In 2018, 50 percent of the top venture capital-funded companies in Kansas City got their start with early-stage investment programs that emerged after 2012, according to We Create KC 2019, KCSourceLink’s sixth annual state of entrepreneurship report.
“That high percentage shows us how important these early-stage investment programs are to our entrepreneurs and our ecosystem,” said Maria Meyers, founder of KCSourceLink, and executive director of the University of Missouri–Kansas City Innovation Center, of which KCSourceLink is a program. “If our companies are to survive the ‘valley of death,’ the community needs to support these early-stage funders and help them continue to create a pipeline for entrepreneurial growth and investment.”
Investing in ideas that shape the future
In this year’s We Create KC, KCSourceLink maps the capital continuum from business inception through maturity. It’s during the early stages of the capital continuum, before startups gain traction and earn revenue, that they hit what venture capitalists call the “valley of death.” Here, during the proof-of-concept and rollout phases of firm development, financing is usually scarce, and startups are at their most vulnerable to cash flow requirements.
Click here to read the We Create KC 2019 report.
In 2012, studies suggested that Kansas City lacked the capital and resources needed to help startups survive the valley of death. Published in June 2015, We Create Capital 2015 provided a clearer picture of the funding landscape for emerging and growth businesses in the Kansas City region and an action plan to address the gaps.
Since then, individuals and organizations across the Kansas City region have rallied to improve access to capital for area entrepreneurs and fill this gap in financing and investment. Digital Sandbox KC, LEANLAB Education, LaunchKC, the Fountain Innovation Fund and various accelerators have all entered that space in recent years to help educate entrepreneurs and pressurize the pipeline for growth and later investment.
In 2018, 24 of the 48 top VC-funded companies tracked by Startland News had received support from one of Kansas City’s early-stage investment programs, including Life Equals and Mycroft AI, which both closed deals of more than $2 million in January 2019; Transportant and RiskGenius, which each completed deals of more than $500,000 in December 2018; and LendingStandard, which closed a fundraising round of $2 million in October 2018.
Click here to see Startland’s Top VC-Backed companies list.
Click here to read more about Life Equals’ oversubscribed funding round.
“I think we’re seeing a lot more funding activity in Kansas City to help small tech businesses grow,” said Andy Kallenbach, CEO and founder of LendingStandard. “Groups like Digital Sandbox KC, Launch KC and Mid-America Angels are doing more investing in early-stage startups. That helps Kansas City build more big wins and good exits and helps experienced entrepreneurs create new ventures and invest in other startups. We need that cycle of wins, experience and exits to continue to make progress for better funding in Kansas City.”
Click here to read more about LendingStandard’s $2.5 million investment from Flyover Capital.
Financial assistance is just one way that the KCSourceLink network and the Kansas City community can help KC businesses start and grow. This year’s We Create KC report also outlines two other ways the community can support startups, which, between 2013 and 2017, created 58 percent of all net new jobs in Kansas City.
“It’s important, however, not to get too focused on year-to-year gains or losses in number or value of deals,” cautioned Meyers. “Only about 1 percent of startups raise VC funding, so those numbers will fluctuate from year to year. It is important to focus on networking capital and building that pipeline of deals, realizing that we’re building a 10-year, not a 2-year, strategy.”
Creating a bridge between opportunities and resources
“Entrepreneurs need resources and connections,” said Jenny Miller, network builder for KCSourceLink. “Anyone can be a bridge to opportunities and resources by knowing the resources and opening their social networks.”
KCSourceLink’s Resource Rail, a map of Kansas City’s entrepreneurial resources, is one way to help aspiring and established business owners find the help they need along their journey.
Calling or emailing KCSourceLink is another. In 2018, KCSourceLink helped 2,593 startups and existing business owners in a range of areas and from a range of industries — and business owners conducted 8,702 online searches for assistance using The Resource Navigator, a searchable, online database of vetted resources. The top five requests concerned startup assistance, financial resources, marketing/sales, mentoring and nonprofit development.
Engaging corporations in the startup ecosystem
Many feel that corporate engagement has to come in the form of cash and financial investment in startups. However, corporate engagement runs the full spectrum from event sponsorship to product co-development, strategic partnerships and corporate venture capital. KCSourceLink is currently working with corporations to better understand how they are mentoring, supporting and incubating ideas and potentially becoming first customers for area startups.
One way corporate leaders can engage with startups is through board service. In early summer of 2019, KCSourceLink will launch a training program focused on early-stage board development for both founders and prospective board members. Having the right network of experienced board members can accelerate growth. This series of workshops will cover the importance and role of a board, board selection and how to transition from corporate and philanthropic board service to early-stage companies.
“We know that the right connections matter to entrepreneurs and that entrepreneurs matter to Kansas City’s economic growth,” said Meyers. “Having the right resource at your back is critical for the survival and growth of Kansas City startups and small businesses.”
About We Create KC
The We Create KC report, produced under an award from the U.S. Department of Commerce, Economic Development Administration with support from the Ewing Marion Kauffman Foundation, covers six imperatives identified as key areas of development in the region’s quest to nurture entrepreneurship and economic growth. These six imperatives came out of research conducted by several local organizations, and helped focus this particular Big 5 initiative defined by the Greater Kansas City Chamber of Commerce.
To advance entrepreneurship in Kansas City, the community needs to:
- Increase awareness of KC as a “startup metro”
- Maximize and fill gaps in entrepreneurial support resources
- Ensure a funding continuum for startup and growth businesses
- Create a strong pipeline of ideas ripe for commercialization
- Build entrepreneurial talent
- Engage the broader corporate community
Click here to read the We Create KC 2019 report.
Sarah Mote is marketing director for KCSourceLink andSourceLink.
Click here to read to about Mote’s path to Kansas City and taking KCSourceLink social.