Using a framework developed by the Ewing Marion Kauffman Foundation, PitchBook recently identified three factors critical to a robust VC ecosystem: density, resources, and talent. Those three qualities are important. However, the report doesn’t encompass (nor is it meant to) some of the building blocks of those three factors.
Over the past three-and-a-half years, I’ve been involved with the St. Louis-area startup ecosystem, first as an entrepreneur, then as an economic developer, then as an entrepreneur (again).
Based on my experience, there are a few factors that too many government officials, economic development organizations, and even founders themselves overlook when thinking about what is needed to attract a critical density of startups and tech talent.
1. A culture that respects how important education is to entrepreneurship
To measure talent retention, PitchBook identified the percentage of founders in three states — California, Illinois, and Florida — who earned their degree from a local university.
In order to earn that local degree, students must receive a K-12 education that prepares them for college, and universities need to offer relevant degree programs at an affordable cost. In other words, any state using an approach to educational policy that decimates public schools and universities is undercutting its ability to create a thriving entrepreneurial ecosystem.
That’s not just liberal pro-education propaganda.
Four of the five states with the most local capital per venture-backed startup (Connecticut, Massachusetts, New York, and Washington, D.C.) are also ranked in the top 10 for per-pupil public education spending. In fact, New York, D.C., and Connecticut are ranked No. 1, No. 2, and No. 3 in per-pupil spending.
The relationship between education and entrepreneurship is complicated, but it’s not a stretch to say that well-funded public school systems produce smart kids who earn degrees and start companies VCs want to invest in.
2. An approach to economic development that understands the changing nature of work
During my stint as a consultant and senior executive with a St. Louis-area economic development organization, I encountered too many people who had a dim understanding of the technological and employment changes happening in the economy. The discussion was almost always some version of “How can we get kids to stop studying philosophy and learn more welding?”
To be clear, there is nothing wrong with being a welder. My dad was a welder. He even won the state welding championship in high school. Seriously. That’s how many welders the economy needed in 1974, the year my dad graduated from high school. Being a welder is a fine job, and an honorable way to earn a living.
Local economies need welders, plumbers, and carpenters, and there is nothing wrong with programs that help workers enter those professions. It’s just that a workforce strategy designed to help create a robust startup ecosystem has to go far beyond the typical approach to workforce development: criticizing liberal arts graduates and extolling the virtues of vocational education.
A successful workforce strategy needs to help fill gaps in skilled trades and recognize that a liberal arts education can be a path to startup success.
3. A policy of welcoming the immigrants who fuel VC ecosystems and startup communities
A report by the National Foundation for American Policy found that 44 of 87 startups valued at more than $1 billion as of January 2016 were founded or cofounded by immigrants. The immigrant-founded companies created an average of 760 jobs.
If you are trying to create an entrepreneurial ecosystem that attracts venture capital and you happen to live in a state or city led by politicians that are in favor of restricting immigration, and not seeing its benefit to the economy, you have two choices:
- Stay quiet, avoid making waves, and accept the fact that your community will never fulfill its entrepreneurial potential.
- Speak out and use your platform — no matter how small — to show that immigrants are welcome, and you look forward to helping them build the next startup that will bring almost 800 jobs to your community.
There is no middle ground.
Building a startup ecosystem in a smaller state without the sort of diverse mega-cities found in California, Massachusetts, or New York requires visionary leadership that has the courage to take risks.
Ecosystems aren’t just built on the risks founders take. The risks political and civic leaders take are just as important. Your ecosystem needs leaders who understand that there’s more to building a startup ecosystem than making it easier to start a business.
Dustin McKissen is a former economic development executive in the greater St. Louis area, a LinkedIn Top Voice on Management and Culture, and an Inc. columnist.