Airbnb, Uber and Pinterest are just some of the successful companies that have moved from start-up to multinational. But are US cities doing enough to support today’s new wave of innovators and entrepreneurs?
With many startups failing in the first year of trade, the importance of city and federal governments being aligned when it comes to developing and implementing a support structure is paramount. Connecting Commerce, a recent Economist Intelligence Unit (EIU) study commissioned by Telstra, found that two thirds of business executives in San Francisco and Chicago, and 57 percent in New York, believe there is a disconnect between city and federal governments when it comes to supporting innovation.
According to a report released by the National Venture Capital Association (NVCA), 2017 saw the highest amount of capital deployed to the start-up ecosystem since the early 2000s. However, despite these positive signs, entrepreneurs and small business owners are still struggling to access these funds. For companies in their infancy, finding investment partners can be extremely difficult and moving from seed funding to raising “Series A” funding can be a daunting process for many.
But cities are now taking matters into their own hands. For example, the mayor of Chicago is backing the city’s first in-depth plan for technology, and with a new start-up being launched every 24 hours, the city is flourishing. Similarly, New York is taking the reins by developing initiatives like Start-Up NY, which helps new and expanding businesses through tax-based incentives and academic partnerships. The scheme offers businesses the opportunity to operate tax-free on, or near, eligible universities or college campuses in New York State. However, the eligibility requirements mean there are some limitations for start-ups.
Alternative avenues for start-ups to pursue funding and support include government agencies like the Small Business Administration (SBA) that work in conjunction with small business investment companies (SBICs). While the SBA doesn’t invest directly into small businesses, it provides funding in the form of matched contributions for qualified SBICs with expertise in certain sectors. However, competition for this funding is fierce with many SBICs, in conjunction with the SBA, currently listed as “not likely to invest”.
There are also federal government initiatives such as the Small Business Innovation Research (SBIR) program, a highly competitive program that encourages domestic small businesses to engage in federal research and development, with the potential for commercialisation. The program encourages small businesses to explore their technological potential and provides the incentive to profit from its commercialisation. Similarly, the Small Business Technology Transfer (STTR) aims to expand funding opportunities in the federal innovation research arena. Central to the program is expansion of the public and private sector partnership to include joint venture opportunities for small businesses and non-profit research institutions.
At the end of the day, what’s most important for start-ups is that city and federal governments work together and maintain a dialogue with industry representatives, not only in the capital investment area but with small business owners as well. It’s also important for government to continue developing paths to funding, as well as to make applying for funding as simple and as transparent as possible. Cities can also look at facilitating groups or courses to work in conjunction with investment firms. This would help small businesses to better meet the expectations of both government and private firms as they seek the capital needed to get their businesses off the ground and, ultimately, succeed.
This blog first appeared in the February 23 edition of The Business Journal.