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Accelerators McNair Center Startup Ecosystems

Social Capital Wins over Financial and Human Capital

Entrepreneurship can spur economic growth and job creation. As a result, state and local governments are seeking ways to establish entrepreneurial ecosystems. One way to strengthen an ecosystem is to increase its social capital. Social capital is the networks of relationships among people who work in a particular field.

Lack of social capital is among the top reasons that nine out of ten startups fail. Money and skills are not enough for success in entrepreneurship. Aspiring entrepreneurs also need social capital, which along with financial and human capital, is essential to grow a business.

Human, Financial and Social Capital

It is useful to differentiate between human, financial and social capital. Human capital comprises the knowledge and skill sets that enable people to successfully create new enterprises (Davidsson and Honig 2003; Snell and Dean 1992). Financial capital is the funding needed to get a business off the ground, sustain growth and develop operations.

Human capital is further classified into general and specific capital. General capital is associated with education, which provides the knowledge and the skills to solve problems. Specific human capital refers to the know-how for entrepreneurial activities, which has few applications outside of this context (Becker 1975; Gimeno et al. 1997). An example of specific human capital is the previous startup experience demonstrated by serial entrepreneurs.

Financial capital is key for early-stage startups to fund their ventures. Personal funding, debt, equity, crowdfunding and grants are among the funding sources available for entrepreneurs.

In entrepreneurship, social capital refers to all the interpersonal and interorganizational relationships through which entrepreneurs have access to the resources needed to discover and exploit business opportunities and succeed (Davidsson and Honig 2003; Wiklund and Shepherd 2008).

Social capital is, in simple terms, equivalent to individual and community networks. Networks can have strong or weak ties. Strong ties occur between people or firms with a family, working or professional history. Through these ties, people tend to develop high levels of trust, and therefore, are willing to share more detailed information and are more apt to collaborate. Weak ties occur between people or firms working within different contexts or economic clusters where contact is sporadic. These ties provide access to new information and new contacts outside of existing networks.

Figure 1 illustrates the relationship between the three kinds of capital.

Source: Patricia H. Thornton

Why Is Social Capital the Key to Entrepreneurship?

The obstacles entrepreneurs encountered due to a lack of knowledge or skill and a lack of funding can be solved through social capital. Networks connect entrepreneurs to the right people who will provide information, collaboration and partnerships as well as access to financial resources.

Entrepreneurs with higher social capital have greater chances of getting funding for their ventures.

Fried and Hisrich (1994) noted that since investors receive multiple funding requests, social connections play a significant role in determining the allocation of capital. The findings show investors tend to finance the entrepreneurs and ventures they have heard about as part of their network.

Based on a study of 202 venture capitalists in the priming phase, Shane and Cable (2002) observed that direct and indirect links between entrepreneurs and investors have a positive impact on the selection of projects financed. Shane and Stuart (2002) also noted that social capital of company founders represents an important endowment for early-stage organizations.

Social capital can also increase the human capital of a venture since the network can further advance innovation by merging ideas from different individuals. Investment in social relationships leads to the creation of socially embedded resources that can be mobilized by individuals (Lin 1999). Assuming that the social resources of entrepreneurs are more important than the possession of personal resources, social capital assists in achieving financial and human capital objectives that would be otherwise difficult to obtain (Lin 1999).

Social Capital in Nascent versus Mature Ecosystems

The genesis of startup communities is fueled by entrepreneurs’ individual attributes, their human capital. A high-impact startup can find traditional financing, such as personal funds, loans or investment by friends and family, yet social capital may remain as a challenge. Startups founded in regions with poor infrastructure lack the agglomeration needed to transition their ideas into successful companies.

In the absence of a cohesive startup network, incubators and accelerators can serve as a substitute for entrepreneurs from regions with less social capital. Local stakeholders who sponsor and support these programs have an interest in strengthening entrepreneurship in their communities.

The presence of accelerators or incubators can bring the community together as a destination for entrepreneurship and bolster local social capital. A study by the University of South Wales notes accelerators’ direct impact on entrepreneurial skills for the start-ups supported by accelerators and their positive indirect impact on the broader ecosystem. Acs (2001) recognized that entrepreneurship can be more challenging in underdeveloped areas, given their remoteness, which limits their access to skilled labor, technology, capital and networks. The alliances built by accelerators and incubators are the strongest assets in ensuring sustainability and building an ecosystem.

Cities with mature ecosystems reflect strong social capital, which plays a major role in fostering entrepreneurship. Kwon et al. (2013) sees a community’s social context as a public good. In high-social capital communities, entrepreneurs are able to take advantage of high levels of community trust and well-being, as well as more robust social networks. Individuals who feel support from cohesive communities will experiment with innovative ideas.

Conclusion

Social capital theory explains the value of networks as an integral part of a successful entrepreneurial ecosystem. Entrepreneurs need to increase social capital to increase funding and improve the human capital in their ventures.

As ecosystem actors come together to strengthen startup culture, communities should foster social capital through strong and weak ties. The Harvard Kennedy School’s Social Capital Building Toolkit is a valuable tool for understanding and creating social networks.

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Accelerators McNair Center

MassChallenge: Connecting Startups and Big Business

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

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

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

An Attractive Alternative for Startups

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

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

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

A Model Built on Strategic Partnerships

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

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

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

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

Expansion

MassChallenge was located at One Marina Park Drive until 2014.

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

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

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

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

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McNair Center Startup Ecosystems

Mile-High Entrepreneurship

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

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

History

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

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

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

Colorado’s Entrepreneur Friendly Policies

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

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

Home-Grown Resources

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

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

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

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

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

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

Entrepreneurship for Women

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

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

Venture Capital

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

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

Looking to the Future

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

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

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

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McNair Center Startup Ecosystems

Development of Research Parks and Innovation Districts in Houston

On May 4, Houston Mayor Sylvester Turner stated his support for building a data science center. The next day, he endorsed plans for an Innovation District. How would these types of development promote entrepreneurship, innovation and economic growth in Houston?

The Basics

What are Research Parks, like the proposed data science center, and Innovation Districts?

Research Parks promote research, technological development and commercialization by creating a high density of universities and research institutions within a small area. By placing many innovative researchers and developers in close proximity, Research Parks encourage growth of new companies and collaboration across fields, driving technology-based economic development.

The Brookings Institution defines Innovation Districts as dense areas that bring together research institutions, high-growth firms and startups through thoughtfully designed and resource-rich commercial and residential spaces.

Research Parks and Innovation Districts slightly differ in their implementation, but both spaces aim to accomplish similar goals; they want to create physical hubs for innovation and entrepreneurial development. Typically, developers build Research Parks on new land, cultivating previously undeveloped space. Innovation Districts, however, use old land. This land was previously developed but is no longer in use.

Attribution: ShareAlike 2.0 Generic (CC BY-SA 2.0)
Silicon Valley is a well-known Innovation District.

Both Research Parks and Innovation Districts are generative and can be helpful in stimulating local economies. Stanford Research Park in Palo Alto and Research Triangle Park in Raleigh-Durham are some of the most well-known examples in the United States. Research Triangle Park is the largest in the country and one of the largest in the world. Stanford Research Park played a key role in the creation of Silicon Valley.

Successful Innovation Districts include Kendall Square in Cambridge, Massachusetts, South Lake Union in Seattle and Over-the-Rhine in Cincinnati.

What Makes These Areas Special?

Research Parks and Innovation Districts are highly productive areas. Innovation leads to new ideas and job creation. According to the Association of University Research Parks, each job in a Research Park generates approximately 2.57 additional jobs. Thus, the more than 300,000 Research Park employees in the United States lead to 700,000 additional jobs.

Innovation Districts can also produce strong results. By placing many innovators in close proximity to one another, they facilitate collaborative interactions. As Innovation Districts vary greatly in size and productivity, an accurate estimate for job creation is unavailable.

Key Factors: The Capital Stack

Layered financial tools known as a “capital stack” are necessary to promote the development Research Parks and Innovation Districts. For a capital stack that attracts investors, an area must have access to multiple types of equity, incentives and debt to provide flexibility to developers and innovators.

Developers may be able to secure planning grants through the U.S. Economic Development Administration to create the Research Park or Innovation District. These are “designed to leverage existing regional assets and support the implementation of economic development strategies that advance new ideas and creative approaches to advance economic prosperity in distressed communities.” Even though Innovation Districts are built on previously developed land, the government still issues planning grants because they “advance new ideas and creative approaches to advance economic prosperity in distressed communities.”

Tax credit bonds are also common debt instruments. Instead of taking on loans, municipal governments sell bonds, which provide tax credits in lieu of interest payments. Some examples are Build America Bonds, Recovery Zone Economic Bonds and Clean Renewable Energy Bonds.

Equity is also an important necessity. Investment can be incentivized from a variety of sources, like New Market Tax Credits. These give tax credits to investors who make equity investments in Community Development Entities in developing and low-income communities. Housing and Urban Development community development grants and state or federal tax relief programs can also incentivize investment.

Key Factors: Social Factors

The final piece of the puzzle to create a Research Park or Innovation District is social organization. In order to facilitate collaboration and innovation, physical, intellectual and social resources need to be readily accessible.

Networking assets—“the relationships between actors—such as individuals, firms and institutions—that have the potential to generate, sharpen and accelerate the advancement of ideas”—are essential for the development of Innovation Districts. The lines of communication between developers, researchers and sources of funding must be open and easily accessible. This synergy is enhanced in Innovation Districts through the close proximity of ecosystem participants and access to shared meeting and collaboration spaces.

The Potential for Research Parks and Innovation Districts in Houston

Many cities have developed Innovation Districts in effort to grow local entrepreneurship and innovation. Turner’s announcement of the planned Innovation District earlier this month mentioned the 40,000 jobs created by Chicago’s efforts to spur innovation. Turner noted, “It is now time for us to be more competitive, to further diversify and expand our economy. What Chicago can do, Houston can do better.”

In 2015, the University of Texas bought 332 acres of land in southwest Houston with the hopes of developing it into a small Research Park. However, in March 2017, UT Chancellor William McRaven canceled the site’s plans for development. The Houston Chronicle cites timing and lack of transparency as the main causes for the cancellation.

However, there may still be potential for a Research Park in Houston. Mayor Turner also expressed support for the proposed data science center, urging the University of Houston to take the lead. The Chairman of the University of Houston Board of Regents, Tilman Fertitta, has spoken positively about this idea, mentioning excitement about the prospect of collaborating with Rice University, Texas Southern University, Texas A&M University and the University of Texas through the development of a data hub.

Bill Gropp, the acting director of the National Center for Supercomputing Applications, recently stated that there is far more demand for Research Parks than there is supply. It is clear that the development of a Research Park or Innovation District would stimulate the economy and create jobs. If Houston wants to take advantage of these opportunities, the time to act is now.

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McNair Center Startup Ecosystems

Gateway to Entrepreneurship: St. Louis

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

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

Venture Capital

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

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

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

 

 

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

History

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

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

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

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

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

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

Resources

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

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

Accelerators

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

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

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

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

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

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

Co-Working Spaces

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

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

Venture Capitalists

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

Looking to the Future

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

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McNair Center Weekly Roundup

Weekly Entrepreneurship Roundup 4/14

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

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


How to Make Texas More Startup-Friendly

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

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

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

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


Medical Device Startups and the FDA

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

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

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

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


First Data Joins Silicon Valley Bank In Fintech Accelerator

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

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


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

Lora Kolodny, Contributor, TechCrunch

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

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

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


Tax Reform Must Help Small Businesses, Too

Laurie Sprouse, Reporter, The Wall Street Journal

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


Stripe Acquires Indie Hackers in Bid to Strengthen Relationship with Entrepreneurs

Ken Yeung, Contributor, VentureBeat

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

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

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

The Weekly Roundup will return in June. 


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McNair Center Rice Entrepreneurs Startup Ecosystems

How to Make Texas More Startup-friendly

profileOver the last decade, Blake Commager (@commagere) has raised over $12 million in venture capital funding, started seven companies and sold fiveincluding 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.

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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.


Categories
McNair Center Weekly Roundup

Weekly Roundup on Entrepreneurship 3/31

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:


Business Groups Hope Trump Can Change Health Law by Administrative Action

Jeffrey Sparshott, Reporter, The Wall Street Journal

Juanita Duggan, CEO of the National Federation of Independent Businesses, described the unraveling of the American Health Reform Act as “a dismal failure.”

Despite several nationwide organizations like the National Retail Federation, the U.S. Chamber of Commerce and the National Association of Manufacturers pushing lawmakers to support the plan, Republicans could not build a consensus for the bill.

Not all small business owners favored the GOP bill. According to Tom Embley, CEO of Precision AirConvey Corp., a Newark manufacturing company that employs 40 workers, the proposed plan wouldn’t have done “anything to lower costs” for his firm.


More Than Obamacare Repeal, Small Businesses Want Congress to Rein in Costs

Stacy Cowley, Reporter, The New York Times

The New York Times’ Cowley reports on health care reform as told from the perspective of small businesses. While small businesses have been some of the most outspoken critics of the ACA since its passage in in 2010, the group as a whole is actually fairly divided on the issue; according to Manta and BizBuySell, approximately 60 percent of small business owners want the ACA to be repealed.

As Cowley points out, “every business is uniquely affected by the complex law.” She spoke to small business owners across the country, representing a variety of regions and industries. Two themes were common: The lack of sustainability of the status quo and the need for bipartisan reform. One thing Congress’s recent health care drama did accomplish was to reveal small businesses’ growing disdain for Congress’s inability to find common ground and deliver policy stability.


Early-Stage Investment for Software Startups Holds Steady

Alex Wilhelm, Editor In Chief, Crunchbase News

A recent Crunchbase report reviews the performance of younger SaaS companies after a year of relatively illiquid market for late-stage SaaS startups in 2016.

SaaS, or software as a service, refers to “firms that sell software products on a recurring basis.” As Wilhelm notes, SaaS firms constitute an “important part of the modern startup landscape.” According to Crunchbase analysis, early and mid-stage SaaS startups experienced relatively tame Series A and B funding rounds last year, despite the sector as a whole putting on a poor showing for enterprise IPOs when compared to 2015.

Wilhelm suggests that the better-than-expected fundraising aggregates indicate investor confidence that “the late-stage and public markets would figure out SaaS, or a blind willingness to follow a plan that was supposed to work.”


Kushner to Oversee Office of American Innovation at White House

Michael C. Bender, Reporter, The Wall Street Journal

President Trump recently announced the opening of a new White House office, the Office of American Innovation (OAI). The new White House office, tasked with mimicking “private-sector efficiency inside the federal government,” will be led by Jared Kusher, senior policy advisor and son-in-law to President Trump. The office will oversee a number of ambitious task forces, including the taskforce that will be headed by Governor Chris Christie to address the opioid epidemic.

According to Press Secretary, the OAI will address both long-term and urgent needs, such as” modernizing information technology” and “streamlining the Department of Veteran Affairs.” Additionally, the office will conduct communications with many executives, including prominent Silicon Valley CEOs who visited the White House in recent months.

 


Ask a Female Engineer: How Can Managers Help Retain Technical Women on Their Team?

Cadran Cowansage, software engineer at Y Combinator Blog

Y Combinator’s Cowansage attempts to understand why women tend to step out of technical positions more frequently than their male counterparts. Cowansage asked several female engineers about their past decisions to leave their technical position at a specific company or the industry entirely. Interestingly, many of the responses don’t specifically address gender-driven workplace conflicts or discrimination. Instead, many of the women attribute their departures to irreconcilable differences with company management.

Startups often lack formal HR departments. Impartial organizational roles, like senior HR employees, who are distanced from the executive team are valuable resources; these positions offer employees an outlet for voicing their complaints without fear of jeopardizing their job status. Additionally, many women left their previous engineering positions due to lack of shareholder attention to the project they were dedicated to. Another commonly voiced problem during the interviews was rejection of requests for a promotion or raise. The interviews revealed that many women were willing to leave their company when they learned that employees with less experience were earning higher salaries or bonuses.


Startups Increasingly Turning to Debt Financing Despite Dangers

Mikey Tom, Reporter, PitchBook

PitchBook’s Tom shares some insight from  2016 Annual VC Valuations Report. According to the report, median early-stage valuations and the tally of firms that exited the market at a lower valuation than their most recent valuation reached an all-time high. As Tom points out, “rather than raising a new equity round at a sub-optimal valuation or seeking a premature liquidity event,” startups are increasingly relying on debt financing for cash. In fact, excluding 2016, the number of startups composed of debt has increased since 2008. Notably, many of the massive tech unicorns, like Airbnb and Uber, raised billion dollar loans in recent years.

Tom acknowledges the attractiveness of debt financing for many startups, but he forewarns founders of the dangers of accumulating too much debt: “if a startup is unable to achieve the amount of growth it forecasts, the debt ends up acting as more of a time bomb than growth equity.”


Categories
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.