for growth potential and data supporting female entrepreneurs’ power, many barriers still exist. Through integration of more women into entrepreneurship ecosystems, we can achieve a brighter economic future for all.

Related Posts

To learn more about treatment of women within top tech companies, see the McNair Center’s blog post here.

To learn more about women in STEM fields, see the McNair Center’s blog post here.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup 3/3/17

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:

Crowdfunding

Tay Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

This week, McNair’s Jacobe analyzes a relatively new phenomenon in capital fundraising: crowdfunding. Crowdfunding enables startups and entrepreneurs to raise capital for their businesses, without going through more formal sources of funding like angel investors, bank loans and VC funds. Although Indiegogo and KickStarter are by far the largest and most successful crowdfunding websites, many additional crowdfunding platforms have emerged in recent years. In 2015, the crowdfunding industry was valued at roughly $17.25 in comparison to $58.8 billion for VC funds.

While startups may find success in raising cash on crowdfunding sites, there is still no guarantee that the startup will be successful. This uncertainty holds for VC-backed startups as well, but unpredictability becomes a particular concern for crowdfunding-backed startups; the success rate of Kickstarter’s startups stands at 35.72 percent.

According to a study conducted at the Wharton School, a differentiating factor between startups that go through successful crowdfunding campaigns is strategic and longterm planning. Jacobe believes that “crowdfunding has potential to shake the dynamics of investment in the coming decades.” In order for crowdfunding to reach its full potential as an alternative platform for entrepreneurs to raise capital, policymakers should implement regulations that support and empower the crowdfunding environment

Startups Seeking Funding Should Consider Corporate Venture Capital Arms

Richard Harroch, Contributor, Forbes

In recent years, many large corporations, like Google, Nokia and Qualcomm, have been sprouting “venture capital arms.” Venture capital arms or corporate venture arms are VC funds that are separately owned or subsidiaries of a parent company. According to Forbes’ Harroch, corporate venture arms typically participate in seed, Series A and Series B investment rounds. These funds often look out for startups that offer the parent company a strategic or synergistic edge.

Among other positive outcomes, the corporate venture model benefits startups by providing credibility, a larger consumer base, access to an expansive network of resources and connections and strategic and industry-specific guidance. However, as pointed out by Michael Yang, the Managing Director for Comcast Venture, “there is no shortage of capital for the best startups.” Because the most promising startups can easily choose from a wide range of investing options, corporate arms distinguish themselves from traditional VC funds by leveraging their in-house expertise and ability to benefit companies post-investment.

Venture capital arms are a strategic and financially attractive option for many large corporations. Parent companies gain access to new and disruptive technologies, potential industry partners, budding industry talent, insight into alternative business models and additional sources of cash inflow.

Tech Startup Market Sinks to Lowest Point in Three Years

Sarah McBride, Journalist, Bloomberg

Stock markets have been enjoying a post-election rally amid expectations of infrastructure spending, decreased regulations and corporate tax cuts. Since January 26th, the Nasdaq Composite Index soared 13% percent and the Dow Jones Industrial Average broke the 20,000 mark.

However, Bloomberg’s McBride points out under-performance by one key segment of the market: private technology startups. While private tech startups are also likely to benefit from the Trump administration’s proposed tax cuts and deregulation, stricter immigration rules for the H-1B visa program could prove harmful. Bloomberg’s U.S. Startups Barometer measures startup deal-making in the U.S. at 37 percent below its level from December, putting the startup sector at its lowest point since April of 2014.

Although private market deals tend to reach a lull at the beginning and end of the year, deal flow in 2017 seems unusually low when compared to previous years. According to McBride, many VCs are now facing “the prospect that they had overpaid for many investments” in previous years, “particularly the coveted unicorn startups valued at $1 billion or more.”

Fortunately, the recent slow in deal flow is not symptomatic of a lack of capital; according to the National Venture Capital Association, U.S. venture funds raised $41.6 billion in 2016, “ the most since the dot-com days of 2001.” Despite the current trend, McBride expects more VC-backed private technology firms to go public.

And in startup news…

More bad news: JackThreads, Stayzilla shutting down

Dana Olsen, Financial Writer, PitchBook

Pitchbook’s Olsen reports on recent layoffs by VC-backed startups. In 2016, many startups halted operations and trimmed down their work forces. Last year, employees at many startups like Sonos, Pebble, Shyp, Optimizely, Yik Yak and Github faced waves of layoffs. Unfortunately, layoffs in the startup sector seem likely to continue into 2017. Munchery, Joyable, JackThreads and Stayzilla are four startups that have already instituted mass layoffs ahead of March. According to Olsen, VC-backed Stayzilla and JackThreads are also considering shutting down operations due to unsound financial practices and lack of profitability.

SoftBank set to invest more than $3 billion in WeWork

Brian Sullivan, Reporter, CNBC

WeWork is reportedly set to receive over $3 billion in investment from Japanese VC firm, SoftBank. WeWork, founded in 2010 in New York City, provides coworking spaces, networking opportunities and educational services to entrepreneurs, small businesses and freelancers. Since opening its original office location in New York City in 2010, WeWork has expanded its operations nationwide and globally, with a new location likely to open in downtown Houston later this year, The startup currently offers over 150 coworking spaces, with locations in most major U.S. cities and over 15 countries.

At the time of its last investment, WeWork was valued at approximately $17 billion. With the deal, WeWork’s valuation would surpass $20 billion. In recent years, this successful startup has accumulated over $1 billion in capital from prominent VC firms like Goldman Sachs, Benchmark and Hony Capital.

SoFi Raises $500 Million Led by Silver Lake for Global Expansion

Selina Wang, Reporter, Bloomberg

Founded in 2010, San Francisco-based Social Finance Inc. (SoFi) provides modern underwriting services. Using SoFi, customers can purchase financial products, such as student loan refinancing, mortgage loans, personal loans, wealth management and life insurance online.

In its latest funding round, SoFi raised over $500 million, drawing investments from SoftBank, GPI Capital and some sovereign wealth funds, but PE firm Silver Lake Partners led the charge. The recent funding round will support SoFi’s efforts to break out into international markets and expand its financial product offerings. Many SoFi executives have expressed interest in providing customers with an larger set of personal financing tools, such as mobile deposit.

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Government and Policy McNair Center Small Business

Crowdfunding

What is crowdfunding?

Crowdfunding is constantly evolving and hard to define. Elizabeth M. Gerber at Northwestern University defines crowdfunding as “an open call over the Internet for financial resources in the form of a monetary donation, sometimes in exchange for a future product, service or reward.” Due to the ease and availability of crowdfunding sites, crowdfunding has changed the way entrepreneurs source funds.

A typical modern crowdfunding campaign begins with a page on a crowdfunding website. The page describes the concept of the project, the fundraising goal and the rewards for backers. Videos, sketches and graphics demonstrate the potential of the idea. From there, backers can donate money in exchange for tiered rewards, usually depending on the amount of money contributed.

History

The first popular online crowdfunding platform, AristShare, launched in 2003 as a way for musicians to receive funds to produce new music. Artists could offer incentives to investors, like exclusive access to content or previews. This reward-based structure made the deal appealing to both artists and contributors.http://i.vimeocdn.com/video/590376642_1280x720.jpg

After the success of smaller, niche-based crowdfunding sites like AristShare, larger and broader sites took hold of the crowdfunding scene. Two of the most successful, Indiegogo and Kickstarter, were founded in 2008 and 2009, respectively. Kickstarter boasts that since their founding, more than 12 million people have contributed funds to entrepreneurs, pledging more than $2.9 billion. Indiegogo is similarly successful, raising more than $1 billion from 11 million backers.

A crowdfunding project meeting its goal does not always mean that the project will be successful in the long run. Crowdfunding campaigns can be successful if their product seems exciting to backers, but if their business plan is not sound, then it is hard to maintain success beyond the initial crowdfunding. For example, one of Indiegogo’s most popular campaigns, a high-tech smartphone concept called the Ubuntu Edge, was unable to go into production due to financial issues even though the project had raised the second highest amount of money in Indiegogo’s history.

In 2015, Crowd Expert estimated that the crowdfunding industry was worth approximately $17.25 billion. In comparison, Venture Capital in 2015 was estimated at $58.8 billion.

Successes and Failures

The most basic measure of success for crowdfunding campaigns is whether the project reaches its goal. Research from Ethan Mollick at the Wharton School of the University of Pennsylvania indicates that being successful in a crowdfunding campaign requires strategic planning. “Crowdfunding projects mostly succeed by narrow margins, or else fail by large amounts,” Mollick asserts. Kickstarter’s records back up this claim. Kickstarter’s success rate is only 35.72 percent, meaning that only about one third of projects reach their goals.

Researchers at Northwestern attempted to understand the dynamics of successful crowdfunding campaigns. Using data from previous Kickstarter projects, they used machine learning to try to predict the success of projects. Their algorithm analyzed different factors of project pages, considering aspects like number of sentences in project description, length of campaign, goal of project and number of rewards available, among others. The accuracy rate for this research was 67 percent. This research shows that although some factors can success in some cases, there is no exact recipe for a successful campaign. The researchers explained, “There is a possibility of the existence of a hidden variable that would help us classify better.”

Nonetheless, certain crowdfunding projects receive immense support and go on to experience long-term success through being acquired, undergoing an IPO or surviving as an independent business. The most successful Kickstarter campaign of all time, a smartwatch called Pebble Time, was able to raise over $20 million even though the initial goal was only $500,000. Pebble produced and shipped over 2 million watches before shutting down operations in December 2016, selling its key assets and intellectual property to Fitbit. Indiegogo has also seen projects that turned into profitable businesses, like the Flow Hive and the SONDORS Electric Bike. Both of these startups have grown since their campaigns and expanded their product lines.

Economic Implications

Crowdfunding might be an effective way to use private action to stimulate the economy and help small businesses and startups. For individuals who have difficulty initially accessing angel investment, venture capital or bank loans, crowdfunding can provide an alternative. A successful crowdfunding campaign can enable small businesses to access these more traditional types of funding later in their lifetimes.

A study in 2015 in the Thunderbird International Business Review qualified crowdfunding as a Fast-Expanding Market. FEMs are characterized by youth, rapid growth and highly lucrative results. Crowdfunding encourages virtual “formation of clusters of expertise and capability,” encouraging collaboration across the world. Adding to the “efficiency and productivity in the community value chain,” researchers also speculate that crowdfunding has the potential to bring Small and Medium-sized Enterprises (SMEs) out of sluggish growth rates.

Crowdfunding Policy

Equity crowdfunding allows investors to purchase a small equity or bond-like share in a business.

In 2011 and 2012, mainstream media brought attention to the Facebook Problem. Facebook filed complaints regarding the threshold on private investors that a company could have without registering with the Securities and Exchange Commission. Facebook considered the threshold, 500, far too low. In response, the SEC’s JOBS act in 2012 raised this threshold to 2000. Although this policy change initially intended mainly to help companies like Facebook, it inadvertently affected equity crowdfunding positively. The regulations allowed more investors per equity crowdfunding campaign.

In May 2016, another SEC regulation update gave equity crowdfunding sellers and investors even more leniency. The new policy exempted small crowdfunding operations from certain SEC regulations on investing. To qualify for exemption, issuers may only raise up to $1 million in crowdfunding per year; investors can only contribute a certain percentage of their income per year. The SEC also regulates the extent to which crowdfunding portals can involve themselves in users’ crowdfunding transactions. Although equity crowdfunding may help small businesses get initial capital, it may affect the firm’s ability to raise follow-on funds later in the process.

Nonetheless, there are still other crowdfunding policy issues that the SEC may need to address. The updated regulations place a financial burden on portals, holding them liable in certain cases of issuers not keeping promises. They may also pay too little attention to the size of businesses/individuals that use crowdfunding to raise funds.

Conclusion

Crowdfunding has potential to shake the dynamics of investment in the coming decades. We need to ensure that the regulations surrounding this market are desirable for investors, issuers and crowdfunding portals.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/24/17

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:

Austin’s Venture Capital

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest post for the McNair Center, Martin follows up on her previous analysis of Austin’s booming entrepreneurial ecosystem. Martin highlights Austin’s decreases in VC investment and deal closures from 2016 as signs of a slowing in growth. According to a report released by PitchBook, 2016 brought substantially fewer deal closures than 2015 for Austin startups. Martin suggests that increased perceived risk among investors and a recent decline in startups are byproducts of an over-investment into Austin startups in previous years.

Still, Martin remains optimistic about the health of Austin’s entrepreneurial ecosystem going forward, predicting that the city “ will see investment increase again after VC investment balances out.”

Big Food Looks to Startups for Ideas, Innovation

Annie Gasparro, Reporter, Wall Street Journal

When the Kellogg’s and General Mill’s of the food industry realized that they couldn’t quell rising consumer obsession with healthy and unprocessed products, they started investing in food startups.

In recent years, many prominent names in the food processing and consumer goods industry began creating VC funds to invest food startups. According to CircleUp, a company that acts as an investment marketplace for food startups and PE firms, big players in the consumer good industry saw roughly $18 billion of their market share swept away by smaller competitors between 2011 and 2015. These partnerships are also mutually beneficial. Emerging food startups gain access to resources and credibility, and larger corporations receive valuable insight into the successful marketing strategies and recipes of their new competitors.

Why Some Startups Succeed (and Why Most Fail)

Patrick Henry, Founder and CEO of QuestFusion, Contributor, Entrepreneur

In his article for the Entrepreneur, successful entrepreneur and startup consultant, Patrick Henry, analyzes startup failures and successes. Henry reinforces the relevance of his post by citing an article by FastCompany, which states that 75% of venture-backed startups fail. Henry frames the question in two ways: what makes startups fail, and what makes startups succeed? Citing studies from StatisticBrain, CB Insights and Compass,

Henry attributes most business outcomes to company leadership. More often than not, successful startups have CEO’s or c-suite members with general and industry-specific business knowledge. Think Google’s Eric Schmidt, Ebay’s Meg Whitman or Apple’s Steve Jobs. Commons reasons for startup failures, such as raising too much capital too quickly, running out of cash or ineffective marketing, signal poor decision-making at the management level. Company founders should consider adding “seasoned” business veterans who the possess “domain expertise” to best support their strong technical team and existing product design.

According to Henry, startups should not undergo more than two pivots. Pivots are changes “in course of direction that result in a material change in the product-market strategy.” While young businesses should be equipped to adjust to market fluctuations, they should avoid being so flexible that they lose sight of their founding mission.

The Megatrends of Entrepreneurship are Key to Job Growth

Wendy Guillies, Contributor, Forbes

Wendy Guillies, President and CEO of the Kauffman Foundation, discusses the megatrends of entrepreneurship.

The first major trend involves demographics. Despite America’s growing diversity, the country’s entrepreneurial population has remained largely stagnant. Women and other minorities remain largely underrepresented in business ownership. According to Kauffman Foundation data, minorities and women are half as likely as their counterparts to own a business that employs people.

The second key trend focuses on geography. Entrepreneurial activity is becoming increasingly concentrated in urban centers. According to Guillies, this phenomenon is largely a function of population shifts, as more and more people relocate to cities. From the 1980s to 2017, the share of small businesses based in rural communities dropped from 20 to 12 percent. “Increasing urbanism” also has spurred the spread of entrepreneurial activity from the major coastal hubs, “ driving geographical equality.”

The third trend involves job creation and technology. According to Guillies, “in the past, as companies scaled their revenue, jobs scaled in an almost linear fashion.” Now, this is no longer the case. For example, in 1962, when Kodak reached $1 billion ($8 billion today) in sales, the corporation employed over 75,000 people. When Facebook surpassed similar sales targets in 2012, the company employed a mere 6,300 workers. Despite promoting capital efficiency, digitization has slowed job creation from the startup sector, However, there is a significant upside to these web-based technologies: such platforms lower many of the barriers to market entry for small businesses.

According to Guillies, “these three megatrend…are sources of both concern and optimism.” If entrepreneurs and policymakers can better understand and take advantages of these trends, they can “enhance job opportunities for the benefit of us all.” For instance, if minorities alone started as many businesses as non-minorities, the economy would add more than 9.5 million jobs.

QA with Jared Bakewell on the 2017 Annual State of Entrepreneurship Address

Silicon Prairie Team, Silicon Prairie News

The 8th Annual State of Entrepreneurship Address took place this past weekend in Washington D.C. Jared Bakewell, CEO and Co-founder of Proseeds, an Omaha-based startup, recently sat down with the Silicon Prairie Team to discuss the event’s key takeaways. The Kauffman Foundation’s Guillies delivered the address,and she focused on the three major trends of entrepreneurship.

In the interview, Bakewell stressed a general consensus among the event’s attendees, which included entrepreneurs, venture capitalists, and politicians: government policy should remove early barriers to success for startups and small businesses. For entrepreneurs in the midwest and rural areas, access to capital is a concern.Currently, most of the nation’s VC flows toward the coastal hubs. Additional concerns for startups looking to expand operations are instabilities in both healthcare and immigration policy. Bakewell optimistically concluded the interview, adding that many of the attending politicians appeared open to the suggested solutions to these challenges.

IBM Watson joins Indiegogo to back a crowdfund-to-production service for entrepreneurs

Khari Johnson, Reporter, VentureBeat

Last week, IBM Watson and Arrow Electronics announced a new partnership with crowdfunding website, Indiegogo. IBM spokesman Deon Newman shared with VentureBeat that the partnership will expand Indiegogo’s operations from purely fundraising to also incubating and accelerating startups.

Indiegogo cofounder Slava Rubin reiterated the strategic shift, telling VentureBeat that the company plans on evolving its platform into “a springboard for entrepreneurs.” All startups that participate in the partnership’s services will gain access to IBM Watson’s Bluemix. Bluemix, along with IBM Watson’s other AI services, will offer smaller companies the opportunity to apply machine learning processes to their existing infrastructure. Some successful participants will even participate in Bluexmix’s global entrepreneur program and receive $50,000 in capital from Arrow.

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McNair Center Startup Ecosystems

Austin’s Venture Capital

Austin, Texas
Austin, Texas

In my previous blog post, I discussed Austin, Texas’ strong history of entrepreneurship and the many resources in the ecosystem. Supportive Austin policies have resulted in the creation of the Entrepreneur Center of Austin, and resources like Capital Factory and Tech Ranch Austin have emerged. Austin’s entrepreneurial ecosystem appeared to be healthy.

A recent PitchBook Report discussing venture capital in Austin shows the ecosystem to not be as healthy as previously thought. In 2014, Austin saw 286 deals closed at a value of $1.4 billion. Similarly, in 2015, 296 deals closed or $1.3 billion. 2016 saw a substantial decrease in the number and value of deals closed with 199 deals closed at a value of $978 million.

Austin’s ecosystem reflects a nationwide trend in declining deals. According to PitchBook, the number of deals closed nationwide had been rising steadily since 2009, peaking in 2014 with 10,501 deals closed. 2015 and 2016 both saw decreases in the number of deals closed; 10,293 and 8,136 respectively. The 8,136 deals closed in 2016 is the lowest number of deals closed since 2012.

An insufficient supply of startups and an increased perception of risk are decreasing VC investment in the Austin ecosystem. Investors likely fear that the oversupply of capital that has been invested in the system in 2014 and 2015 has led to slumping returns, so they are pulling back their investments. Once VC investment balances out, it is likely that Austin will see investment increase again.

Outside investment in Austin-based companies soared in 2014 and 2015, as respectively, 396 and 370 investors from outside the Austin metropolitan statistical area invested in Austin-based ventures. In 2015, Austin had the most venture capital invested in its first financings with $324 million. However, venture capital activity in the United States overall has declined. Austin’s most prominent VC fund, Austin Ventures, closed in 2015. After the two-year boom period from 2014 to 2015, the rate of VC investing in Austin startups has slid considerably over the 2016 period.

Austin’s diverse ecosystem is an asset to the stability of VC investment in the area. While the majority of VC activity occurs in the software industry, the pharmaceutical and biotech industry also attract significant VC investment. In 2015, 12 deals were closed in health care devices and services, and in 2016, 11 deals. The opening of the Dell Seton Medical Center and Capital City Innovation, which will work to connect entrepreneurs with healthcare research, will likely contribute to increases in VC for health care devices and services.

According to a McNair Center Report, VC investment in Texas is falling. Yet Austin’s relatively low costs and the boom of angel/seed investment have given Austin a reputation as a thriving startup ecosystem in a state where VC investment is dropping. Despite decreases in a 2016 VC investment in the region, it is likely that Austin will see investment in crease again after VC investment balances out.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 1/27/2017

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:

The Right to Entrepreneurship

Tay Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

This week, McNair’s Jacobe focuses on the link between entrepreneurship and human rights. While the intersection between activism and entrepreneurship has yet to gain significant traction in the U.S., international collaborations between the two sectors have found success. Jacobe points out that “Human rights and entrepreneurship have the ability to reinforce one another,” citing reports from Fordham University and Pontifical Catholic University of Peru on the potential of human development-centered entrepreneurial ventures. According to Jacobe, U.S policy should reflect a balance that advances entrepreneurship and promotes protection of human rights.

Prairie meets CES: Top 10 trends to watch in 2017

Keith Fix, Contributor, Silicon Prairie News

The annual Consumer Electronic Show (CES) took place earlier this month in Las Vegas. Silicon Prairie’s Fix shares his 2017 predictions for major trends to shake consumer technology, and artificial intelligence, smart homes, intelligent systems (Amazon Echo), wearables, self driving cars, virtual reality, and drones are among his top picks. Fix expects the industry to experience further fragmentation and democratization as startups continue to develop new technologies in order to keep pace with consumer expectations.

In a tech-saturated world, customer feedback is everything

Jeremy Bailey, Contributor, TechCrunch

TechCrunch’s Bailey emphasizes the importance of gauging customer feedback throughout the design process in the tech industry. Too often, design teams undervalue the power of customer interactions. As evidence, Bailey cites AirBnB’s notorious success in growing its consumer base by 200% after meeting for one afternoon with its early users. In order to achieve a dynamic and responsive design model, companies should restructure their “internal bureaucracy” and adopt a “customer-centric” mindset. Bailey suggests that design teams take a simple approach: development of a problem statement, collaborative hypothesis-generation, and constant reevaluation.

Most Small Businesses Create Fewer Than One New Job a Year, Study Finds

Ruth Simon, Senior Special Writer, The Wall Street Journal

According to a recent study from JPMorgan Chase & Co. Institute that spanned the payroll records of 45,000 small business in 2015, small business hiring has been sluggish and inconsistent. In fact, the sector’s median level of employment growth sits at less than one new full time position per year. Although small businesses are often considered the crucial driver of the American economy, most do not expand. While small businesses employ 17% of America’s labor share, 89% employ fewer than 20 workers. Professor Scott Stern, who studies entrepreneurship at MIT, explains that the “belief that entrepreneurship in general is a driver of economic growth and prosperity” might be misguided.

How to Find and Start Your Next Entrepreneurial Effort

Nathan Resnick, Contributor, Entrepreneur

Nathan Resnick, founder of Sourcify, a startup based in Tel Aviv that helps connect entrepreneurs with trusted manufacturers, offers helpful advice for millennial entrepreneurs who are considering their next venture. Resnick advises entrepreneurs to consistently gauge audience feedback during early planning stages as audience responses help narrow the focus of a project.  Resnick emphasizes the importance of an entrepreneur’s willingness to acquire new skills and embrace market competition.

Fintech Companies Could Give Billions of People More Banking Options

Jake Kendall, Author, Harvard Business Review

Harvard Business Review’s Kendall is the director of Digital Financial Services Lab, an early stage incubator that supports entrepreneurs who launch fintech startups in developing companies. Financial technology, or fintech, refers to the high-tech industry involved in computer software development of innovative financial services, such as digital banking programs. Despite investment into fintech increasing eight-fold since 2011, its benefits have largely been restricted to mature economies.

Kendall identifies three main challenges that fintech startups operating in developing countries must overcome: “lack of cloud infrastructure, users who are “less digital” than rich-world users, and users who live economically chaotic lives based primarily in the informal sector.” Still, many entrepreneurs are launching fintech startups to support the 2 billion customers living in regions without formal banking services. Plus, an increasing global trend of mobile phone ownership serves as a promising platform for fintech startups.

3 charts that show the effect of venture fundraising on founder ownership

Adley Bowden, VP of Market Analysis, PitchBook

PitchBook released an article illustrating the diluting effects of venture fundraising on founder ownership. The data used in the graphic analysis are taken from the results of a survey conducted by J.Thelander Consulting’s of 380 private venture-backed companies in the US. Although capital raises are a critical and necessary component of any startup’s success, PitchBook’s Bowden emphasizes that founders should understand the diluting effects of venture fundraising on their equity percentages. According to Bowden, “If all goes well and the company’s value increases, this is a win-win situation, but in the case that things don’t go well, the economics can turn against founders fairly quickly.” The article includes three charts that track founders’ shares in their companies – distinguishing between biotech, medical device, and tech industries – through various funding stages. At pre IPO, all three industries reveal founder ownership percentages below 10%.

15 charts that illustrate how the US venture industry looked in 2016

Kyle Stanford, Analyst, PitchBook

PitchBook also recently released an article that depicts the state of venture capital in 2016. The article features 15 charts of the key performance indicators that are frequently used in measuring VC activity. Utilizing standard industry metrics, PitchBook’s full report offers an in-depth analysis of VC-backed firms in the U.S, including graphics on angel and seed funding, fundraising by quarter, VC-backed exits, and corporate VC participation.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 12/02/2016

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:

Keep Austin Entrepreneurial

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

In 2016, Austin was ranked as the number one U.S. city for startup activity by the Kauffman Foundation. Austin’s entrepreneurial ecosystem began in the 1970s and 1980s, and was originally focused on computer and semiconductor manufacturing.

Austin’s “Silicon Hills” has diversified into “more than the computer chip and semiconductor industry that first enabled its growth.” The annual South by Southwest Festival draws thousands of tech startups to the city and provides excellent networking opportunities for entrepreneurs. The University of Texas at Austin adds thousands of skilled employees to the city’s labor force each year. Additionally, UT Austin’s boasts the Austin Technology Incubator, a startup-focused incubator run by the university’s IC2 Institute.

Austin provides entrepreneurs with supportive policy infrastructure, skilled and energetic laborers and access to valuable mentorship opportunities. If efforts to grow Austin’s economy continue on their current path, the city will be well poised to solidify its presence as a thriving entrepreneurial ecosystem.

Overtime Rules in Limbo: What Businesses Should Do Now

Jeremy Quittner, Reporter, Fortune

Last week, a federal judge judge in Texas granted a preliminary injunction against the Department of Labor’s new overtime rules that were set to go into effect on December 1st. The new overtime rules would have increased the threshold salary for overtime workers to $47,476 from $23,600. Many small business owners, acting in preparation for the new rule, made the difficult financial decision to switch salaried workers to hourly status.

The preliminary injunction still must go through an additional 60 day period of court hearings before it becomes an official injunction. Additionally, the Obama administration’s Department of Labor could still appeal the judge’s decision to the U.S. Court of Appeals for the 5th circuit. It is not yet clear if the administration will challenge the judge’s decision. Even if the decision is appealed, success on appeal is doubtful; in the court’s recent history, the U.S. Court of Appeals for the 5th Circuit has tended to challenge the Obama administration.

McNair Center’s Catherine Kirby previously examined the effects of new overtime labor laws on small businesses in her blog post Small Business and Overtime Regulation.

One simple way billionaire investor Peter Thiel identifies game-changing startups

Eugene Kim, Reporter, Business Insider

Peter Thiel, serial VC investor and founder of PayPal, is known for his profitable investments in successful billion dollar startups, such as Facebook, Palantir, Stripe and SoFi. Business Insider’s Kim reports possible insights into Thiel’s keen eye for return on investment.

In an interview at VC firm Khosla Ventures’ KV CEO Summit, Thiel recently said, “I think in some ways the really good companies often couldn’t even be articulated…we didn’t quite have the right words. Or maybe they were articulated but were articulated in terms of categories that were actually misleading.” Thiel cautioned investors away from startups that rely on buzzwords, such as big data or cloud computing, in their pitches. Thiel said, “…when you hear those words, you need to think fraud and run away as fast as you can. It’s like a tell that you’re bluffing, that there’s nothing unique about the business.”

White House expands platforms for inclusive entrepreneurship

Kate Conger, Reporter, TechCrunch

The White House recently announced “new and expanded plans to improve diversity and inclusion within the startup economy.” The plans are focused on promoting diversity in higher education, investment and entrepreneurship. The initiatives reflect the Obama Administration’s commitment to improving minority representation in universities, investment firms and tech companies. By focusing the initiatives within the private sector, these efforts will hopefully continue after his departure from office.

More than 200 universities, all members of The American Society for Engineering Education, have signed a pledge to promote diversity in their engineering programs. Additionally, more than 30 VC firms and accelerators signed a pledge to diversify access to seed and early stage capital for underrepresented entrepreneurs and reveal information regarding their portfolios’ diversity. Furthermore, 46 tech companies, including Xerox, have joined the Tech Inclusion Pledge, demonstrating a commitment to publicly publish recruitment goals and diversity metrics.

Tom Kalil, deputy director for technology and innovation at the White House Office of Science and Technology Policy, reportedly told TechCrunch there is existing data that indicates diverse firms are more diverse are more likely to be successful. According to Kalil, “A lot of innovation comes from diversity, people with different backgrounds.”

Data science startup Civis Analytics raises $22 million

Ken Yeung, Contributor, VentureBeat

Civis Analytics recently announced that it bagged $22 million in its latest Series A funding round. Civis Analytics was born out of President Obama’s 2012 reelection campaign. Though originally focused on political campaigns, the data science company’s cloud-based platform provides data analytics tools and methodologies  to organizations focused in areas such as health care, media and education. Since its inception, the startup has relied on revenues, rather than funding, to support its operations. However, the startup announced its recent funding will go toward hiring more engineers and data scientists.

Civis Analytics CEO, Dan Wagner states the importance of data analysis to business success: “Everyone knows that they need to be using data, but most don’t know where to start. Or, if they are using data, they aren’t necessarily asking and answering the right questions.”

Stripe Investment Makes Cofounder The World’s Youngest Self-Made Billionaire

Ryan Mac, Reporter, Forbes

Brothers Patrick and John Collison are cofounders of San Francisco-based startup Stripe. Stripe is a tech company that enables private individuals and companies to engage in transactions via the internet and on mobile apps. MIT and Harvard dropouts, respectively, Patrick and John Collison recently joined the ranks of the world’s youngest self-made billionaires. Stripe recently announced a successful funding round, which doubled the startup’s valuation to $9.2 billion. CapitalG and General Catalyst Partners jointly invested $150 million in Stripe during its latest funding round.

Despite their early success, the Collision brothers are still hungry for more; Patrick Collison told Forbes in January of 2014 that, “Heartening as the success to date has been, we are so early in accomplishing the goals that we set out for ourselves. If anyone here believes that Stripe has already made it, that would be hugely problematic for us.”

QA with Kauffman’s Victor Hwang on entrepreneurship in the heartland

Ryan Pendell, Contributor, Silicon Prairie News

Victor Hwang, Vice President of Kauffman Foundation, and Phil Wickham, Executive Chairman of Kauffman Fellows set out on a road trip through America’s Midwest earlier this month to “take the pulse of entrepreneurship in America’s “middle.” Despite a nationwide political narrative that depicts the Midwest in a state of slumping stagnation, caught between booming coastal economies, Hwang and Wickham report that Midwestern entrepreneurs are actively seeking out business solutions to improve the quality of life within their communities. Since the benefits of the tech boom have been focused on the coasts, Hwang and Wickham cite the biggest challenges to Midwestern entrepreneurs as access to capital.

According to Hwang, the need to build infrastructure and capital should be considered both a challenge and an opportunity for Midwestern entrepreneurs going forward. Hwang expressed optimism for the future of the Midwestern economy, claiming that the region’s culture of “civic mindedness, that willingness to pitch in, that willingness to take risks and help others reach their ambitions” is still alive.

Policy Changes Needed to Unlock Employment and Entrepreneurial Opportunity for 100 Million Americans with Criminal Records, Kauffman Research Shows

Ewing Marion Kauffman Foundation

According to a report recently published by the Kauffman Foundation, rethinking America’s “occupational licensing policy could counter recidivism, encourage entrepreneurship and boost the American economy.” Currently, occupational licensing requirements prevent individuals with a criminal history from securing licenses that could open the door to financial stability and self-sufficiency. Many occupations that require occupational licenses are on low-skilled and high-skilled professions; increased labor participation, productivity and entrepreneurship by released inmates within these fields could therefore produce benefits for the overall economy. According to the Kauffman Foundation’s study, over 60 percent of inmates released each year from state or federal prison are still unemployed after one year of their release.

The Kauffman Foundation’s Emily Fetsch notes that the high levels of recidivism and unemployment among ex-convicts indicate a fundamental issue with the country’s occupational licensing policy: “Hundreds of professions that require occupational licenses could provide paths to economic independence for those formerly incarcerated, except for the fact that their criminal histories alone may ban them from receiving licenses, even if their convictions had no relevancy to the job.”

Fetsch recommends reforms to occupational licensing policy that would exclude only criminal defendants who pose a a public threat or when convictions are recent and relevant to the context of an occupation. Additionally, Fetsch proposes offering the formerly incarcerated opportunities to earn rehabilitation or restoration certificates, thereby preventing inmates from automatic disqualification for consideration of occupational licenses solely on the basis of their arrest. Lastly, Fetsch contemplates disposing of occupational licensing requirements altogether, expressing skepticism for the regulation’s effects in promoting public safety and health.

An Incubator for (Former) Drug Dealers

Maura Ewing, Reporter, Bloomberg

“Amid calls for more job training, less automatic background searching and other changes that would make it easier for ex-felons to become employees” Bloomberg’s Ewing reports on an alternative perspective solution on the fight to curb recidivism and unemployment  among the formerly incarcerated: encouraging them to start their own businesses.

The public and private sphere should continue to push programs that support formerly incarcerated individuals, as well as tackle the structural problems that face these prisoners as they re-enter society. However, Ewing asserts that more emphasis should be placed on the potential returns on fostering entrepreneurship among this commonly dismissed population.

Defy Ventures, a nonprofit incubator based in New York, certainly achieved success in this regard by transforming ex-convicts into entrepreneurs. Over the past six years, Defy Ventures has trained upwards of 500 released felons and successfully incubated over 150 companies. What’s more, the recidivism rate among the incubator’s alumni within five years post release is an astonishing 3 percent, compared to the national average of 76 percent. Defy Venture’s efficacy in curbing recidivism rates suggests that future initiatives to support released prisoners should be focused on entrepreneurship.

Ewing’s article tells the story of another incubator underway in Hartford. The incubator, TRAP House, focuses on supporting former drug dealers as they start new, legal companies. The incubator’s name makes a clever reference to slang for drug-stash locations and is “short for transforming, reinvesting and prospering.”

Happy Holidays from the McNair Center for Entrepreneurship and Innovation. The Entrepreneurship Weekly Roundup will return in January.