SILICON FUNDING WHEELS

…And what do most of these Silicon simulators seek to support – the development of their own Angel and VC communities.

How many times have entrepreneurs been told not to reinvent the wheel? Who needed a Caddie when Olds and Benz already existed? Baskin Robbins’ 31 flavors? Both Dairy Queen and Carvel beat it to the scooper.   McDonalds billions and billions sold? White Castle was first…by 27 years!

One of the great character traits of entrepreneurs is their belief in being able to do things differently and better. How else do you explain the “Top 55 Free Photo Sharing Apps”, which doesn’t even include “17 App”, a relatively new photo sharing and video streaming app from 17 Media, LLC. 17 App raised a $10M Series A in 2015 based, presumably in part, on its novel revenue sharing model – splitting ad revenues with users. No shit.

It shouldn’t come as a surprise, then, that regions seeking to distinguish their entrepreneurial prowess have dubbed themselves Silicon Allee (Germany), Silicon Desert (USA), Silicon Docks (Ireland), Silicon Fjord (Norway), Silicon Roundabout (England), Silicon Taiga (Russia), and Silicon Wadi (Israel). About the only thing with more silicone than regional startup hotspots is the Annual Atlanta Breast Surgery Symposium. (Yes, I know silicone is [R2SiO]n, but what do you think you get when you link all those regions??)

And what do most of these Silicon simulators seek to support – the development of their own Angel and VC communities. In a 2000 study focusing on the dawn of the Internet epoch, the National Governors’ Association (NGA) published, “Growing New Business with Seed and Venture Capital: State Experiences and Options”. Any region looking to reinvent the startup investment capital wheel would be well advised to give it a read.

The report identified three primary strategies of public sector efforts to increase venture investing: build knowledge; promote visibility; and funnel capital into gaps, targeted sectors, and seed and venture funds. It also identified several best practices, including:

  • State leaders take the initiative and set the direction, but leave investment decisions to professionals;
  • Success depends more on increasing knowledge than raising money;
  • Generating wealth is a good thing; entrepreneurs, investors, managers and the government should all seek a return on investment; and
  • Scale, flexibility, and patience are imperative.

My adopted Silicon simulator, Silicon Slopes, was no different in its belief that capital formation in pursuit of entrepreneurial successes would be a key to regional economic development. In 2003, Utah adopted the Utah Fund of Funds (UFOF) program to boost a weakening economy. Within a couple years, UFOF was capitalized with $100M of tax credits and then recapitalized in 2012. It invested in 28 VC firms, eight of which were based in Utah itself. Of the 20 funds outside Utah, either their partners had property in Utah or the fund maintained employees from Utah. Those funds also agreed to visit Utah quarterly to review deals. UFOF money went into seed, early and mid-stage funds, as well as growth, buyout and distressed asset funds. Utah supplemented UFOF in 2005 with the Utah Science and Technology Research Initiative (USTAR), which itself was followed by several additional policies and programs to support the state’s long term startup goals. Along the way, Utah maintained a strong focus on strategies and best practices like those outlined in the 2000 NGA report.

And the results…Venture Capital investments in Utah companies increased 500 percent from 2010-2014 and topped to $954M in 2014, ranking it seventh nationally for the year. Utah’s dollar-per-deal and dollar-per-capita numbers were also the best in the nation.   In 2015, four Utah companies reached Unicorn status, with momentum continuing to build for 2016. Just last month, Forbes ranked Salt Lake City #2 behind Austin as America’s Next Boom Town, noting it’s tech sector growth, while CNN Money called Provo one of America’s hottest job markets, based largely on its tech sector growth.

Sounds like the wheels are turning pretty well in Utah!

How are they are turning in your region? Let us know.

 

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