The Sunflower State appears to set itself apart based on trends indicated by Startland’s 2018 list of Top Venture Capital-Backed Companies in KC. But does Kansas really have the competitive edge?
Kansas companies are on average two years older than Missouri companies; they’ve raised more than four times as much capital than their Missouri counterparts; and they have twice as many employees as Missouri firms on the list.
With a limited sample size, it’s a stretch to make concrete determinations from the snapshot of company data alone, acknowledged Melissa Roberts, vice president of strategy and economic development for the Enterprise Center in Johnson County.
“It’s easy to tie political decisions made on either side of the state line and claim some impact that probably isn’t accurate,” she said.
But the data reported by companies in the Startland list does dovetail with other findings and anecdotes about the effects of Kansas shuttering programs like KTEC, a state-run economic development investment initiative that was abolished in 2011 after a nearly 25-year run, Roberts said.
Similarly, the Kansas Bioscience Authority, which was created in 2004 to accelerate growth in the bioscience sector and slated to sunset in 2019, was instead disbanded in 2016 with its portfolio sold to a Chicago firm for $14 million amid a budget crunch at the Kansas Statehouse.
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“With the deaths of KTEC and the KBA, there’s really no institutional leader in the State of Kansas outside of local efforts like ECJC and the Mid-America Angels Investment Network to fund and grow innovation,” Roberts said. “As someone who is a Kansan, that scares me.”
While Kansas in some ways appears to be a leader thanks to the success of several companies based in the state, momentum has shifted to the Missouri side, she said, especially as programs like Digital Sandbox launched in 2013 and LaunchKC took off in 2015.
Even the Missouri Technology Corporation, which has seen its funding cut dramatically in the past year, continues to have a sizable impact with its frequent investments in Kansas City companies on the Missouri side of the state line, Roberts said.
“MTC provides 1-to-1 matching funding at the seed stage in Missouri. Kansas doesn’t have a similar function yet,” she said. “That’s one place where you really can draw a pretty clear conclusion from the data.”
Evidence of the shift: Of the 4 companies that qualified for the Startland list that were founded before 2012, all are Kansas companies; Of the 11 companies that qualified for the list that were founded in or after 2015, nine are Missouri companies.
Despite recent changes in state-supported investment programming, Kansas’ early playbook worked well enough for its neighbors to the east to emulate, said Davyeon Ross, co-founder and COO of ShotTracker, a Merriam-based tech company featured in the list.
“Missouri is starting to make traction — getting to a place where they can follow the lead of what people have done in Kansas,” he said. “If you look at the infrastructure built by Kansas — including KTEC, if you go way back — they’ve made some pretty significant investments. I know a ton of people who’ve capitalized on tax credits for early stage investment.”
The Kansas Angel Investor Tax Program, established in 2005 and extended in 2016, currently is allotted $6 million annually to distribute among eligible companies who apply.
“We are looking for innovative businesses in Kansas that are under five years old,” said Rachèll Rowand, program manager for the Kansas Department of Commerce, which administers the angel tax program. “The biotechnology industry is allowed 10 years. A lot of people have the misperception that the angel tax credit program is just for biotech companies, but it’s not.”
As of Tuesday, the program still had $4.7 million in tax credits waiting to be awarded to Kansas companies in 2018. The deadline to apply is Aug. 31.
Interest in the program has been increasing this year, Rowand said, though she noted it didn’t see enough applications to award the full $6 million in 2017, so the unused credits rolled over into 2018. The state began the year with $8,540,055.80 in the bank and likely could end 2018 with an excess again.
“We’ve had quite a few companies that have been able to use the credits to entice investors so they’re able to grow their businesses in the ways they want to grow,” Rowand said, noting the past exits of EyeVerify, now Zoloz, and Zave Networks, both of which originated in Kansas City, Kansas. “Everybody’s view of success looks different. We find it successful if they create jobs or they sell well.”
The underutilization of the Kansas Angel Investor Tax Program — which Roberts said results in large part from bad management reputation from the “critically under-resourced” Department of Commerce — has slowed deal flow locally, the ECJC executive said.
Pointing to data in the Startland list that showed 24 of the 46 companies (52 percent) were founded between 2012 and 2014 — followed by a steep drop on the Kansas side — Roberts identified that Kansas has been unable to maintain the same “founding velocity” — the rate at which people are founding high-growth companies.
“Clearly those were peak years,” she said. “When you think back on our experiences in the community at the time, that really matches with any anecdote you could present. There were a few years there were people were starting companies at a rate none of us had seen before and that has had a lasting impact on our area. That was the result of a growing number of financing opportunities, rich support networks being built, and a real sense of community in the startup ecosystem.”
The juxtaposition to today is alarming, Roberts said.
“So often we talk about entrepreneurship as a bright spot in our economy,” she said. “And if that’s the case, we really need to reverse this trend [of slowing founder velocity and deal flow].”
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