I love Kansas City. I’ve lived here ten years and a big reason I love it is because of our startup community.
I’m committed to building our startup community. It’s grown immensely in the past four years, but still has a ways to go. The purpose of this piece isn’t to propose specific measures for that; rather it attempts to put some context around the need for more seed stage investment in Kansas City startups.
It’s been awesome to see our community grow. As Techstars’ managing director since 2013, I’m both an investor and a champion of entrepreneurs. On any given day I’m usually talking to entrepreneurs, investors, and mentors. When it comes to entrepreneurs and investors, I usually hear the same things:
- KC entrepreneurs say there aren’t enough active early stage investors.
- KC investors say there aren’t enough fundable startups.
The Kansas City investment culture is very conservative.
And that’s not good for our startup community. Many local angel investors, venture capital funds and corporations just don’t have the risk tolerance for early-stage investing. Some require traction and investment terms that force founders to get a better deal elsewhere. Sometimes startups leave Kansas City altogether, which is terrible for our community.
To put this into perspective, check out Brad Feld’s book Startup Communities. As a startup community, Kansas City is still a work in progress and thus lacking in a few different areas, not just investors. Brad calls the key community participants “Leaders and Feeders.”
It all comes down to “Leaders” and “Feeders.”
Leaders should always be the entrepreneurs themselves. Does everyone even know who our entrepreneur leaders are? Then there are the feeders: the local government, universities, investors, mentors, as well as local corporations. How are we doing there? Again, lots of room for improvement. It’s especially puzzling why there isn’t more engagement from universities and alumni since they need to be our primary source of talent. We need to work directly with them to engage them with the community.
Do we need more active early stage investors? Yes. Do we also need more fundable startups? Yes. We need a more consistent flow of talent from universities into startups, and better programs to support this. We need more mentors to help make our existing startups better. We need more builders — entrepreneurs who leverage the low cost of launching a startup to build an amazing team and product with little or no funding.
Once a few of these elements are in place, the quality and quantity of startups will grow organically. I’m as impatient as anyone, but this takes time.
Some things can be done now.
We need better engagement from local businesses. We have some amazing corporations here and we need to show them it’s a very good thing for their businesses to invest in the startup community.
A great example is what Wendy Lea and her team have done with Cintrifuse in Cincinnati. Cintrifuse is many things: a source of talent, funding connections, co-working space, and even customers. They took it a step further and raised a $57 million fund from local corporations, universities and nonprofits.
The fund invests in early-stage venture funds outside of Cincinnati, with the requirement that those VC funds have a plan to engage with Cintrifuse’s limited partners and startups. And it’s working: so far for every $1 invested, $7 has been returned to the region via investments by their venture network. Kansas City can learn a lot from efforts like Cintrifuse, which is just one part of Cincinnati’s #StartupCincy mission.
There’s plenty of good news for Kansas City, too.
An existing seed stage fund just opened an office here, and several folks I know are actively raising different types of investment funds. That’s a big deal. We’ve also had some nice funding wins lately, with several area startups raising Series A rounds. They weren’t 100 percent funded by local investors, but they closed their rounds and stayed in Kansas City, and that’s what counts.
Can we change the culture of conservative investors? Probably not. We need new money to come in, and it looks like that’s happening. It’s a key part of the equation, but it’s just one part. We need to continue growing other elements of the ecosystem and leverage our unique strengths. To do that we all need to work together. Inclusiveness. Network over hierarchy. Give first. That’s the only way we can move forward as a community.
We all need to look in the mirror and admit that we can do more, individually and as a group. Then we need to do it.
John Fein is the managing director for Techstars at the Sprint Accelerator. He’s on the advisory boards of Techweek KC and LaunchKC. Got specific ideas for improving our ecosystem? Email him at email@example.com.