Rod Ford, CEO of nGage Labs of Scottsdale, Ariz.
(Editor’s Note: This is an opinion column.)
It’s an Uber exciting time for central Arkansas as we join the national movement of supporting entrepreneurship to replenish jobs lost through corporate consolidation and downsizing.
Across the nation, cities are realizing the value of public/private investment in creating hubs for the ideation, incubation and acceleration of new business. In central Arkansas specifically, university enrollment is declining and several key employers laid off employees in 2013: HP, Windstream, Baptist Health, LM Windpower, TV/media Stations, St. Vincent Hospital and Entergy.
After another round of layoffs in central Arkansas, Acxiom recently announced it would open another out-of-state office and hire 150 people in Austin rather than invest in its founding state.
The initial steps to create this ecosystem are well underway in central Arkansas. This infrastructure is critical if we hope to foster real entrepreneurship, attract and keep founder-level talent here.
Arkansas, in particular, needs entrepreneurs and entrepreneurial success to improve and sustain its economic health. Communities similar to Little Rock like Austin, Des Moines, Nashville and Omaha are growing cities where startup ecosystems are prospering. Leading national support organizations and private philanthropists, such as the Kauffman Foundation and Steve Case, founder of AOL, are investing in national support initiatives.
In short, entrepreneurial activity is the cornerstone of any budding city – a must have for communities like Little Rock if the “brightest and the best” are to stay in Arkansas, build companies and create jobs for the future.
Relative to national trends, though, Arkansas is new to this opportunity although there are indeed a host of worthy efforts underway. Leading the charge, with public support, is the Little Rock Tech Park. Other organizations like the Venture Center are offering pre-accelerator programs as well as mentorship resources which are both critical for early stage entrepreneurs to launch.
There are also maker and ideation spaces coming online, high school entrepreneurship programs in the works and collaborative work spaces being envisioned in new venues. In my career, I’ve had the great fortune to watch other mature ecosystems evolve across the country in a similar fashion – each started with basic building blocks, all working in the same proximity to one another, with the common goal of building a vibrant entrepreneurial ecosystem inside their community.
The Key Ingredient That’s Missing
Yet the central Arkansas landscape, in my opinion, is missing one key ingredient. That ingredient is capital: the oxygen of entrepreneurship. Capital, in my view, is the “long pole in the tent” that isn’t being addressed at the velocity needed to support success. We have a lot of excitement around facilities, mentorship and new programming, but little discussion around the capital that’s necessary for the next step. For any of these new businesses to properly launch, grow and succeed, they need capital.
First, let’s back up and see why on a national scale there is so much excitement about the possibility of creating new jobs at scale. What has changed today that makes this so possible versus 10 or 20 years ago?
The New Networked Economy
In my career, I’ve watched business transition from an industrial economy to the IT economy…from the IT economy to the internet economy…from the internet economy to what I think of as today’s “networked economy.”
This new networked climate is one where hyper-connectivity and universal access to social, mobile and cloud computing offers spectacular new opportunities for those brave souls that have an idea for a product or service that people find useful in their everyday lives. It levels the playing field, if you will, and makes bigger numbers of consumers more accessible to entrepreneurs trying to reach and distribute products to them.
Because of the networked economy, the period from incubating an idea to executing an idea can move at record speed. Entry costs are much lower as are risk levels. Computing is advancing faster than ever before; coding languages such as Ruby on Rails and cloud technology like Amazon’s AWS have democratized technology, allowing entrepreneurs with a vision to quickly develop an idea into a robust, scalable business.
In this context, business ideas are exploited with increasing ease, producing an emerging type of economy arising from the digitization of real-time connections between people, devices and commerce.
Even more encouraging is the notion that every budding entrepreneur doesn’t need a “boil the ocean” break-through idea to be successful. Mark Twain once wrote, “There is no such thing as a new idea. It is impossible. We simply take a lot of old ideas and put them into a sort of mental kaleidoscope. We give them a turn and they make new and curious combinations. We keep on turning, making new combinations indefinitely; but they are the same old pieces of colored glass that have been in use through all the ages.”
To illustrate, one needs to look no further than Uber, a mobile app that connects people seeking taxicabs with a service network of providers. Or Airbnb, the lodging rental service. Made possible by the cloud computing where all devices are interconnected, these companies pioneered new business models within very traditional markets by simply connecting needy consumers to excess inventory using their mobile devices.
Congratulations!
Congratulations, you have a great idea for a new business…you can now get some affordable startup programming…you have access to great mentors….maybe you even have a cheap space to work! You’re all set right?
Wrong. Where to now? If you aren’t one of the handful of firms accepted to the ARK Challenge (which may get you on an investor’s radar screen), how much money do you really have to finance your idea in order to buy time to see if it will work? You could try crowdfunding, but in my experience with the firms I am exposed to in Arkansas, this probably won’t produce the scale of funding needed for a reasonable incubation.
Fuel for the Fire
The seed capital – the $200-$400,000 you really need – can be the hardest money for aspiring startup entrepreneurs to obtain. It’s the very first cash from an investor bold enough to take a chance and get the brand new business rolling, often while it’s still little more than a modestly curated idea.
New data from investment-research firm CB Insights found that 2013 was a robust year for venture capital seeding with over 112 registered seed venture firms investing in seed-stage companies. Unfortunately, none of the firms invested in were Arkansas-based.
In my view, it’s foolish to ignore this data when we are talking about growing the entrepreneurial ecosystem.
Nationally, the general thinking within the 200 or so accelerators around the country, is that if the entrepreneur stays focused on gaining customers, building a killer product, and establishing a talented team that can execute on ideas, the money for launch and growth will find you.
But will it? That may indeed be true in other places around the country, but will that be true in Arkansas? Can the money really “find you” if you have a good idea and a good team?
I’ve had the fortune to raise capital for three of my startups from family offices, limited partnerships, early stage venture capitalists, and institutional private equity firms, both early stage as well as growth-stage rounds. I’ve also experienced the heartache of executing “down round” financing where initial investors are diluted.
On the flip side, I’ve had the joy of handing my capital partner a check well above their internal “hurdle rate.”
Unfortunately, not one of these financing rounds or investments has ever been from an Arkansas firm. Private Equity at Work, an organization that researches the private equity industry, reports that Arkansas is distressed and not near at par with our neighboring states in the availability of capital for emerging companies. Private equity sources made 2,670 investments in Texas, 439 in Tennessee, 370 in Missouri, but only 63 in Arkansas (2013 data).
In my businesses through the years, capital raises have always taken me two times the amount of time I envisioned while they were four times more difficult. It’s time, as we make great strides towards the emergence of an entrepreneurial hub, we get busy ensuring there will be oxygen in the tank before to fund the new ideas exiting our ecosystem investment into job-creating commercial successes.
(Rod Ford is a serial entrepreneur and investor involved in the startup, growth and exit of multiple technology and innovation companies. He received his Bachelor of Science degree in mechanical engineering from the University of Arkansas. Rod spends much of his time working with startup companies and supporting technology incubators and accelerators as an innovation mentor, and currently is an active board member with the Arkansas Venture Center.)
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