Four years ago, an ambitious program for the Kansas City area set “becoming America’s most entrepreneurial city” as one of its five top goals. But a big barrier has stood in the way: Not enough investment money has been getting to enough startup businesses.
Leaders of the Greater Kansas City Chamber of Commerce and the entrepreneurial community today will introduce a plan to leap that hurdle by building up local investment funds to help grow and keep business startups in the area. It’s either that or continuing to lose them to cities where investors are more likely to take interest.
Why should this matter to non-entrepreneurs? Data show that businesses less than five years old have been adding two-thirds of all new jobs, and job growth is essential for any region to prosper.
“We’ve seen a number of companies leave the area because of a lack of capital formation here,” said chamber chairman Terry Dunn. “We need to make the dollars and keep the dollars in our backyard instead of losing them to New York or other venture capital centers.”
Financing experts say people trying to start businesses in the Kansas City aren’t aware of all the resources and funding sources available. They say there’s a relative shortage of venture capital funds for a metro area of this size. And they say the area needs more skilled venture fund managers to help bring promising entrepreneurs and financiers together.
The new “We Create Capital” strategy to be announced today at Kauffman Foundation Conference Center includes three key aims:
▪ Create better community awareness about available startup funding sources.
▪ Build stronger ties between wealthy people or companies who could unite as venture capital investors.
▪ Cultivate a deeper talent pool of people to manage more venture capital funds.
“We are looking to de-risk some of the natural risk in business startups,” Dunn said. “And we’re looking for people with the ability to spot entrepreneurial talent and know the right opportunities for funding.”
Meanwhile, the chamber is lobbying in Topeka, Jefferson City and Washington to keep legislative attention on the need for government-backed startup loans and other funding.
“We need to put pressure on our state governments to say that these states are open for business,” Dunn said.
The strategy is based on extensive research by the Ewing Marion Kauffman Foundation and KCSourceLink. The latter program, housed at the University of Missouri-Kansas City, is a network of about local 240 organizations, mostly nonprofits and educational institutions, that deal with early-stage business development.
Maria Meyers, who heads KCSourceLink, said research identified “networked capital” as a notable weak link in the Kansas City area.
“Our entrepreneurial resources here are extremely strong, but there’s a lack of coordination,” Meyers said. “Fragmentation makes it difficult for entrepreneurs to identify and access appropriate funding sources.”
She added: “We’re leaving millions of dollars on the table. We need to fill the gaps. …This is what KCSourceLink does and can do more — pair the right person with the right money.”
The new strategy aims to at least double by 2020 the current amount of local venture capital investments that run in the $1 million to $10 million range. Now, the KCSourceLink report says, local investments of that type and size total about $43 million. Ideally, the figure can be pumped up to more than $180 million by 2020, advocates say.
Similarly, the goal for seed capital investments — an earlier funding stage than venture capital and generally for less than $1 million — is to increase the local investments total from just $2.9 million to more than $10 million.
The group also wants area entrepreneurs to take better advantage of existing federal and state grants for early-stage or research-and-development businesses. The goal is to raise their local use from the current $2.6 million to about $6 million. The metro area lags far behind St. Louis and even outstate Missouri and Kansas in obtaining such available funds.
For earliest-stage entrepreneurs, the strategy aims to build up microloan and other “alternative” loan programs, the kind of funding that goes to startups that don’t qualify for bank loans. Currently, the Kansas City area is accessing only about $3 million in alternative loans. The goal is to increase access to more than $10 million.
OneKC for Women, the umbrella organization for The Women’s Employment Network, Women’s Business Center and the Women’s Capital Connection, and KCMO CDE, a community development entity focused on Kansas City’s most economically distressed communities, have agreed to pursue underused loan programs, such as through the U.S. Small Business Administration and U.S. Treasury.
Those two organizations already are affiliated with the successful KC Regional Microloan Program that was created three years ago but has served fewer than 300 businesses.
For the bigger-ticket funding — venture or equity — Dunn said wealthy people increasingly are looking for entrepreneurial investment opportunities, but they need possibilities to be vetted by experts before committing money.
“They want to invest in businesses they understand, and we need to develop fund managers who can help young companies grow and connect them to interested investors,” Dunn said.
Planners cited several other local entrepreneurial-development assets, including the Kauffman Foundation. Dunn mentioned Flyover Capital, a venture investment group that’s majority owned by the Bicknell family, as well as efforts undertaken by UMB executive Peter deSilva to coalesce area venture capitalists.
Chamber president Jim Heeter said he takes heart that Kansas City is one of a handful of cities nationally that are spotlighting entrepreneurial development. He said planners have studied successes in Austin, Texas, and Nashville, Tenn., to help guide the next steps.
Heeter also emphasized a regional education goal: “We hope to create a community that sees entrepreneurial investment as a philanthropic thing for the good of the city.”
Kansas City lags peer cities
Companies in the Kansas City region received $668.3 million in equity investments in the 2009-2014 period. That ranked the area 11th in a comparison of 15 cities.