venture capitalists to fund it all—it can be difficult for new entrepreneurs to get too far beyond the “thinking about it” phase to create a viable business. These are significant limitations, and the solutions aren’t yet obvious.
“In places like here in Kansas City, for example, it’s the polite Midwest,” Ruhe says. “And part of that culture is holding us back. It’s very nuanced, but it’s hugely significant. If you’re in Menlo Park and you bump into someone at a party, the first thing they’ll probably ask is what you do. Out there, if you’ve worked at four different companies in three years, that doesn’t matter, they don’t care. Your identity is what you do. I’m a CFO, or I’m an engineer. Come to Kansas City, Omaha, Minneapolis, and take the same scenario, but the question isn’t ‘what do you do?’ It’s ‘who do you work for?’ Your identity here is around who you create value for. It’s a slight difference, but the implications for our economy are significant.”
It’s a mind-set, he explains. In some areas, you have workers saying, “ I can function in various companies and organizations.” In others, it’s more along the lines of, “I’m a cog in a wheel.”
“That’s not where job growth is happening in this economy; it’s not helping us,” Ruhe says.
The good news, according to Ruhe, is that these attitudes are now changing as Silicon Valley–type support networks have begun spreading across the country as VCs, angel networks, and other investors expand their search for the next big thing in tech. Smart investors know that good ideas and low valuations are easier to find in out-of-the-way places like Miami, Portland, and Raleigh, among others, so it’s a way for them to get in on the ground floor before it enters the mainstream.
“I think that with increased social awareness and by educating people about the importance of entrepreneurship, the climate for startups nationwide is getting better,” Ruhe says. “In Kansas City, we have things like Silicon Prairie News that’s starting to increase awareness, and more and more community building is happening around this. At the risk of sounding cliché, it doesn’t take a village but it takes a region to do this. You need a continuum; you need people with ideas and vision; and you then need to have the activists, the change agents, who might not be creating the ideas but have the gumption to act on them and do something about it.”
Consider Boulder, Colorado, for example. In the last ten years, the city has emerged as one of the hotter technology cities in the country, becoming home to a blossoming startup community centered on the now-national accelerator program TechStars and venture capital firms including The Foundry Group. As of 2013, about 23 percent of Boulder’s workforce was employed in the technology sector, which includes startups, larger companies, government agencies, and the nearby University of Colorado Boulder. Not too shabby for a borderline ski town that until recently was probably better known outside the city limits for the 1970s sitcom Mork and Mindy, the murder of Jon Benét Ramsey, and the annual, open-air marijuana festival on the university campus.
What brought tech entrepreneurs to a city like Boulder? Lower costs, for sure, but there are cultural elements at work as well. Boulder has a reputation as one of the “nicer” cities in tech, which isn’t something you often hear about Palo Alto or Menlo Park. There’s a real community feel in the town, where give-before-you-get is the prevailing attitude, and founders feel safe to step up and help each other out, competition be damned. It’s a small community—reputations are important. And what Boulder might lack in resources it makes up for with quality of life, which makes it easier to attract talented, out-of-town workers and keep them there over the long term.
It’s not just Boulder. In Austin, you get all the resources of the University of Texas system with heavy helpings of Texas hospitality, acres of inexpensive office space, and a beautiful, easygoing quality of life. Ditto for Raleigh, where the Research Triangle Park serves as the anchor, along with Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University. In Detroit, there isn’t a strong local university (unless you count the University of Michigan, thirty minutes up the road in Ann Arbor), but there is a core group of dedicated investors working to create a viable tech ecosystem as part of the city’s overall revival. And the examples go on and on.
In short, there are ways to do business in these new hubs that may not be possible in Northern California. Not necessarily better, not necessarily more effective, but different. As a result, there are now ways to stand out from the crowd and make a splash in technology without swimming in the same Bay Area pool as thousands of other entrepreneurs. And, the fact is, in this data-driven age, startups don’t really need to be in the Valley anymore. With a high-speed line, talent can be effectively located anywhere.
The investment numbers are starting to catch up to this new reality. According to the National Venture Capital Association (NVCA), New England, primarily Boston, accounted for about $3.2 billion in VC funding in 2012, followed by $2.7 billion in the New York metro area, and $2 billion in greater Los Angeles. A decade ago, all three of these areas accounted for just $5.6 billion in funding combined. Texas is on the rise at $1.9 billion as of 2012, followed by the combined Midwest region encompassing Kansas City, Minneapolis, and Chicago at $1.4 billion, and the Southeast region at $1.1 billion. Denver/Boulder saw $683 million in venture investment in 2011, while the Washington, DC, area generated $979 million.
Some of these regions are also becoming known for specific technologies. Orange County, California, has an emerging reputation for ophthalmology startups, for example, while Minneapolis–St. Paul is known for its medical device companies. Raleigh has a strong base of biotech startups, while New York City has zeroed in on technologies to support financial services companies. As with any economic development effort, developing a specialty is about leveraging established local industries and building on a city’s past successes.
This kind of “clustering” is good news for everyone involved, explains NVCA president Mark Heesen. Venture capitalists who are interested in investing in medical device startups, for example, know that eastern Minnesota is a good place to look for opportunities due to the cluster of device startups that are located there. And it has a snowball effect. Money gets invested into the Twin Cities ecosystem, supporting the companies that are there and leading to the development of more similarly minded firms nearby. These startups, in turn, attract even more outside investment, and the cycle continues. For developers, salespeople, and the other employees of these startups, local competition like this is a good thing; there’s always another place to send your resume if your current shop goes belly-up, which is a characteristic of a healthy ecosystem.
Still, Heesen says, even the best-known startup hubs face an uphill battle:
It’s difficult to see another version of Silicon Valley springing up in the next thirty to forty years. Israel has tried to replicate it, China has tried to replicate it, even Russia has been trying to replicate it, but it’s a very difficult thing to do. The colleges in the Valley were an integral part, but we also saw several incredibly successful companies take off and, most importantly, stay in the area. Everything else grew from there. It was a perfect storm that we probably won’t see again in our lifetimes.
But it won’t be for a lack of trying. Improving the odds of startup success outside of the Bay Area was the idea behind the Startup America Partnership (SUAP), a national organization dedicated to creating strong startup ecosystems from coast to coast. Launched in 2011 alongside the Obama administration’s startup initiative, and now part of an organization called UP Global with Startup Weekend, the group is backed by the Kauffman Foundation and the Case Foundation, along with a collection of corporate sponsors like American Airlines, American Express, Dell, Intuit, and Microsoft.
“We highlight the importance of startups as innovators and job creators,” the organization writes on its Web site. “We give startups access to the relationships, opportunities, and knowledge they need to succeed. We celebrate entrepreneurship as
