Rising Startup Communities: Ian Hathaway’s commentary on the Silicon Prairie

Ian Hathaway is Research Director at the Center for American Entrepreneurship, where he leads content development efforts, publishes research and commentary, and advises on policy and strategy. He is also a Senior Fellow at the Brookings Institution and a well-known startup ecosystem metrics expert, advisor, and writer. We recently talked to Mr. Hathaway at the ESHIP…

Ian Hathaway is Research Director at the Center for American Entrepreneurship, where he leads content development efforts, publishes research and commentary, and advises on policy and strategy. He is also a Senior Fellow at the Brookings Institution and a well-known startup ecosystem metrics expert, advisor, and writer.

Ian Hathaway

We recently talked to Mr. Hathaway at the ESHIP Summit in Kansas City, and he graciously agreed to provide a bit more commentary on one of his recent reports published on July 31, 2018. In that entrepreneurial ecosystem report, he published a research study regarding ecosystem construction in the United States, “America’s Rising Startup Communities.”

Overall, the Silicon Prairie did well, but we will let you read to discover how your individual community did.

Short summary: Startup activity and funding are significantly higher than they were nearly a decade ago coming out of the Great Recession of 2007-09.

The whole report can be read here: http://startupsusa.org/americas-rising-startup-communities/.

Mr. Hathaway was kind enough to provide additional commentary regarding the evolution of the Midwest and its startup ecosystems:

Well, the first thing to say is that the rise (2009 to 2014) and then subsequent fall (2014 to 2017) of venture capital first financings—or what I would call a correction—is best viewed when zooming out to a longer horizon (2009 to 2017). This more appropriate timeline tells a better story in the Midwest (which I’ll collectively say is the Great Lakes and Great Plains regions) and elsewhere—first financings are significantly up.

When looking across these regions, the Midwest is up 71% (Great Lakes = 72%, Great Plains = 69%) compared with the US as a whole (69%). In other words, the Midwest is performing at least as good as the nation, if not slightly better, when taking a longer-term view. In fact, only the West Coast and Mid-Atlantic regions (which includes New York) performed better in terms of percentage growth in activity.

A number of key Midwest cities are participating in this longer-term rise as well (see the table below). It’s important to note that three of these cities—Cincinnati, Cleveland, and Detroit—are among my list of cities that saw the sharpest reversals after the peak in 2013-14 (note: in the report, I pooled the metro-level data into two-year periods to reduce noisiness from year-to-year).

Even so, these cities are up from where they were at the beginning of the period (2009-10). In my view, this is still progress—more companies are getting funded, which means more opportunities for startups to experiment, learn, and potentially produce the next great company.

That leads to my first point here for communities: it’s vital to understand that this is a long-term endeavor that will take decades to unfold. The period I’m observing is very short indeed, and the amount of progress seen in that time period is staggering. So, don’t let the shorter-term decline discourage you—the longer arc shows that things are progressing. As my colleague Brad Feld often says: take a twenty-year view but reset that clock every year. In other words, always be thinking of how what you’re doing today will benefit the long-term vibrancy of the community.

Second, I view venture capital in particular as a lagging indicator of entrepreneurial activity in emerging startup communities because a healthy amount of startup activity generally must occur in a place before venture deals start trickling in—that momentum is likely stronger and more resilient to fluctuations in year-to-year funding markets, which I believe were in part due to supply side (investor) conditions (a pull-back).

Third, is to understand that financial capital is just one of many inputs into the entrepreneurial process. Aside from talent, it is probably the most harped upon. It is also one of the resources that is hardest to control—especially if your city lacks a core group of local investors or the critical mass of startups to warrant a venture fund.

But a lot more is in your immediate control—namely, a community of support and knowledge-sharing that helps local entrepreneurs succeed. I would ask community leaders in the broader sense (universities, corporates, governments, and so on) if they are doing everything they can to help founders succeed right now. Yes, put energy into improving longer-term, slower-changing factors like venture capital and talent pools, but explore whether you are missing opportunities today (hint: you are). What more can be done to improve the probability of success for local startups? If you don’t know the answer, ask your local entrepreneurs. If you think you know the answer, ask the entrepreneurs anyway.

Finally, trust the process. Things can take off quickly and unexpectedly—the seeds you’re planting today could bring abundance eight or ten or fifteen years from now, and you won’t be able to trace cause and effect. Remember that the success of just one or two companies can have a big impact on a community as the benefits of expertise, experience and wealth are recycled back into the next generation of local startups, and the tangibility of success inspires entrepreneurs who aim to follow.

Just this month, there were two breakout success stories in the Midwest—Duo Security in Ann Arbor was acquired by Cisco for $2.4 billion, and Root in Columbus was valued at $1 billion this week in a venture round. The reverberations of these successes will be felt in these two communities for years to come and should be a beacon for others as they aspire to do the same.

Overall, my message is simple: (a) the Midwest is doing remarkably well, (b) that this is a very long-term game and that any year-to-year fluctuations and setbacks are all part of an inherently complex process, (c) that venture capital is one of many resources that communities should be focused on to help entrepreneurs succeed, and (d) that progress is nonlinear and what you’re doing today may already be laying the foundation for the next great companies to thrive.

This is a signal to those who are working in the Silicon Prairie to keep up the good work. The metrics are suggesting progress – but there is more work to do. Thank you, Mr. Hathaway, for your insightful analysis and comments.

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Ian can be followed on Twitter @IanHathaway.

This story is part of the AIM Archive

This story is part of the AIM Institute Archive on Silicon Prairie News. AIM gifted SPN to the Nebraska Journalism Trust in January 2023. Learn more about SPN’s origin »

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