Editor’s note: The following is part of Startland News’ ongoing coverage of the impact of Coronavirus (COVID-19) on Kansas City’s entrepreneur community, as well as how innovation is helping to drive a new normal in the ecosystem. Click here to follow related stories as they develop.
A critical funding tool for Missouri startups could become the latest casualty of the Coronavirus, with Gov. Mike Parson ordering the entire 2020 budget of the Missouri Technology Corporation withheld to help the state recoup losses because of COVID-19.
“The impact of COVID-19 has already been hard felt in our economy. More people are staying home, business operations have been limited, many people have lost their jobs, and state revenues are down,” Parson said. “This has had a serious impact on our anticipated economic growth, so we’ve had to take a hard look at our budget and make some very difficult decisions.”
Among Parson’s $180 million in expenditure restrictions: more than $2.9 million for MTC, a state organization that supports startups through direct co-investments and a matching grant program — including through efforts like LaunchKC and Digital Sandbox KC.
Click here to see the full list of restrictions, which includes $61.3 million withheld from higher education institutions, $11.6 million from community colleges and $2.4 million from the University of Missouri’s Precision Medicine Initiative.
Parson’s order to withhold the entire MTC budget allocation includes funds already disbursed by MTC to startups, as well as the state’s nine innovation centers — including those at the University of Missouri in Kansas City and Columbia, as well as Innovation Stockyard in St. Joseph. The program itself, not the awardees, is expected to pay back the 2020 money to the state from its cash reserves, according to reports.
“Defunding the state’s entrepreneurial and innovation support infrastructure is crippling and sends a clear message that Missouri is not open for business,” said NEXT Missouri, a statewide coalition advocating for entrepreneurship as a driver of economic growth and job creation. “It’s even more troubling when we’ve seen startups and innovation centers on the front lines to help supply PPE and fight in the COVID-19 response.”
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The multiplier of disinvestment
MTC has been a target of budget cuts led by Republicans in recent years — with funding at more than $17 million in 2016 when Gov. Eric Greitens was elected governor, to $13 million the next year, and finally down to less than $3 million for 2020.
Greitens’ successor, Parson, indicated previously that MTC should expect its funding to be cut to $1 million for 2021, according to media reports.
The withholding of all 2020 funds adds to those concerns, as well as creating new ones for MTC, NEXT Missouri said.
“We have never seen or experienced the state going back retroactively to sweep funds already expended. This is concerning and a very dangerous precedent for all publicly funded entities,” the advocacy group said. “By forcing MTC to surrender their entire FY20 budget allocation and an anticipated deep FY21 budget cut looming, it has created a situation where MTC has been unfairly expected to rely too much on cash reserves for the past four years. This is not a sustainable model for MTC and by extension the state’s entrepreneurial ecosystem.”
Parson’s short-term budget fix would likely have long-term ramifications for startups and entrepreneurs across the state, agreed Jordan Warzecha, co-founder of Kansas City-based backstitch, a past recipient of MTC funds.
“While in a time of crisis, difficult decisions will have to be made, it is upsetting to see included in those decisions a reduced budget for entrepreneurship programs — especially changes being made retroactively on funding already disbursed,” he said. “Considering the small percentage of the overall spending restriction it makes me wonder why MTC would be chosen given the potential economic multiplier, especially as we look toward the return to ‘new normal’ after this pandemic.”
Warzecha — along with his co-founder and wife, Stefanie — knows firsthand the impact of MTC continued funding.
“Support from MTC was key for us in raising our pre-seed round in 2017,” he said. “They were the first fund to make a commitment in that round and that really helped drive interest from early stage funds and angel groups that ultimately co-invested with the state.”
That crucial infusion set the stage for backstitch to create new local tech jobs, as well as syndicate capital investment in the startup’s later rounds — coming from across the country (San Francisco to Chicago to Washington D.C.) into Kansas City.
“Several of those investors have then continued to go on to look at other startups and do additional deals in the Kansas City market,” Warzecha said.
Click here to read more about backstitch, one of Startland News’ Kansas City Startups to Watch.
The company, which provides organizations with technology to communicate better to their employees, is among those startups to create growth even during the COVID-19 pandemic — especially with an influx of information in need of quick dissemination.
“We work with a lot of industries that have been classified as essential — hospitals, food production and construction just to highlight a few and a lot of these organizations have developed dedicated ‘COVID-19 Communication Centers’ right inside of their backstitch mobile app,” Warzecha said. “It’s been really eye opening during a major disruption to see how both our technology and our team have been able to take on a role as a support structure for not only businesses but more importantly their employees in these uncertain times.”