May 20, 2012
 

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Between the Coasts

The Start

“Nothing happens between the coasts.”

These were the exact words a close friend and mentor in the New York startup community told me as I pondered moving from New York to St. Louis.

As a lover of entrepreneurial community and student of technology entrepreneurship, I just wanted to be around entrepreneurs. Startup activity in New York was beginning to boom and venture capital activity was at an all-time high. The community there was highly engaged, and entrepreneurship was hip.

Unfortunately, my position there with a recognizable tech startup was coming to a close. I had the choice to stay and find a new position, or move somewhere else.

The Choice

My wife and I mutually decided on St. Louis. We had a family support system waiting for us. The lower cost of living was attractive while I was between jobs. And there were plenty of job openings in my wife’s field.

I let go of my entrepreneurial support system in New York in hopes of latching on to a new one in St. Louis. The path since I got here has been bumpy and nonlinear. But, my experience speaks to the growing opportunity for entrepreneurs between the coasts.

The Community

In the last year, we have seen the launch of new investment and community organizations focused on new technology ventures:

  • Arch Grants – Makes 15+ grants of $50,000 each in early stage companies
  • Capital Innovators – Makes 10+ investments in early stage companies as part of its accelerator program
  • Cultivation Capital – Makes follow-on investments of up to $1 million in companies en route to raising venture capital
  • T-REx – Incubator space and tech community hub in the heart of downtown
  • StartLouis – Growing online community for startup entrepreneurs with over 250 members
  • VentureSTL – Coalition of the organizations and individuals of the early stage tech community

I have watched colleagues move from idea to initial investment to follow-on investment in rapid succession with the help of these new organizations. I am seeing new entrepreneurs connect with the seasoned serial entrepreneurs, social circles collapsing together, and one united community emerging from these efforts.

Being an entrepreneur here makes you a “Big Fish in a Small Pond,” a part of a growing community of innovators and entrepreneurs without giving up that feeling of small-town community. Your mandate also includes increasing the size of the pond while still competing against big fish in bigger ponds. But your support system is bigger, more people will want you to succeed, and more people will help you succeed.

The Reality

Entrepreneurs follow change to find the next opportunity. One’s ability to create and capture new value becomes a measure of success. In New York, successful startups are becoming stretched thin in a growing and increasingly corporatized ecosystem. Making a meaningful contribution is becoming increasingly more difficult – both because of the difficulty to enter the scene and because of the lack of receptiveness to new ideas. Smaller entrepreneurial communities on the rise like St. Louis are places where entrepreneurs can individually make a greater impact.

As my friend Philip Thomas says, “When you take away the hype, the passion remains.” Forget the hype. Find your people. Live your passion.

Hit me up when you get here. I will introduce you around.

Let’s connect on Twitter (@israelvicars). Dialogue with me about this on Hacker News.

 

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Demo Day

The team at Capital Innovators put on a heck of a show at their Demo Day in April. It made me proud to be a part of the St. Louis entrepreneurial community. I really feel like they raised the bar for all of us here.

In attendance were many local investors, mostly high-net worth individuals but a few venture firms too (shout-out to Cultivation!). We even had an investor from San Francisco’s Band of Angels who shared afterwards how surprised and impressed he was with what is going on here.

I did an article for Tech.li if you want to see which companies pitched. Here’s a preview.

Commander Cobra

Cobra Commander marched to center of the stage. The music stopped. The audience fell silent. Then the nemesis of the G.I. Joe team and supreme leader of Cobra removed his helmet and spoke:

“Hi, my name is Jim Dolan and I’d like to tell you about Action Online.” The sinister sneer turned to a friendly smile and the entrepreneur’s pitch began.

The rest of the story is on Tech.li.

As always, I’m on Twitter as @IsraelVicars for updates and discourse. I won’t put this on Hacker News since it’s after-the-fact and just a repost.

 

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Why Businesses Do Not Have Rights

A good friend of mine brought up the potential irony of liberal traders agreeing to E*Trade’s Terms of Services which cite corporations to also mean a “Person”.

Now, regardless of your political leanings, I think this is a great starting point for the question of when is it appropriate and necessary for individuals and corporations to receive equal treatment.

ETrade ToS

What puts these two things next to each other is the body of criminal law that companies can be prosecuted under in the same way that a person can be prosecuted under. In cases where the laws apply equally to people and company entities, I could see them ignoring the distinction if the laws don’t distinguish either. That is likely the case with E*Trade because you can receive investment from an individual as easily as from a company, meaning individuals and companies that invest have the same privileges and liabilities.

There still exists valid contrasts between how entities are treated in commerce versus political representation. Entities in business are irrefutably necessary to shield individuals from the business risks that they take.

For example, it is more acceptable if my new company goes bankrupt than if I personally go bankrupt. That example hardly applies to political rights; we don’t need people to be able to produce new voters nor does their exist the risk of losing your right to vote.

It really comes down to businesses do have privileges and responsibilities like individuals have privileges and responsibilities because they participate in commerce like individuals, but that does not equate to businesses having rights like individuals have rights.

TL;DR The leverage of non-person entities is not necessary in political representation like it is in business.

Hit me up on Twitter (@IsraelVicars]) or continue the dialog with me on Hacker News.

 

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How Incubators Change the Investment Landscape

The Business Incubator

Business incubation has been around since the 1950s, following the creation of the U.S. Small Business Administration in 1953. Incubators offered subsidized office space for entrepreneurs launching new businesses. The incubator model saw little change until the 1990s.

The second generation of business incubators offered training, coaching, mentoring and networking services. In 1997, national mentor organization SCORE launched began providing small business advice by email.Technology began changing the way small businesses could be supported.

In the third generation of business incubators, access to capital became a new value-added service. Many incubators now have in-house seed funds and success sharing arrangements. Those that do not provide early stage equity capital instead align closely with external capital sources.

Local accredited investors play a critical role in capitalizing the high growth ventures that are launched within business incubators, creating new wealth and new jobs for the local community.

The popularity of incubators has dramatically increased in recent years, changing the investment opportunity landscape for accredited investors.

Capital Needs Versus Capital Performance

The increase in incubated early stage ventures has lead to an increase in the number of viable early stage private equity investments. Many ventures must seek risk capital because of a short history of customer sales and business activity preventing engagement with traditional lending institutions.

The coinciding priorities of economic development and potential for high returns justifying higher investment risk dictate that most ventures must be on a path towards raising venture capital and an eventual liquidity event (acquisition or IPO). If ventures cannot raise the next round of funding, the previous capital investments are wasted.

For those reasons, the state of the entire capital landscape must be considered when evaluating the benefit of more new incubated ventures. Ideally, as long as value is being created, the distribution of wealth will follow. In reality, a typical venture backed with risk capital requires 5-7 years to reach its liquidity event. This generates a lag in that distribution of wealth to capitalize new ventures. In addition, access to increasing risk capital investments over time is necessary to sustain high growth and reach a liquidity event.

Capital “bottlenecks” are the primary risk associated with the increase of high growth business incubators. Because most risk capital is closely tied to proximity between ventures and capital sources, different local capital landscapes will experience different results from the increase in incubated ventures.

Too Much of a Good Thing

In Silicon Valley, the number of incubators has skyrocketed, with nearly 100 known organizations incubating high growth ventures compared to 4 known incubators in 2007. The capital landscape of Silicon Valley is especially unique, with a “rich” history of technology IPOs and wealth accumulated from innovative activity.

The Wall Street Journal’s Jessica Vascellaro points to a “glut” of incubators and incubated ventures in Silicon Valley. Even in the global capitol of risk capital, this volume of new high tech ventures may be unsustainable until the previous rounds of capital investments pay off and later stage investors catch up with this increased demand.

Many cities in the United States may have only one high growth business incubator, if any at all. In many of those cases, any increase in new early stage high growth ventures is welcome and a capital bottleneck is far off.

Still a Good Thing

Access to risk capital is highly relative, with industry and location being key factors that may work for or against a venture. Business incubators solve many of the problems that a lone entrepreneur may face, but they cannot change the environmental conditions that more significantly dictate the success of a venture–especially access to capital.

Considering the capital landscape is critical to evaluating the investment potential of a single high growth firm. Identifying clogged capital pipelines in other geographies may present new private equity investing opportunities where capital demand still too greatly exceeds supply.

Finding investment opportunities by aligning with business incubators may be a winning strategy. But the most important rule of real estate investing applies here as well:

Location, location, location.

Hit me up on Twitter ([@IsraelVicars](http://twitter.com/israelvicars)) or [dialog with me on Hacker News](http://news.ycombinator.com/item?id=3909062). I would love to hear what you think.

 

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Destination: I thought I knew.

If you don’t know where you are going, any road will get you there.
Lewis Carroll

Finally, things are looking up. And I feel less sure now than ever about what I should be looking for.

It’s been a winding road with plenty of bumps since I figured out entrepreneurship was the word I was after. Reading Rich Dad, Poor Dad in my second year of college helped me figure out that the fun of technology and problem solving shouldn’t stop there. Learning engineering was a blast but there was another half of the equation that I needed.

My problem sets were graded by the numbers I calculated, not by how many people that I’d helped. Turning problems solved in the lab and on paper into problems solved out in the world was harder than I thought.

As an engineering student in the midwest from a high school with a graduating class of 19, I lacked a lot of context. For “an engineer,” I was decently good at grammar plus I loved to read. I had 35′s in English and Reading on the ACT (out of 36) but I ended up at University of Michigan’s College of Engineering because I loved problem solving and math.

I was fascinated by the big technology companies and the leaders who built them. I petitioned the university library to pre-order The Google Story and checked it out before anyone else. I studied the greatest inventors in American history, from Samuel Colt to Sergey and Larry. What made them great? How did they do it?

And how do I get there?

That began a dense formal and informal pursuit of the nature of innovation, entrepreneurship, and startup business. And I do not regret a second of it.

Today, I would admit that many things seem to be heading in the right direction. I talk with technology entrepreneurs every day. I keep up with startup news and culture. Heck, I even work at a venture capital firm.

Yet now more than ever, the true destination eludes me. And the progress of the moment with its burdens and rewards now clouds my vision of the ideal. The dreamer has been weighed down with responsibility and cannot lift his head above the clouds to see clearly.

I submit to you, my friends, peers, mentors and critics: when must the dreamer rule and how should he be empowered?

Hit me up on Twitter (@IsraelVicars) or dialog with me on Hacker News. I would love to hear what you think.