Download Differentiating Our Startup Ecosystem

Differentiating Our Startup Ecosystem
Summer 2014
Virginia the New Leader in Entrepreneurship – Richmond at the Center
By
The
Numbers
8,260,405
Population of the
Commonwealth of Virginia, the
12th largest state
12,683
Number of new ventures
formed in Virginia in 2013
11.1%
Percentage of U.S. angel investment deals
conducted in the Southeast region
$3 Billion
Impact investment commitments expected for
private equities in 2014
19%
Internal rate of return expected for developed
market, private equity impact investments
88%
Percentage of developed market impact
investment funds which are outperforming or inline with financial expectations
Sources: U.S. Census Bureau, Kauffman Foundation, Silicon Valley Bank and Angel Resource
Institute, Global Impact Investment Network, and JP Morgan, respectively
Building Businesses
Improving Communities
Entrepreneurs for our Collective Good.
We are supporting those startups that
improve our community and grow our
economy. We provide:
• Skills development;
• Professional networks;
• Financial capital; and
• Facilities.
Founding Sponsor
Delivery Partners
2
Table of Contents
Acknowledgements ………………………………………………………………………………………………………………………………………………….4
Executive Summary ………………………………………………………………………………………………………………………………………………..6
Entrepreneurship – Engines of Job Creation ………………………………………………………………………………………8
Our Economy – Where Entrepreneurship Fits ………………………………………..................................................11
Our Ecosystem – The Context for the New Business ……………………………………………………………………18
Conclusion ………………………………………………………………………………………………………………………………………………………………… 29
References ………………………………………………………………………………………………………………………………………………………………. 30
2
Acknowledgements
First and foremost, it is right that we express our gratitude for the Spirit of concern - that within us
which guides us which seeks the well-being of our neighbor. We are grateful for the founders of
Advantech, the Maggie L. Walker Business and Technology Incubator. It is upon their shoulders that
we stand. We’d like to specifically thank Jon King, regarding his leadership in that capacity and his
ongoing support for our work and for the City of Richmond. We’d like to express our gratitude for the
men and women who have graciously given of their time and talent to serve on the Board of
Directors of the Richmond Economic Development Authority. This work is only made possible through
their commitment to job creation and economic growth in our city. We’d like to specifically express
our gratitude for the leadership of Julious Smith and Richard Johnson, current Chairman and
immediate past Chairman, respectively. We’d also like to express our gratitude for the ongoing
support of Anne Greever, Kelvin Hanson, and Meda Lane, who all serve within this capacity. The
Incubator Committee has provided a strong governance mechanism by which the transformation
from Advantech to RVA Works has been made possible. It has been through this committee that
Greta Harris and Zarina Fazaldin have provided strong leadership, vision and operational acumen. In
particular, Ms. Fazaldin’s passion for community improvement and the incubator’s potential, that we
are all indebted. Without the smooth day-to-day operations of our facility, this work would not be
possible. Sharon Kerrick’s management of the building is a true blessing, and the efforts of Richard
Montague and Jimmy Alexander are a key contribution thereof. We’d also like to thank the ongoing
support of numerous employees with the City of Richmond. In particular, we’d like to express our
gratitude for the efforts of our Mayor Dwight C. Jones, Bonnie Ashley, Lee Downey, Jane Ferrara,
Pat Foster, Ron Johnson, and Sheila Shepperson (retired). We’d also like to specifically thank the
Honorable Kathy Graziano and the Honorable Parker Agelasto, both members of the Richmond City
Council and supporters of our work to grow our local economy.
We’d like to thank all of those who have generously given of their time to serve as members of our
Advisory Board, including: Peter Aiken, Gunnar Bartels, Ace Callwood, Jon Davidow, Sharon Dabney –
Wooldridge, Mark Deutsche, Ramzy Ismail, Remo Kommnick, Sattar Mukadam, Todd Nuckols, Wayne
Nystrom, Michael Pirron, Will Rabke, Vilma Seymour, Mike Vizdos, Jared Wasdin, Sarah Williams, and
Felipe Wright. We’d also like to thank the team at New Richmond Ventures, and in particular, Bob
Mooney and Jim Ukrop, for their unfailing support for social entrepreneurship, for their input into our
program development activities. There are many other people without whom this work would not
have been possible. Toan Nguyen has been instrumental in providing ongoing input, energy, and
experience into our work. He has been an exceptionally strong advocate, and his work at CIC in
particular has, in large part, shaped the model for our Entrepreneur Institute. A specific thank you to
the Honorable Jim Cheng, former Secretary of Commerce & Trade for the Commonwealth of
Virginia for his support, and for the ongoing support of our current Secretary of Commerce & Trade
– the Honorable Maurice Jones, as well as that of our Governor the Honorable Terry McAuliffe and
the Secretary of the Commonwealth, the Honorable Levar Stoney.
Our other delivery partners have played a vital role in terms of their commitments to our vision and
strategy. For them we are deeply thankful. We’d like to especially thank Capital One for their
founding grant which has made possible the first cohort of Entrepreneur Institute. In particular, we
are fortunate to have the support of Steve Gannon, Nancy Stark and Amy Chapman. We would also
like to thank our delivery partners, including: Jill Johnson, CEO of Workshops in Business
Opportunities; Dr. Bob Kelly and Nicole Colomb of Virginia Commonwealth University; the team at
Gangplank, including Derek Neighbors, Jade Meskill and Trish Gillam; Nate Olson and Taylor Brown of
the Ewing Marion Kauffman Foundation’s 1MC team; Ana Costa, Jonny Price, Justin Renfro, and
Alyssa Thomas of Kiva Zip; the Small Business Administration’s leader of the Richmond SBDC, Mike
Leonard, and the SCORE team; and Richard Luck and Sarah Mullens co-founders of UnboundRVA.
We would like to recognize the tremendous inputs of Corey Lane of the Martin Agency. His unceasing
support for our work, his commitment to community, and his marketing capabilities have made him a
strong asset for our team. There are many others who generously contribute their time, contacts,
and talents to help support our work, including: Bob and Wendy Austin, Ron Collier, Diego Falarcon,
Mark Fulcher, Andre Galitzsky, Chris Gatewood, Ed Gerardo, Robin Lancaster, JT Logan, Dave Lohr,
Paul Nolde, Alan Reese, Jeff Sadler, Josh Sheldon, Martin Short, Bobby Thalhimer, and Rick Wildes.
Lastly, we’d like to thank all of our past and present residents. In large part, it is through their
contributions to our city’s economy and their decision to reside in our building, that we are able to
undertake these endeavors.
4
A special note of
gratitude to Eric
Blaschick, for his
assistance with
the creation of
this document.
I write today in the spirit of hope. We have a unique opportunity!
In 2008, we saw a historic shock to the financial system, and
during the subsequent Great Recession, we experienced an
unprecedented contraction in the economy. Many families in our
city, and across the country, felt the impact – lost jobs,
foreclosure, bankruptcy, and damage to personal relationships.
Many families had to rely on their local churches, social services
organizations, and friends for basic support – support for housing,
food, and clothing. Despite these tribulations, we have hope.
We are starting to see signs of economic recovery. We are still
the world’s economic leader, and we’re a country richly blessed
with individual enterprise and community unity. We have an
opportunity! Here in Richmond, we sit in the middle of the east
coast – one of the most economically advanced regions
anywhere. We are only 100 miles from the national capital, and
100 miles from one of the most significant seaports on the
Atlantic. As a commonwealth we have access to some of the
latest technology and innovation, and in Richmond we have some
of the nation’s top creative talent. We have an opportunity!
Richmond as a startup community is already thriving with local
entrepreneurs, strong institutional partners, and public sector
support. New businesses are the job creators; and a vibrant
community of entrepreneurs is synonymous with economic
prosperity. Building a business, owning a home, and creating a
better future for our children – across diverse neighborhoods we
have the same hope.
We have an opportunity to build an even stronger community of
entrepreneurs, a community of new business leaders, a
community of job creators. As we carve out our unique niche, we
seize this opportunity and show who we are – what we stand for.
We have an opportunity to bring new resources to bear; to build
businesses that strengthen our city and our region; to build
businesses that are sound investments; and to build businesses
that improve society. Please join me in this discussion, as we
define how we seize our opportunity.
Warm regards,
Executive Director, RVA Works
5
Executive Summary
This document is being circulated throughout a range of stakeholders to facilitate
discussions on the opportunity for Richmond, and Virginia more broadly, as a
destination for entrepreneurs and for investment in new ventures. It is incumbent
upon us to clarify a vision for our startup community; a vision which defines a unique
value proposition; and a vision which enable us to attract new people and this new
capital to the region; to foster the creation of businesses which successfully
compete in global markets.
Below we lay out information, which are useful inputs to that dialogue, including:
Why entrepreneurship is important;
An overview of our economy in Virginia;
Our local ability to support entrepreneurship; and
An analysis of our opportunity space.
A more inclusive version of capitalism is emerging. We are witnessing a confluence
of ever more ubiquitous connective technologies, with movements toward the
utilization of market tools for collective societal benefit. Richmond, and Central
Virginia more broadly, has the potential to create a differentiated startup
ecosystem, leveraging our existing strengths and harnessing positive economic
trends. Access to policy makers, strong statewide capacities in technology and
innovation, local industry clusters, geography and cost-of-living advantages, cultural
goodwill, and broad interest in social change – all compelling, comparative strengths.
6
Information availability over the internet (and increasingly data-driven and mobile) is
being complemented by a democratization of access to capital through
crowdfunding. As economic power continues to move towards developing countries,
mission-aligned teams will increasingly bridge geographic divides, and form scalable
business models on a distance basis. Some will be high-impact double-bottom-line
ventures that seek societal impact and financial returns, in parallel.
RVA Works, itself formed through a unique public-private structure, is working to
help foster social entrepreneurship through our livelihoods program – Entrepreneur
Institute. We continue to seek new ways to connect resources across our
ecosystem, and to help facilitate dialogue which is of collective beneficial. Our vision
is to be the leader in urban development through social entrepreneurship. This is a
complement to a range of existing efforts within the ecosystem, and our work is in
alignment with related state, regional and city initiatives to increase economic
prosperity.
We have identified three key strengths which we look to leverage in creating new
businesses: (a) creative and artistic talent; (b) technology and innovation capacity;
and (c) functions of our geography – proximity to policy makers, the Port of Virginia,
and other economic centers on the east coast.
There are six resultant opportunity areas most attractive for our ecosystem, both
in terms of industry growth potential and in terms of our ability to capture the
opportunity:
Social Innovation, Creative Services, Engineering and Product
Development, Advanced Manufacturing, Life Sciences, and Health Care Technology.
7
Entrepreneurship – Engines of Job Creation
New jobs are overwhelmingly created by new businesses. New businesses, those
less than a year old, add an average of 3 million jobs in the U.S.; while older firms
represent a loss of 1 million jobs - each year. Between 1980 and 2005, companies
less than five years old accounted for almost all net new job creation. 27% of
businesses are less than 4 years old.1 Furthermore, high growth firms add an
average of 88 employees a year as they scale their business model.2
Of course, many new firms are started by the entrepreneur without public sector
intervention. The use of public sector resources is best directed towards the
formation of those ventures which bring about the most significant development
outcomes – outcomes that would not occur otherwise. As shown in figure 1, the
startup ecosystem forms the support infrastructure within which a given startup
develops.
8
The best designed public sector programs facilitate new business formation which:
Considers the range of contextual factors;
Cultivates the existing startup ecosystem to form viable business models; and
Aligns execution towards development outcomes.
Support for the entrepreneur is an evolving discipline. Historically, many programs
were focused on the provision of subsidized spaces for promising startups, courses,
and advisory services. These support programs were provided to enable the
creation of investment-worthy business plans with favorable return on investment
(ROI) projections; and support was provided through the subsequent launch and
growth of the client company.
A range of drivers have served to disrupt this model, including: the prevalence of
mobile technology and global inter-connectedness, the advent and increased
relevance of the Lean Methodology and design thinking in demonstrating market
uptake, an increasingly dynamic workforce willing to change career tracks and
geography, and an increasing focus on motivations based on social impact and
environmental sustainability factors. New program interventions must reflect the
new context:
A collaborative approach within a dynamic, networked ecosystem;
Value is often added by bridging connections;
Geography and physical location play a negligible role in the transfer of
information, and increasingly in the transfer of financial capital;
Financial and social returns are increasingly sought in parallel; and
Programs should increase the flow of capital and talent to viable opportunities,
particularly when the business models leverage local assets.
Economic Context
• National and
International Macrofactors
• Policy & Regulatory
Climate
• Local Asset Base
(e.g. SME capital,
clusters, workforce,
anchor institutions)
• Geography
• Entrepreneurial
Spirit & Culture
•
•
•
Intellectual
Capital
•
Social
Capital
New Business
Formation
•
•
Growth Objectives
Economic Output
Return on Investment
Unemployment & Labor
Force Participation
Price Stability and
Asset Values
Inward Investment
Quality Infrastructure
Development Objectives
Financial
Capital
•
•
•
•
•
Poverty Alleviation
Wage Improvements
Asset Development
Income Mobility
Workforce Readiness
Figure 1 – Role of the Startup in Economic Development
9
The thriving startup community starts with entrepreneurs themselves, and the leadership of
those founders with a long-term commitment to the region. It requires that these leaders
foster a spirit of inclusiveness, and broad engagement across a disparate group of
stakeholders – academic institutions, investors, public sector agencies, lenders, service
providers, corporate partners, associations, and nonprofit and community organizations.
Many models of support have developed in the public and private sector, including:
accelerators, incubators, and economic gardening interventions.
The efforts of RVA Works are aligned with the Commonwealth’s commitment to
fostering local-level startup ecosystems. The economic development objectives,
such as: poverty alleviation, wage improvements, asset development, income
mobility, and workforce readiness are driven by productivity increases across the
middle class; and resultant wage improvements which, in turn, drive increased
consumption and employment.3 This virtuous cycle of growth in terms of real returns
to the providers of financial capital, as well as the improvement in the livelihoods of
people for whom the market is intended to serve, is fueled by talent, capital and
information. This desired economic development occurs within a complex context,
and at state level several levers may be used to support a unique value proposition:
Change policy climate;
Attract inward investment, particularly in infrastructure;
Invest in workforce training and apprenticeships;
Foster entrepreneurship;
Attract inward consumption through tourism; and
Promote exports domestically and globally.4
10
Efforts to promote entrepreneurship should reflect the reality that this activity, in
many instances, exists without governmental or philanthropic stimulus. It is a natural
activity within the market. The primary determinant of venture success is measured
in terms of financial returns to the providers of capital; while the primary purpose
for which the economic interaction exists is to enable community well-being and
individual empowerment across the populace. Several key metrics provide insight
into the viability of a given geography’s ability to support new business formation:
Number of new business licenses;
Survival rates;
Alignment with economic strategy (e.g. industry sector);
Retention and returns to the tax base;
Workforce participation and wage levels; and
Successful exits from equity investments.
Our Economy – Where Entrepreneurship Fits
Virginia has a number of comparative
advantages, nationally and internationally.
Relative to other states, we are well
positioned through an array of favorable
factors related to taxation, cost of living,
quality of life, education and workforce
capabilities.5 We are a state of 8.2 million
people, the 12th largest in the nation; and
we have an unemployment rate of 5.2% –
one of the lowest in the country. The
state’s economy is the 10th largest in the
U.S.; and the average annual income is
over $47,000 – the 9th highest. Over 35%
of the workforce has a bachelor’s degree
or higher, and over 87% have a high school
degree or higher. Measures of the fiscal
strength of the Commonwealth’s debt are
close to the national average, as are
measures of foreign investment into
Virginia’s economy.6
Cluster analyses have recently become
increasingly relevant in discussions related
to international competitiveness, and
regional economic development. A cluster
is a regional concentration of related
industries.
At a state level, the key
challenge is achieving more fiscal stability,
while enhancing state competitiveness by
leveraging existing clusters.7 The U.S.
11
11
Virginia Tops 2013 List of the Best
States for Business”
- Forbes, September 2013
Virginia has attracted $6.3 billion in
international investment, and is home
to over 700 international firms.
- Virginia Economic Development
Partnership, July 2014
Economic Development Administration and the Harvard Business School have
distinguished two type of clusters. First, traded clusters serve markets in other
regions or nations, and are critical for driving high levels of prosperity in a region.
Second, local clusters serve their markets by providing core services within a region
(see sidebar). Nationally, 64% of employment and 50% of income is generated by
local clusters, while traded clusters represent 36% of employment, yet 96.5% of
patents. Within Virginia, the top five traded clusters for overall employment, include:
Business services;
Distribution & electronic commerce;
Education & knowledge creation;
Hospitality & tourism; and
Financial services.8
Another way in which to view the economy is to segment the workforce based on
current employment, and inferred skill sets. The largest clusters for Virginia’s skilled
workforce, include: production workers, managerial services, salesforce, marketing
services, human resources, health care, education, legal and financial services, and
information technology. When we take a broader view of employment (not only
skilled employment), the following clusters generate the most employment through
goods and services used locally:
local health services; local hospitality
establishments; local real estate, construction and development; local commercial
services and local retailing. Each of these occupational clusters employs over
120,000 people in Virginia.9 Furthermore, the Virginia Economic Development
Partnership, the Greater Richmond Partnership and the Richmond Regional Planning
District Commission have delineated the following target industries10:
Virginia Economic
Development Partnership –
Key Industries
Richmond Regional District
Planning Commission –
Strongest & Emerging
Clusters
Greater Richmond
Partnership – Target
Industries
Financial Services
Finance & Insurance
Professional & Creative Services
Construction
Distribution
Supply Chain Management
Supply Chain Management
Advanced Manufacturing
Advanced Manufacturing
Health & Life Sciences
Health & Life Sciences
Plastics & Advanced Materials
Aerospace
Life Sciences
Food Processing
Food & Beverage
Information Technology
Data Centers
Automotive
Energy
Figure 2 – State and Regional Targeted Industries
12
Virginia Economic Snapshot
Outcomes
Value
State Rank
GDP per capita, 2005 real dollars in 2011
$47,072
9th
GDP per capita growth rate, 1998-2011
1.44%
12th
Poverty rate in 2011
11.60%
8th
Increase in Poverty, 1998-2011
1.40%
9th
Labor force participation rate, 2011
80.35%
23rd
Growth in labor force participation, 1998-2011
1.50%
1st
Real GDP per labor force participant, 2011
$90,653
13th
Growth in real GDP per labor force participant,
1998-2011
1.22%
23rd
Patents per 10,000 employees
5.24
31st
Growth in patents per employee, 1998-2011
2.31%
14th
Exports as a percentage of GDP, 2011
4.74%
43rd
Growth in exports as a percentage of GDP,
1998-2011
0.17%
47th
Total R&D expenditure per capita, 2011
$1,337
13th
Growth in total R&D expenditure per capita,
1998-2011
5.18%
21st
Venture capital per $10,000 in GDP
$22.35
43rd
Growth in venture capital per $10,000 in GDP,
2005-2011
17.27%
Total science & engineering doctorates awarded
1998-2011
23,702
8th
State & local taxes as a percentage of GDP
8.43%
45th (6th lowest)
Percent of workers represented by unions,
2001-2011
44%
44th (7th lowest)
Percentage of population, ages 25-44 in 2011
27.34%
Intermediate Outcomes
Factor Inputs
Context for Firm Strategy
Source: Clustermapping.us
13
Top Clusters for Job Creation
Business Services
Local Hospitality Establishments
161,207
81,615
Local Health Services
68,597
Education & Knowledge Creation
34,575
Local Community & Civic Organizations
34,370
Local Commercial Services
25,903
22,146
Local Retailing
Local Personal Services (non-medical)
18,389
15,237
Distribution & Electronic Commerce
Water Transportation
14,714
Local Education & Training
9,330
Local Financial Services
6,208
Financial Services
5,672
Hospitality & Tourism
5,630
Performing Arts
Insurance Services
Construction Products & Services
Marketing, Design & Publishing
3,392
3,173
2,605
2,361
Includes computer services,
consulting services,
business support services,
corporate headquarters,
engineering services,
employment placement
services, ground passenger
transportation, and
architectural & drafting
services.
Selected Local Cluster
Traded Cluster
Virginia’s Clusters for Job Creation, 1998-2011
Virginia Specialization
Virginia’s national
employment share, 2011
Water Transportation
Business Services
Education & Knowledge Creation
Construction Products & Services
Financial Services
Performing Arts
Hospitality & Tourism
Insurance Services
Marketing, Design &
Publishing
Distribution & Electronic Commerce
Change in Virginia’s overall share of US traded cluster employment, 1998-2011
Specialization by Traded Clusters Adding Jobs
14
Source: Clustermapping.us
Our economic development policy is best directed towards increasing the quality of
the overall business environment, developing clusters which leverage structural
advantages, and fostering policy coordination across the levels of the public sector.
There are several core challenges in our economy. First, we are not yet fully
leveraging our technical expertise to drive new business formation and resultant job
creation. The Kauffman Foundation found that in 2012, for every 100,000 people in
Virginia, there are 200 new companies started. This compares unfavorably with the
national average of 300; and places us 44th of the 50 states.11 We are 31st in the
country in terms of patents per employee, but we are improving over 2000-2010.12
Furthermore, according to the Economic Development Administration: (a) average
venture capital investment is half the national average; (b) broadband adoption at
just above half the national average; and (c) the amount of small firms is less than
the national average.13
Second, escalated efforts to catalyze Foreign Direct Investment (FDI), especially
given our geographic advantages, are required. According to FDI Markets, over the
past 24 months there were 59 projects completed in Virginia; while in top states
there were: 417 in California, 318 in New York, 251 in Texas, 143 in Florida, 127 in
Massachusetts, and 122 in North Carolina.14 We are particularly well poised to take
advantage of these opportunities, given the sectors in which the majority of deals
are completed: software & IT services, business services, financial services and
textiles.
15
Third, distressed areas and workforce participation gaps present critical needs.
Nationally in 2012 the official poverty rate was 15%; or 46.5 million people. In Virginia
there were an estimated 936,384 people living in poverty; or 11.8% of the
population.15 According to statsamerica.org, 78 of Virginia’s 104 counties have a per
capita personal income lower than the national average of $43,700, even though
almost all of these counties have a 24-month unemployment rate that is below the
national average. In short, people in many counties are back in work, but the new
positions are not well compensated.
The national unemployment rate can distort the underlying trend of people leaving
the workforce, or being under-employed through part-time, temporary, or through
lower-skilled employment. According to the Bureau of Labor Statistics the labor
force participation rate has decreased to 63%, the lowest point since 1978.16 In
Virginia, this rate is 65.9%, according to the Federal Reserve Bank of Richmond.17
State averages can hide issues at local levels. As such, we have laid out several high
priority areas in Virginia based on the highest poverty rates and the highest
unemployment rates 18 (see figure 3).
16
14
Highest Poverty Rates
Highest Unemployment Rates
Harrisonburg City (37.5%)
Brunswick County (10.24%)
Radford City (34.2%)
Lee County (28.4%)
Lunenburg County (27.3%)
Martinsville City (27.2%)
Dickenson County (9.66%)
Grayson County (9.33%)
Halifax County (9.31%)
Henry County (9.31%)
Richmond City (26.2%)
Danville City (25.9%)
Petersburg City (25.8%)
Richmond City (8.74%)
Mecklenburg County (9.73%)
Page County (9.57%)
Emporia City (25.6%)
Russell County (8.81%)
Wise County (25.6%)
Greensville County (8.88%)
Figure 3 – Areas of Economic Distress
Lastly, there is a significant reliance on the public sector to support employment.
The need to address fiscal deficits, in the shorter term, and the need to address
structural indebtedness in the longer term, are increasingly a significant risk. The
World Economic Forum rated “Fiscal Crises in Key Economies” as the number 1
global risk.19 As the 2013 sequestration measures have demonstrated, there is
political support for budget cuts, which raises questions regarding the
sustainability of the Commonwealth’s reliance of public sector employment. The
table below indicates half of the top 10 employers are public sector agencies20
(see figure 4).
Virginia’s Largest Employers
Sector
1. U.S. Department of Defense
Federal Government
2.
3.
4.
5.
Private
Local Government
Private
Private
Wal Mart
Fairfax County Public Schools
Huntington Ingalls Industries, Inc.
Sentara Healthcare
6. Food Lion
7. Postal Service
Private
Federal Government
8. County of Fairfax
Local Government
9. HCA Virginia Health System
Private
10. U.S. Department of Homeland Defense
Federal Government
Figure 4 – Reliance on Public Sector Employment
17
Our Ecosystem – The Context for a New Business
Forbes recently named Richmond as one of Richmond is one of the top “10 Up and
the top “10 Up and Coming Cities for Coming Cities for Entrepreneurs”
Forbes, September 2013
Entrepreneurs”; and according to a recent
report commissioned by New Richmond
“Richmond’s startup ecosystem has the
Ventures, Richmond’s startup ecosystem potential to make significant impacts…”
has the potential to make
significant
New Richmond Ventures, April 2013
impacts on economic development and
the cultures of both the City of Richmond and the Commonwealth of Virginia.”
Richmond is a strong environment for innovation. Richmond’s technology-based
knowledge occupations are 9.8% of total employment in the city, which is above the
national average of 8.4%. Second, Richmond’s percent of the adult population with a
bachelor’s degree or higher (as of 2000) is 30.5%; which is higher than the national
average of 26.5%.
Third, between 1997 and 2008, there are 1.25 large
establishments for every 10,000 workers – higher than that national average of 1.10.
Large establishments with more than 500 employees have both the capital and labor
resources to fund research and other innovative activities to drive economic
improvement.
18
On balance, it’s worth noting that there is clearly room for improvement. As a rough
gauge of activity amongst early stage, high growth companies, Virginia as a whole
could improve. In 2012, only 62 companies raised $372m in venture capital
investment, 1.3% of the national total.21 Within the City of Richmond, in the three
years 2010 – 2012, new business licenses remained relatively flat.22 Venture capital
(VC) investment in Richmond, is significantly lower than the national average. Over
2003 – 2008 the national average of VC investment was $52.45 for every $10,000 in
economic activity (as measured by gross domestic product). In Richmond, we fall far
below the average, with just $3.66 for every $10,000 in GDP.23 This measure is
important, as VC provides a source of funds to scale-up new ideas or expand
innovative companies.
This is an important factor when determining
entrepreneurship activity. However, it is worth noting that Richmond-based firms
may access VC markets in the Metro D.C. market and other locations.
There is regional alignment supporting new and small businesses. Through the work
of the Capital Region Collaborative, the Richmond Regional District Planning
Commission, Richmond’s Anti-Poverty Commission, and others, there is a shared view
that:
Over 25% of the City of Richmond residents live below the poverty line;
Increased labor force participation necessitates comprehensive workforce
development initiatives;
New business ownership is an important route to increased workforce
participation; and
Capital investments should be prioritized for opportunities to develop small and
minority-owned businesses, provide employment, and sustain local businesses.
o
o
o
o
o
o
o
Capital Region Collaborative
Priorities
Job Creation
Workforce Preparation
Quality Place
Coordinated Transportation
Healthy Community
James River
Social Stability
Comprehensive Economic Development
Plan Goals
o Education – Create Best-in-Class
Public Education System
o Expand Productive Workforce
Participation
o Focus Investments on Priority
Economic Development Opportunities
o Grow & Retain Jobs that Advance the
Region
o Expand Choice in Housing and
Employment Access
Figure 5 – Focus Areas for Regional Economic Development
Furthermore, in September 2013, the VCU Brandcenter completed a market
analysis, concluding that there is an opportunity to institute new pathways to a
stable livelihood in our most distressed communities. The work resulted in several
key findings regarding new business formation in Richmond:
19
Most new business licensees are young, downtown and have a low income;
The average Richmonder earns just 62% of the state median household income;
78% of new businesses are “solo-preneurs”, and stay that way; and
There is a fragmented, saturated market for instruction, events and mentorship
services. 24
RVA Works completed a report providing an overview of these agencies. New
Business Support Services: An overview of agencies and organizations providing
services for Richmond’s entrepreneurs concluded that over 50 such organizations
Advantage
exist, providing a range of services, including: educational courses, networking events,
physical spaces for new business founders, access to capital and other supports.25
Technology & Innovation. We are well placed to leverage Virginia’s broad
science capabilities. In 2012, Virginia’s technology industry employed over
285,000 people, the 4th largest in the country. 9.8% of all employees in the
private sector were employed by technology firms, which ranked 1st in the
country. The percentage of the population with a Bachelor’s degree or
higher is 35.5%; 6.4% higher than the national average of 29.1%. These
strengths, along with improvements in net migration, growth in personal
income and overall compensation translates well into new businesses and
new jobs; particularly in aerospace, plastics and advanced materials, data
centers and IT, and life sciences. Based on human capital, economic
20
Advantage
Advantage
Technology & Innovation (continued). dynamics, productivity, employment,
and economic well-being, Virginia has an innovation index of 98.2%.26 This
statistic suggests that Virginia, relative to other states, is ideal for fostering
innovation and creating new technology jobs.
Furthermore, there is strong institutional support in Richmond through
organizations such as: Virginia Commonwealth University, the Virginia
BioTechnology Research Park, RichTech, the National Minority Technology
Council; as well as some of our largest employers – Altria, BB&T, Bon
Secours Richmond Health System, Capital One Financial Corporation,
Dominion Resources, Genworth Financial, HCA Virginia Health System,
Markel Corporation, MeadWestaco, SunTrust Bank, and others.
Geography. Proximity to the national capital enables ease of access for
international trade and inward investment deals. 40% of the U.S. population
is within a day’s drive, and port access create significant structural
advantages in transportation and logistics. Access to policy makers also
helps promote sustainability and social innovation. Due to our proximity to
national policymakers, Virginia is well positioned to take advantage of new
market-based opportunities in public-private partnership formation,
innovative social venture formation, and corporate social enterprise.27
21
21
Advantage
Arts & Creativity. Within the City of Richmond, Virginia Commonwealth
University boasts one of the country’s leading arts programs. VCUarts was
ranked the #1 public university school of arts and design by U.S. News and
World Report. 27 The Visual Arts Center of Richmond is a 30,000 square
foot facility with 16 full time staff members and an operating budget of $1.7
million. Moreover, the VCU Brandcenter, according to Upstart Business
Journal, is widely considered the nation’s most demanding, progressive, and
acclaimed graduate program in advertising.29
Opportunity Analysis – Differentiating a Unique Ecosystem
A startup ecosystem includes the array of stakeholders, and the support
infrastructure they provide, which is made available within the given region for the
support of those starting a new business. Steve Case, Chairman of the Startup
America Partnership, stated within the forward to Startup Communities – Building
an Entrepreneurial Ecosystem in Your City, “…any locality in the United States can
build a vibrant startup community if it strategically brings together the key partners
who support growth.” Brad Feld, author of the book, co-founder of TechStars, and
one of the leaders of the Startup Colorado regional initiative, delineates four
22
principles for building a successful community of startups:
Led by Entrepreneurs;
Long-term Commitment;
Foster a Philosophy of Inclusiveness; and
Engage the Entire Entrepreneurial Stack.
A subsequent report was commissioned by New Richmond Ventures, entitled
“Developing a Startup Ecosystem in Richmond.” Following research spanning 19
U.S.-based and international startup ecosystems, the report concluded:
Richmond needs to define a purpose for the startup ecosystem;
Richmond’s ecosystem is still maturing;
Richmond’s startup ecosystem is underutilizing its universities;
Richmond should expand is startup ecosystem initiatives regionally and
statewide;
Richmond needs a space to become the front door to the startup ecosystem;
and
Richmond has a unique opportunity when it hosts the World Road Cycling
Championships in 2015.
23
Furthermore, it states, “…there is a tremendous momentum and attention within the
startup ecosystem, and Richmond has an opportunity to make a name for itself on
a national stage.”
Every startup ecosystem has unique advantages relative to the geography, culture,
economic context, demographics, and regulatory environment. Internationally,
comparisons also include geopolitical factors. Figure 6 provides an overview of the
top 20 startup ecosystems, as ranked by the Startup Genome project.30 As shown,
eight characteristics are used to measure the attractiveness of the ecosystem: the
startup output index represents the total entrepreneurial activity of the region,
funding index measures activity and availability of capital, company performance
index measures the quality and potential of startups in the given ecosystem,
mindset index is a measure of the perception of the quality of the entrepreneurial
leadership, trendsetter index is a gauge of the rate at which the given ecosystem
adapts to new technology and trends, support index measures the extent of the
capabilities within the ecosystem to support the new venture, talent index
expresses the perception of the quality of the founders and local workforce, and
differentiation index measures the ecosystem’s ability to distinguish itself relative to
Silicon Valley.
24
Differentiation
from SV
Index
Startup
Perfor
TrendOutput Funding mance Talent Support Mindset setter
Ecosystem Ranking Index Index
Index Index Index
Index
Index
Silicon
Valley
Tel Aviv
Los
Angeles
Seattle
New York
City
Boston
London
Toronto
Vancouver
Chicago
Paris
Sydney
São Paulo
Moscow
Berlin
Waterloo
Singapore
Melbourne
Bangalore
Santiago
1
2
1
2
1
1
1
12
1
5
1
5
1
9
1
17
1
18
3
4
4
19
6
7
2
6
3
2
13
4
11
6
4
11
11
14
5
6
7
8
3
10
7
6
4
1
5
9
8
7
10
3
12
7
9
10
9
8
2
3
8
7
3
15
7
5
14
12
8
20
17
5
9
10
11
12
13
14
15
16
17
18
19
20
13
8
14
5
9
16
15
11
18
12
17
20
12
15
13
14
10
19
11
16
8
17
18
20
9
5
4
16
15
18
13
14
19
20
17
11
4
14
17
6
19
11
13
16
8
15
18
20
14
7
6
12
11
10
20
17
16
18
15
19
2
13
12
16
5
14
18
17
20
19
10
4
9
18
15
1
16
8
5
10
19
3
20
13
19
9
6
3
4
2
16
13
12
15
10
7
Figure 6 – Startup Genome Ranking of Top 20 Global Ecosystems
The report reached the following conclusions:
Ecosystems poised to compete with Silicon Valley must diversify the types of
startups they support, and avoid reliance on one industry sector;
Governments are best advised to invest in nonprofits and educational
programs to support and foster entrepreneurial communities; and
There is a correlation between a large art and music scene, and successful
entrepreneurial ecosystems. 31
There are several ways in which an ecosystem could differentiate itself, relative to
other destinations for the entrepreneur. For this analysis, two categories are
addressed: 1) Eleven areas of science and technology, based on a categorization of
the National Science Foundation; and 2) Twenty-five industry sectors for which
incubation and acceleration programs have been developed, nationally. Each
resultant opportunity area has received a High-Medium-Low indication along
two
25
dimensions. First, “Leverage Existing Capabilities” is an approximation of the extent
to which the opportunity area is aligned with existing state and city-wide target
industries, traded clusters, and existing institutional capabilities. A rationale for the
rating is also provided, for the sake of clarification. Second, “Approximate Growth
Rate” is an estimate of the extent to which the opportunity area represents a
growth industry, utilizing data from the U.S. Department of Commerce - Bureau of
Economic Analysis.
Opportunity Area
Leverage Existing Capabilities
Industry Growth Rate
M - Aerospace state-wide priority
H - Strong life sciences capabilities
M - Plastics & advanced materials
state-wide priority
H - Data centers – target industry
M - State-wide focus on energy
M - Proximity to related policy
makers
H - Academic strength
H
H
Area of Science & Technology
Astronomy & Space
Biology & Life Science
Chemistry & Materials Science
Computing
Earth & Environmental Science
Education
Engineering
Mathematics
Nanoscience
Physics
Social Innovation
H
M
H
L
H
L - No distinctive capability
M - Washington-based research
capacity
M
L - No distinctive capability
H - Culture of social concern and
philanthropy
M
H
H
Figure 7 – Classification of Ecosystem Opportunities
26
Opportunity Area
Leverage Existing Capabilities
Industry Growth Rate
Industry Sector
Professional Services
H - Skills base in financial services,
accounting & audit, and legal
services
H - Strong focus on advanced
manufacturing
M - Technology-driven startups
H - Strong focus on data centers
H
Manufacturing
Software Development
Data-driven Businesses
Life Sciences, Diagnostics,
Medical Devices
Health Care Technology
Electronics / Microelectronics
H - Strong life sciences capabilities
H - Strong life sciences capabilities
L - No distinctive capability
H
H
H
Telecommunications
L - No distinctive capability
L
Computing Hardware
H - Strong focus on data centers
M
Creative Industries
Wireless Technology, Connective
Technologies, Network
Specialization
H - Advertising acumen
H
M
Defense / Homeland Security
L - No distinctive capability
M - Plastics & advanced materials
state-wide priority
M - State-wide defense
employment
Energy
M - State-wide focus on energy
L
Media
L
Nanotechnology
L - No distinctive capability
M - Washington-based research
capacity
Construction
H - Strong industry cluster
L
Arts
H - Academic strength
L
Aerospace
M - Aerospace state-wide priority
H
Kitchen / Food
M - Local restaurant scene
L
Retail
L - No distinctive capability
L
Fashion
L - No distinctive capability
L
Wood and Forestry
L
Transportation
L - No distinctive capability
H - Geographical advantages, local
capacity
L
Tourism
M - Successful growth in toursim
L
Advanced Materials
H
M
M
H
L
H
Figure 7 – Classification of Ecosystem Opportunities (continued)
27
There are a range of areas in which Richmond can, and does excel. Those
opportunity areas which are of highest priority, are those in which we leverage
existing assets and comparative advantages; and those which represent the
strongest opportunity for growth. As figure 8 illuminates, there are several
prioritized opportunity areas whereby there is both a high likelihood of continued
industry growth, and a strong opportunity to leverage existing assets.
Medium
Low
Growth Rate
High
• Nanotechnology
• Earth & Environmental
Science
• Chemistry & Material
Science
• Astronomy & Aerospace
• Plastics & Advanced
Materials
• Social Innovation
• Creative & Professional
Services
• Advanced Manufacturing
• Life Science
• Health Care Technology
• Engineering & Product
Development
• Software Development
• Electronics &
Microelectronics
• Wireless & Connective
Technologies
• Physics
• Mathematics
• Computing Hardware
• Data-driven Business
• Engineering
• Telecommunications
Utilities
• Media
• Retail
• Fashion
• Wood & Forestry
• Construction
• Arts
• Transportation
Low
•
•
•
•
•
Education
Defense & Security
Energy
Kitchen and Food
Tourism
Medium
Ability to Capture
Figure 8 – Ecosystem Opportunity Map
28
High
Conclusions
The Richmond startup ecosystem is characterized by a number of strengths – a
robust support system for new business founders, a collaborative culture, local and
state-wide assets in technology and innovation, prominent anchor institutions,
creative and artistic talent, proximity to policy makers, and a number of additional
geographic advantages. Richmond, and Central Virginia more broadly, has the
opportunity to leverage these strengths to catalyze team formation, acceleration,
market traction, and growth of distinctive ventures with national significance.
Focus is best directed towards those opportunities that are most attractive in
terms of sector growth; and where its pursuit leverages existing assets – social
innovation, creative & professional services, advanced manufacturing, life sciences,
health care technology, and engineering & product development. Our public sector
resources are best directed towards catalyzing new private sector investment in
those areas in which community improvement is realized alongside financial returns
to capital; addressing regulatory constraints and budget instability which hinder
growth; and stimulating new business formation in these viable opportunity spaces.
29
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4. Ibid.
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June 30, 2014, from http://www.yesvirginia.org/AssetRich
6. Commonwealth of Virginia - Profile. (2014). Retrieved June 30, 2014, from
http://virginiascan.yesvirginia.org/communityprofiles/CommonwealthofVirginia.pdf.
See also: Virgina Employment Commission report available at:
http://virginialmi.com/report_center/community_profiles/5101000000.pdf
7. Porter, M. (2012, April 10). Virginia Competitiveness: Creating a State Economic
Strategy. Retrieved June 30, 2014, from
http://www.isc.hbs.edu/Documents/ced/states/State_Competitiveness--Virginia_v312.pdf
8. U.S. Cluster Mapping | Mapping a nation of regional clusters. (2014). Retrieved June 30, 2014,
from http://clustermapping.us/
9. Ibid.
10. Key Industries: Industries of the 21st Century. (2014). Retrieved June 30, 2014, from
http://www.yesvirginia.org/KeyIndustries.
11. Fairlie, R. (2013, April). Kauffman Index of Entrepreneurial Activity. . Retrieved June 30, 2014,
from http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%
20covers/2013/04/kiea_2013_report.pdf
12. Ibid. See also: Cluster Mapping Project, Institute for Strategy and Competitiveness. (2014).
Retrieved June 30, 2014, from
http://data.isc.hbs.edu/isc/chart.jsp?type=area&area=VA&areaName=Virginia&areaTy
pe=STATE&cluster=X&clusterName=X&subcluster=X&subclusterName=X&isSubcluster
=false&datasetId=2035&chartName=PatentsPerEmployees.jsp
13. Annual Report. (n.d.). U.S. Economic Development Administration. Retrieved June 30, 2014, from
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14. fDi Markets: the in-depth crossborder investment monitor from the Financial Times. (2014).
Financial Times. Retrieved June 30, 2014, from http://www.fdimarkets.com/
15. United States Census Bureau. (2014, May 1). Poverty Main. Retrieved June 30, 2014, from
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Retrieved June 30, 2014, from http://data.bls.gov/timeseries/LNS11300000 See also:
“Participation in the Labor Force Matches 35-year Low” available at:
http://www.marketwatch.com/story/participation-rate-in-labor-force-matches-35-year30
low-2014-01-10
17. A Monthly Update of the Fifth District Economy. (2014, July). Federal Reserve Bank of
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hot_va.pdf
18. States IN Profile: Virginia. (n.d.). STATS America. Retrieved June 30, 2014, from
http://www.statsamerica.org/profiles/sip_index.html See also: U.S. Census Bureau
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http://www3.weforum.org/docs/WEF_GlobalRisks_Report_2014.pdf
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2014, from http://bi.virginialmi.com/rdPage.aspx?rdReport=lmitools_industry&tabsIndus
try=tpnlLargestEmployers&rdNoShowWait=True&rdWaitCaption=Loading
21. National Venture Capital Association. (2014). National Venture Capital Association. Retrieved June
30, 2014, from http://www.nvca.org/
22. Richmond, VA. (n.d.). Retrieved June 30, 2014, from
http://www.richmondgov.com/
23. States IN Profile: Virginia. (n.d.). STATS America. Retrieved June 30, 2014, from
http://www.statsamerica.org/profiles/sip_index.html
24. Fickett, D. (2013, December 19). Transforming Advantech: New Business Incubation in Richmond.
Economic Development Authority.
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Development Authority of The City of Richmond. Retrieved June 30, 2014, from
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Silicon Valley, Tel Aviv & L.A. Lead The Way.TechCrunch. Retrieved June 30, 2014, from
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32. Note: There is not a one-to-one relationship between the data from the Bureau of Economic
Analysis and that of the opportunity areas. The closest industry classification, available
through the BEA, for each opportunity area, was used. Calculations are based on the
average Contributions to Percent Change in Real GDP for the period Q3 2012 through Q4
2013. This is the most recent industry data available through the BEA, and it’s available at:
http://www.bea.gov/scb/pdf/2014/05%20May/0514_gdp-by-industry.pdf
31
Disclaimer
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or may not, be used to guide the efforts of the RVA Works (formerly Advantech), or
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32
Contact
For more information about economic development, social innovation, and ecosystem
differentiation, please contact us:
Dale Fickett
Executive Director, RVA Works
(804) 521-4002
[email protected]
Copyright © 2014 RVA Works
Enterprise Support and Economic
Development Authority. All rights
reserved.
RVA Works and its logo are
trademarks of RVA Works Enterprise
Support.
About RVA Works
RVA Works is a public-private partnership of the
Economic Development Authority, City of Richmond,
Virginia. It is dedicated to economic development,
job creation, particularly in under-resourced
communities.
Our efforts are focused on realizing a new model for
urban development through entrepreneurship and
social innovation. We assist new venture founders
access new information, colleagues, and financial
capital.
Visit us at: www.rvaworks.org