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This summer and fall, we rode a bus to cities in the Rustbelt and the Midwest, visiting communities where startups are thriving. The Rise of the Rest bus tour, organized by Steve Case, was inspired by the premise that great ideas, and great companies, can and should start anywhere. The cities we visited were vibrant examples of this belief, and the tour celebrated their successes in building startup communities and we hope, will help accelerate their growth.
Along the way, we also learned what it means to create and enhance the right ecosystem to facilitate emerging businesses in cities not traditionally considered hotbeds for startups.
That ecosystem is a powerful thing. “A community’s entrepreneur support network […] is critical for new firms to succeed,” wrote Yasuyuki Motoyama, Ph.D. and Karren K. Watkins in a recent report for the Kauffman Foundation. They examine the connections among entrepreneurs and organizations that make up this network, many of which were on display during our tour. In Des Moines, for example, one startup founder inspired another to take off. In Minneapolis and Cincinnati, long-established Fortune 500 companies are offering mentorship and other resources to new entrepreneurs.
What else does it take to form a startup ecosystem? Rise of the Rest sponsor UpGlobal, an organization that promotes and coordinates networks of startups around the world published a recent report entitled “Fostering a Startup and Innovation Ecosystem.” They point to five essential ingredients for a healthy startup ecosystem: talent, density, culture, capital, and the right regulatory environment. These ingredients are not geographically specific, and each city or region has the power to uniquely cultivate them in ways that complement and build on local resources.
Talent: Many of the cities we visited are within miles of major universities with talented, ambitious students who may have a vested interest in building businesses in their college towns. In Madison, at least two of the founders we visited were University of Wisconsin-Madison graduates and in Pittsburgh, Carnegie-Mellon University has spun out dozens of local startups through collaborations among students, professors and the local business community. And talent doesn’t just come from universities. Take Minneapolis, which has a high concentration of health professionals. It’s no surprise that health-tech is a growing sector there.
Density: Bringing people together can enable great things. Through business clusters in downtown areas like Kansas City’s Crossroads district or Nashville’s Trolley Barns, home to the Nashville Entrepreneur Center, entrepreneurs find space, support, and ideas. City planners and neighborhood associations are integral in facilitating the development of spaces like these.
Culture: In each city we visited, there was palpable excitement around entrepreneurship from the local political leaders, to the university representatives, to the business and investor community. Fostering a culture that prizes openness and creativity, accepts some level of risk and failure, and promotes opportunities at startups as well as their leaders is essential to supporting the startup ecosystem.
Capital: Access to capital cannot be underestimated. As we toured the country, it became more and more clear that raising money is one of the biggest challenges startups face. In some cities, like Nashville, we’ve seen local governments really commit to the startup community, which helps drive capital. But far and away the most important way to increase the flow of capital is to engage local investors and bring in more non-local investors, including those form the coasts. In each city we visited, this remained a major roadblock to the growth of the local startup ecosystems.
Regulatory Environment: As we know well here at Engine, good policy is critical for fostering the startup ecosystem. In some instances, local governments have recognized this by creating tax incentives for new businesses. Yet at the national level, there’s still a lot of work to be done. Many of the factors laid out here — especially talent and access to capital — are uniquely in the purview of federal government. The time for comprehensive immigration reform, which is necessary to increase talent pools, has long passed. And while passage of the JOBS Act was an important first start, there’s still much work to be done to ensure that capital flows from investors to startups.
These factors are each essential, but they’re not isolated. We know there’s a lot more policymakers can do to attract and retain talent in their districts and in this country, to encourage urban density and make capital accessible.
We believe every city in America has the potential to be a startup city and we’re working with policymakers to help make that happen.
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