Stop Paying Entrepreneurs in Lip Service

On an average day, a couple of start-ups will receive their first round of institutional funding in California, Massachusetts, or New York. On that same average day, a number of start-ups will also receive their first round of institutional funding everywhere else in America.

The difference: if you’re an American entrepreneur inside one of the country’s hotbeds of innovation, you’re more likely to succeed.

For policymakers outside of the superhubs hoping to spark a start-up revolution, this is a real problem. While these leaders seem to grasp that entrepreneurship and innovation are the best path to job creation, they’re not doing enough to support the folks who headquarter their businesses outside the superhubs. For the individual entrepreneurs who have a one-in-a-million concept and the skill to execute — the entrepreneur who is willing to risk their income, their reputation, and their existing relationships to relentlessly pursue opportunity — the best option for them is often to get on a plane and build the next growth business in a market where, sadly enough, there already are plenty of existing growth businesses.

Policymakers outside of superhubs need to change that. If you’re asking entrepreneurs, early stage employees, and investors to forgo supercharging their businesses in a superhub, then you need to offset that cost with something else that helps them. In the last article, Max pointed out barriers to entrepreneurship outside of the superhubs along three lines: finding capital, finding talent, and finding the right connections. To make the playing field more level, communities need to solve these problems. But they shouldn’t just stop there — they should explore opportunities to give local entrepreneurs an edge.

The good news for policymakers is that there are already a lot of different experiments going on now to tear down those barriers across the country. Take, for instance, Virginia’s CIT Gap funds. To solve the funding problem, Gap funds makes state dollars available for in state business. Understanding returns will be lower for investors shopping for deals in Virginia, the state invests itself in early rounds for firms committed to staying in state, carrying risk in deals and improving the outlook for later stage investors.

When it comes to attracting talent, Chicago recently launched a technology fellowship to provide financial incentives for young technologists to stay in the city. Municipally funded technology fellowships and other programs like these could do cities a world of benefit in incentivizing local talent to stay local. Similarly, programs that (for example) repay the student debt of engineers who move to your region and work in entrepreneurial firms would help ease one of the hardest problems that most start-ups are facing right now — the engineering talent crunch.

Cities trying to boost their entrepreneurial appeal could take a page from some established entrepreneurial programs. Harvard Business School’s  Entrepreneurs-in-Residence program, which brings in folks from around the country to periodically consult with students. They help students test their ideas and, more importantly, provide exposure to professional networks. The Brandery, an accelerator in Cincinnati, also brings in its official mentors from around the country to work with its start-ups — instead of relying on the limited pool of hopefuls from the city. Given the public benefit to having better connected mentorship and investment networks, there’s no reason localities around the country shouldn’t be structuring programs or events to bring in the best mentors, instead of simply settling for the best of what’s around.

Then there’s another route that most policymakers have overlooked. Today, most policy ideas are focused at the company level. The entrepreneur himself is often ignored. It’s a very difficult road for an individual to walk — many who choose to pursue entrepreneurial ambitions do so at great personal risk. They walk away from well-paying jobs. They risk a roof over their head and food on the table. They can lose the ability to provide their families with affordable health care.

Local jurisdictions could step up to deliver a suite of policies to reduce risk for entrepreneurs — cheap health care plans, financial aid for children of entrepreneurs, retirement matching plans — which would give them a distinct edge in terms of not only attracting and retaining entrepreneurial talent, but also in convincing those folks who are on the edge of pursuing their one-in-a-million idea to actually take the plunge.

Many balk at these sorts of recommendations. And we acknowledge they can be hard to pursue from a policy perspective — they’re expensive, they’re risky, and they often require bipartisan support. Skeptics cite public failures like Solyndra and the Loan Guarantee Act. In the realm of entrepreneurship, however, the risk of failure is a necessary condition for success. And if our cities and regions are most concerned with avoiding failure, we will never be able to give local entrepreneurs the platform they need from which to swing for the fences; to try to start the next Google, Tesla, or Square.

A big part of the reason Boston and Silicon Valley look like they do today is because of the investments that the federal government has made since the late 1950s in the SBIC program — which unlocked millions of dollars available for entrepreneurs. Today, the program which provides matching funds for companies investing in small businesses would certainly garner raised eyebrows and push back. But it was effective. And most importantly, it offers our leaders a valuable lesson: building an entrepreneurial ecosystem is your region possible — but it requires much more than just talk.