By Jonathan Sanders
From the September/October 2013 issue
A white paper recently released by the Kauffman Foundation finds that Kansas City and other areas viewed as “new” startup high-tech hubs actually are benefitting from many years of nurturing a local culture of entrepreneurship. Many of these cities have a history of strong technology sectors or experienced strong growth among technology startups over the past two decades, the Ewing Marion Kauffman Foundation (based in Kansas City, MO) reports.
The paper, which was issued under the technoid-heavy title Path-Dependent Startup Hubs—Comparing Metropolitan Performance: High-Tech and ICT Startup Density, says that a strong regional or local culture of technology entrepreneurship is not a recent phenomenon. The top 10 cities in 2010 also ranked among the top 20 cities two decades earlier.
The report zeroed in on Kansas City, which ranked No. 3 in high-tech startup growth among large metropolitan areas between 1990 and 2010.
“What Kansas City’s growing tech density demonstrates is that the metropolitan area had a strongly growing technology sector prior to recent milestones, such as the advent of the high-speed Internet service potential of Google Fiber,” said Dane Stangler, director of Research and Policy at the Kauffman Foundation and the paper’s author, in a release posted on the Foundation’s website.
The analysis shows that many cities’ recent adoption of new entrepreneurship programs is more an indication of the underlying strength of the region and its base of talent on which those programs can build than it is a cause of startup activity.
Kauffman white paper found that cities including Kansas City, Seattle, WA, Portland, OR and Boise, ID “all owe their emerging entrepreneurial ecosystems to many years of spinoffs and entrepreneurial spawning.”
Research universities and other institutions of higher education are important for metropolitan entrepreneurship, but they are not the sole cause in spurring such activity, the report said. Instead, the most fertile source of entrepreneurial spawning is “the population of existing companies, which has implications for economic policymaking and economic development strategies.” The paper confirms the importance of spinoff activity for fostering robust entrepreneurial cultures. It says research shows the “peak age” for entrepreneurs ranges from about 35 to 45.
“Entrepreneurs come from somewhere—this seems obvious,” the white paper says. But that observation “runs against the prevailing stereotype that entrepreneurs are, or should be, recent college grads or college dropouts. That ‘somewhere’ usually is a previous job in a big company or at an institution, such as a university, which helps explain the age distribution of entrepreneurs.”
The Kauffman Foundation paper warns that regions should be careful in turning these observations into policy. While spinoffs are important for tech startup growth, such a strategy could be wrongly interpreted as supporting traditional economic development strategies of tax incentives for big companies, according to the white paper. “More work must be done to understand the local and regional dynamics of entrepreneurship, barriers that may exist to catalyzing a self-fulfilling dynamic of entrepreneurial spinoffs and what the proper role of supporting institutions should be,” Stangler wrote.
TOP LOCATIONS FOR TECH STARTUPS
Our friends at the National Venture Capital Association (NVCA) recently ranked the most attractive cities in the country for tech startups. The NVCA list measures overall venture capital investment in each respective market to compile its data.
Topping the rankings are the San Francisco Bay region, which the association says is more attractive to IT startups because so many young talents flock to the vibrant and scenic City on the Bay; San Jose, at the other end of the same peninsula, notched second in the NVCA tally, an obvious choice for the birthplace of Silicon Valley; New York joins the top three, with NVCA giving a tip of its hat to Mayor Michael Bloomberg, himself a pioneering high-tech entrepreneur, who has put out the welcome mat for tech startups in the Big Apple during his three terms as mayor of the nation’s largest city.
NVCA calculated that San Francisco has attracted 431 tech startups representing investments of more than $4.2 billion; San Jose notched 276 startups and nearly $3.3 billion in investment; and New York had 238 startups backed by $1.6 billion in equity.
Other cities that made NVCA’s top 10 include Boston, Los Angeles, Washington D.C., Seattle, Austin, Philadelphia and Chicago.
Since Business Facilities has a lot of experience creating rankings, we always caution our readers to interpret them based on the criteria that has been applied to produce the results. For example, Boulder, CO topped the high-tech start-up rankings contained in a report published by Engine, a non-profit tech advocacy group, and the Kauffman Foundation. Their study was based on U.S. Census Bureau business dynamics data and rated an area for the per capita concentration of tech startups less than five years old relative to the concentration of such businesses nationwide. Based on this criteria, their top 25 list, included a number of mid-sized locations like Boulder, Fort Collins, Loveland, Colorado Springs, and Grand Junction in Colorado; Cheyenne, WY; Corvallis and Bend in Oregon; Huntsville, AL; and Provo and Orem in Utah. Per capita rankings always level the playing field and let the smaller guys shine (BF uses per capita formulations for several of its annual rankings categories).
The Engine/Kauffman study’s measurements put startup density in Fort Collins-Loveland at three times the national average, while the same measurement in Boulder was more than six times the national average. Cheyenne, Denver and Colorado Springs all made the list’s top 10. The Fort Collins-Loveland metro area ranked second. The Denver-Aurora-Broomfield area—not including Boulder County—tied with fourth-place Cambridge, MA., Seattle and San Francisco in startup density behind third-place Silicon Valley communities San Jose-Sunnyvale-Santa Clara. Colorado Springs finished in the ninth spot ahead of 10th-ranked Cheyenne.
A high-tech startup was considered in the study to be one with high numbers of people in science, technology, engineering and math fields. Boulder’s tech startup concentration came in at 6.3 times higher than the U.S. average, while second-ranked Fort Collins-Loveland has three times the tech startup density.
The Kauffman Foundation has for years backed the Startup America Partnership, a program to encourage entrepreneurship in coordination with the U.S. Department of Labor.
INNOVATION ON THE “FRONT RANGE”
What Coloradans call the Front Range is an innovation hub with multiple federal labs, research universities and tech companies that produce innovations in a torrent of new ideas.
Tech incubator Rocky Mountain Innosphere is working to support 38 startups, with an aim of graduating 10-12 from its incubation stage this year. Tech startups like those supported by the Innosphere and elsewhere along the Front Range provide a significant economic impact to the region. The Engine/Kauffman study’s authors report that tech startups have an outsized impact on job creation during their first five years.
Capitalizing upon and expanding support for Colorado startups is a top priority at the Innosphere and CSU Ventures, an arm of Colorado State University that works to bring university research to market.
CSU Ventures is dedicated to the business of technology transfer and commercialization. According to the group’s website, CSU Ventures “brings innovations and technologies discovered at CSU into the marketplace for the benefit of society.”
CSU Ventures offers expertise in intellectual property, licensing, partnership-building, and entrepreneurship. It “protects, manages and transfers CSU innovations by connecting individuals and companies with University researchers.”
CSU Ventures serves as a resource not only to CSU faculty and researchers, but also to industry, entrepreneurs, and investors seeking to further research or commercialize a technology. As an affiliate of a renowned land-grant institution, it strives to put the results of CSU’s academic research to use, and to ensure that these innovations impact people’s lives locally, nationally, and globally.
Its three top priorities are:
- Connecting industry partners to CSU researchers
- Linking investors and entrepreneurs with researchers who have startup potential
- Pairing researchers with industry partners and other resources to ensure their success.
The Engine/Kauffman study zeroed in on key high-tech industries including scientific research and development services; software publishers; telecommunications services; and data processing and hosting services.
An emerging data processing hub was a key factor that launched Cheyenne into the survey’s top 10. During the past few years the Wyoming city has attracted a number of data processing and hosting businesses.
These include the National Center for Atmospheric Research’s (NCAR) supercomputing center; a Microsoft data center; and similar data hosts like Green House Data, which opened shop in the Cheyenne Business Parkway in 2007.
Cheyenne boasts abundant and relatively cheap electricity, factors cited by Microsoft and NCAR as key to their location decisions (nationwide, data centers are one of the largest aggregate consumers of electricity).
Wyoming’s cooler average temperatures reduce the cost of air conditioning, which is a huge expense for data centers. The city also offers massive data-handling capability in terms of fiber optics. There are several high-capacity fiber optic transmission lines running through the area. These connect with other systems to produce the redundancy that is crucial to data center operations (a network loop that now ties Cheyenne, Laramie, Boulder and Denver together). Huge cloud systems as well as stand-alone data centers require redundancy in power supply systems.
In Cheyenne, Green House reportedly has been able to cool its servers year-round using just the outside air. Wyoming also is not prone to experience the natural disasters that make other parts of the country less ideal for data centers, including flooding, earthquakes and hurricanes.
Green House not only stores data on its own servers but houses other clients’ servers as well, so secure infrastructure is critical to its operations. If a data center facility loses power, it is imperative to have a backup source of electricity so key systems don’t go offline.
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