5 Key Ingredients for a Strong Startup Ecosystem

On Monday, The Metropreneur discussed how to measure an entrepreneurial ecosystem, but what ingredients help foster a successful system? Another Startup Week event discussed the five factors necessary to build a strong culture of entrepreneurialism.

In conjunction with Google, UP Global (the national non-profit behind events like Startup Week and Startup Weekend) produced a white paper outlining the five key ingredients to creating a thriving startup ecosystem. With these markers, a city can identify where they excel, and areas where they need to improve.

Moderated by a representative from UP Global, four panelists discussed the factors – talent, density, culture, capital and regulations – while making note of how Columbus stacks up. Panelists included:

  • – Jill Van Beke, Director of Corporate Engagement, LaunchTN
  • – Alvin Givens, VP Middle Market Technology Banking, JPMorgan Chase
  • – Dan Stangler, Vice President of Research & Policy, Ewing Marion Kauffman Foundation
  • – Tom Walker, CEO of Rev1 Ventures (formerly TechColumbus)

Talent

When it comes to talent, UP Global says, “Kickstart an investment in human capital by creating flexible labor markets that attract people with a variety of skills and experience.” Is talent coming and staying in the community or leaving to find jobs?

Being the only local panelist, Walker tackled the talent situation in Columbus. Having talent means having a pipeline of young to seasoned individuals. Schools like OSU are pumping out young talent, but “There’s a lot of talent within the corporate base that you can draw from,” Walker says. C-suite talent and executives are leaving posts to get involved in startups.

Columbus is also finding a pool of individuals that have left, only to come back.

“Boomerang effect is pretty strong here,” Walker says.

Where Columbus does lack is IT talent. Givens provided statistics that stated between computer information science, computer science engineers and electrical computer engineering, OSU graduated 461 students in the 2013-2014 school year. In comparison, Indiana graduated about 1,500. With technology talent being something that is needed at generally every company, the pool is lacking.

Panelists identified churn and mentorship as two answers to developing talent. Churn is the serial entrepreneurs. It’s using the fist experience to build the second. Mentorship from these multi-preneurs, and also from corporate sources, is important for developing talent.

Density

To foster density, UP Global says a community should, “Create hubs, awareness in the media, build networks with mentors, and link academics and researches with businesses.”

Measuring and building density in an entrepreneurial sense brings some expanded definitions of the traditional notion.

“There’s a line there where you can cross and you can actually over-engineer density,” Stangler says. “While denisty is very, very important, you can’t really build it, it has to be a bottom-up kind of phenomenon.” It’s a mindset of build and develop where it is versus build it and they will come.

Van Beke also questions the traditional definition of density.

“Density is created virtually,” she says. “Technology is enabling us to find density a little bit differently.”

Culture

To foster culture, UP Global recommends, “Highlight entrepreneurs as role models, and failure as a part of the learning process. Teach skills and foster communication.”

A question that always comes up as it relates to entrepreneurial culture in the Midwest – is the region adverse to risk?

“There’s a right way to fail and a wrong way to fail,” Walker says. He asks if a CEO will be the kind of person that as soon as he knows money is running out, he will he gather his employees and give them some runway, or will he call it at the last minute and not pay the bills?

With Rev1, Walker is finding that investors are willing to take a risk.

“Since I’ve been here, we’ve raised roughly $30 million of investment capital, and we’ve been deploying it,” he says. “That’s at a record pace at the seed level. It’s never happened at that level in this region and most of that money is coming from private investors, so I sort of see that the tolerance is there.”

Capital

Probably one of the most hotly debated and talked about aspects of entrepreneurship is capital, about which UP Global says, “Investors can help coach founders along their journey and policy makers can make it easier for startups to access capital.”

“There’s a lack of capital” is a phrase said by entrepreneurs in almost any city.

“Most communities say that they lack capital,” Walker says. However, no capital is not the answer.

“I would agree that there is plenty of capital, this is a rich country, this is a rich town…what these communities lack is organized capital.”

An efficient model allows more capital to get to entrepreneurs.

As Stangler describes it, there’s a lot of deep pockets and short arms. It’s easy to drive around a city and see where the money is. However, he points out there may be a lack of education about startup investments.

Regulations 

The final ingredient that makes a thriving ecosystem is regulations. “Support entrepreneurship by providing stability, and use tax systems as incentives for investment, risk taking and capital formation,” UP Global says.

Red tape and frustrations aside, the U.S. generally has favorable regulations for businesses.

“Things that we complain about here are problems that other countries wish they had in terms of their regulations,” Stangler says. Recognition is growing that entrepreneurs aren’t necessarily the same as small businesses, eliciting different regulatory needs.

“When and if entrepreneurs run into policy barriers…state and local regulations probably matter a lot more,” Stangler continues.

For example, an interesting reason California has become a hotbed for entrepreneurs is that the state does not enforce non-compete agreements. It’s not something an entrepreneur would typically think of an advantage when starting a company.

As for Ohio, “The state has been a big player in the startup community here,” Walker says. “Ohio traditionally has been a pretty aggressive state in terms of incentives for startups.”

Click here for the full white paper from UP Global.