From Ingredients to RecipeIn Entrepreneurship Ecosystem

© 2013 Ewing Marion Kauffman Foundation

From Ingredients to Recipe

In Entrepreneurship Ecosystem

Yas Motoyama, Ph.D.

Director of Research and Policy

Ewing Marion Kauffman Foundation


Local Ecosystem of Entrepreneurship

• Commonly identified elements in the ecosystem

1) Finance / risk capital

2) Incubators

3) Talent / skilled labor

4) University & research

5) Core customers

6) Support organizations & social capital


Questions to Consider

• Does injecting a missing element help?o Such as establishing venture funds or incubators

• Should all ecosystems look alike?o The model after Silicon Valley?


Myth Element 1: Lack of Finance?

• Easy to complain (by entrepreneurs and by supporters)

• 80% of VCs unable to return 3% return/yr (Bradley 2012)

• Sources of high-growth Inc firms:o 6.5% VC, 7.7% angels vs. 67% savings, 14% bootstrapping, etc.

• VC investment unrelated to startup rates (Motoyama and Bell-Masterson 2014)

• Do they (entrepreneurs) really need VC investment?

• VC induce growth, or firm growth induce VC invt?


Myth Element 2: Incubators / Accelerators

• Failure of incubators (Amezcua 2010)

o Likely prolonging dying firms

o Providing business services by 1.8 staff?

• Accelerators?o Competitive application process

o Pre-seed investment, with equity exchange

o Create a cohort of entrepreneurs, and focus on teams

o Connect to mentors

• No evaluation research yeto Outliers (Y-Combinator, TechStars)

o What happens after being funded?


Myth Element 3: University

• Scientific research, NIH funding, etc.o Little connection b/w scientific discovery & commercialization

(Motoyama et al. 2011)

o Little connection with startup or high-growth firm ratios

o But % college graduate is correlated (Motoyama & Bell-Masterson

2014; Motoyama & Mayer, forthcoming)

• Courses on business plan writingo Beautiful rice cake in picture


Questionable Element: Anchor Companies

• Should anchor firms interact with startup firms?

• Depends on the strategy and culture of the anchor firmso Free-flow company: old Fairchild, HP, Google

o Captive company:

• Blind partnership may hinder startups and flows of talent


Ingredients vs. Recipe

• Great elements, but poor entrepreneurship resulto Baltimore (Feldman 1994; Feldman & Desrochers 2003)

o Cleveland (Fogarty and Sinha 1999)

o Philadelphia, St. Louis, Albuquerque

o Buffalo, NY

• Elements = Ingredients Ecosystem?

Question:

• How can you mix ingredients?


The Biggest Challenge of Most Ecosystems

(Brasunas, interview, December 10, 2012)

• The typical problem with entrepreneurs in St. Louis five years ago was like this:

• “I do this business alone, and I don’t know other startups in town. I don’t know investors here, and there is only old money from big corporations in St. Louis, so I go to Silicon Valley to find an investor.”

• Then, if you talked to investors, they would say: “I don’t find any startups in St. Louis, and, in fact, there may not be any prospective startups here, so I go to Silicon Valley to find companies to invest.”

• So somehow, they might find each other in Silicon Valley, but not in St. Louis.


Alternative Strategy

• Connect entrepreneurs to:1) Other entrepreneurs (peer and experienced)

2) Support organizations

• Promote learning between entrepreneurso Not about scientific knowledge or through business courses

o But about experimental knowledge, i.e. how to run a business

• Connect and coordinate support organizations


Connections of Entrepreneurs & Organizations


Applying Alternative Strategy

Incubators:

• A place to interact: Within incubated firms and outside

• Events to recruit different kinds & stages of

entrepreneurso But no cocktail party

University:

• Connecting students and startup firms

• Connecting local firms to academic networks

• Human transfer > Tech transfer


Summary

• Some conventional elements are unimportant, or at least

insufficiento Venture capital

o Incubator

o University R&D

• The elements merely expresses health of ecosystem

• Focus on recipe, instead of ingredients

• With connectivity, measure between people & orgs

From Ingredients to RecipeIn Entrepreneurship Ecosystem

Small Business & Entrepreneurship

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