January 31st marks the one year anniversary of the Startup America Partnership. Enormous news to report, and you can find the progress for the program listed on the organization’s website at www.s.co. With all this progress, what is lagging behind? In a single word, funding.
The domestic growth of the new post-industrial revolution digital economy is held back by this one thing. We hear reports from Wall Street of “money sitting on the sidelines,” and we know that geographically speaking, VCs and technology investors are primarily located in Silicon Valley and Boston. These elements of the economy need to change and evolve, by getting virtual and leveraging their potential across our digitally-connected economy.
The confluence of angel investors, VCs and other funding sources continue to focus leadership energy and investment primarily in the Bay Area (who doesn’t know about Sand Hill Road?) and Boston. Sure, there’s some growth and expansion in areas like NYC, Austin, and others, but the money seems to be abnormally tethered geographically polarized to the East and West Coast.
I heard one discussion at Startup America’s anniversary event that identified a few of the more commonly referenced reasons.
- VCs don’t want to travel. Takes them out of the office, or adds cost to the investment reducing ROI (e.g., travel to board meetings).
- There are too few good technology executives to lead these invested portfolio companies.
- There are not enough opportunities to invest in, and open an office in Chicago (or other Midwest city).
- There’s not enough technology talent in the Midwest to staff these portfolio companies.
I heard reasons like these multiple times. Whatever the reason, it’s ridiculous in this day and age that money flow for startup investment is retarded by geography. I don’t know anyone that doesn’t rely on Skype and GoToMeeting for virtual communication. And if we can send money anywhere through PayPal…, these geographic boundaries seem to be trivial, and more like second-grade excuses not to put domestic money to work in growing the broader US economy.
Clearly, anyone that’s been to a sold out Technori Pitch event, knows that there’s no shortage of new ideas, new startups, and high-tech talent in the Midwest. And, let’s not forget where the worlds best supercomputer lives (hint: ILLINOIS) and that the browser (yea, the thing we all use daily to interact with the Internet) was invented in Champaign, Illinois where computer scientists and new ideas are generated at an alarming rate.
These goofy reasons for not locating more high-tech funding in the Midwest are a HUGE problem – and rational thinkers know that the reasons don’t pass the test of least astonishment. In a an alternative Darwinian perspective, this polarization of VC investment only on the coasts is potentially a path to extinction. If you think about what drives the cross-pollination of ideas, the interaction of entrepreneurial DNA, it demands that the money follow the ideas – not the ideas leave the environment that incubates them, to find the money – thereby adding risk by introducing foreign environmental factors that could kill the idea into a malformed failure.
It was the talk of the room at Startup America. I heard: “we have great ideas…, but no VCs and funders will travel. They want us to move to Palo Alto, or Waltham… we don’t want to move, nor do we want to sacrifice our entrepreneurial DNA cross-fertilized with a Midwest work ethic. And, especially, we don’t want to leave the Midwest, where we are grounded.”
It’s changing – by brute force – but still it’s not fast enough. On this anniversary, we also learned of The Firestarter Fund, led by J.B. Pritzker (of New World Ventures) and Joe Mansueto (Morningstar CEO) and Kevin Willer (CEO of Chicago Entrepreneurial Center). Crain’s reported that this new $5.7 million fund will focus on investing in new technology ventures in the Chicago-land area.
It’s still not enough. We need the Hummer Winblads, the OpenView Partners and the Sierra Ventures to open offices in Chicago, St. Louis, Columbus, and other locations. We need to realize that Chicago has a huge pool of executives coming out of ILLINOIS, Kellogg, and Booth that are up to the task of leading a high-tech company (not to mention a number of us Silicon Valley transplants that have done it before!).
In a digital economy, real jobs growth is not going to be added manufacturing jobs…, but innovation jobs like those you see in the eyes of the audience at the Startup America events. In a digital economy, innovation is now virtual – and not geographically co-located with funding sources. The funding community is lagging on the progress curve that innovation has shot forward, breaking free of geographic boundaries by leveraging connectivity and virtual web-based communities and tools that the post-industrial revolution digital-economy has delivered – years or decades ago.
The people and the ideas are ready and already work virtually, thereby expanding the gene pool well outside the Boston and Bay Area. When will the funders begin to expand with greater virtual, and perhaps physical presence in Chicago, St. Louis, Memphis, Kansas City, and beyond. I think J.B. Pritzker would welcome the competition. I know that the entrepreneurial community would too.
