It's not usually a good sign when philanthropic groups step in to boost a region's economic fortunes. The strategy is typically associated with aging Rust Belt towns, not healthy regions like the Twin Cities.
So next year's launch of Accelerate MSP, a nonprofit that plans to help fund start-up businesses, is at first glance at least a little troubling.
A nonprofit deeply involved in sparking innovation in older industrial cities has done much of the legwork for Accelerate MSP, including seeking a Ford Foundation grant. The group, JumpStart Inc., has expanded to other regions from its home base in Cleveland, with projects for the areas around Gary, Ind.; Baton Rouge, La.; Akron, Ohio; St. Louis; and Detroit.
Of course, it's also not usually a good sign to read your hometown's name on any economic-related list along with Detroit's.
On the other hand, there's no room for smug complacency. And more capital is clearly better than less. So if the likes of the Ford Foundation have funds available, take the money. And hurry.
"Those communities have done this reactively," said Ernest Grumbles, an attorney with the firm of Adams Monahan in Minneapolis and one of six founding board members of Accelerate MSP. "We are trying to do it proactively."
Grumbles uses professional baseball as a metaphor, that unlike Detroit, our big-league team is doing well. Companies like Medtronic and General Mills are sluggers in their prime.
What's needed, he said, is greater access to capital and other support for entrepreneurs, to make sure some minor-leaguers develop into big-league stars and can help carry the team.
JumpStart came to Minnesota in part through the John S. and James L. Knight Foundation. Like the city of Akron, St. Paul is one of 26 cities in which the Knight family business owned newspapers, so it continues to benefit from the foundation.
JumpStart essentially proposed an in-depth plan to improve the health of the start-up community. Cecile Bedor, the director of planning and economic development for the city of St. Paul, said city officials liked the idea if it could be regionwide. And a JumpStart project would dovetail nicely with an ongoing effort on a regionwide business plan for economic growth.
JumpStart's report later acknowledged that the Twin Cities region has a rich history of innovation, a leading research university and a deep list of Fortune 500 companies.
But it went on to say that "the region has experienced a number of troubling trends over the last decade. The region has experienced a declining share of high-tech jobs, business starts and growth rates. As recently as 2002, the state of Minnesota ranked as high as ninth on the Kauffman Foundation Index of Entrepreneurial Activity. From 2008 through 2011, the state ranked no higher than 41st."
Everyone the group met here "universally" agreed that too many entrepreneurs cannot find enough capital and expertise.
Entrepreneurs get capital from a variety of sources, but venture investing is a common way to gauge the health of the market. Minnesota had more than $200 million in venture investing through three quarters of 2012 -- but it was less than half of Colorado's total and less than a third of the state of Washington's, as reported in the PricewaterhouseCoopers/National Venture Capital Association MoneyTree report.
"It's honestly pretty paltry," said Randy Hines, senior managing director for the investment bank Oak Ridge Financial and a longtime fundraiser for young companies, of the capital available for young companies in the region.
Accelerate MSP is just getting started, so there will be no investments anytime soon. Bedor said Accelerate MSP hopes to have a job opening posted for a chief executive by the end of March, and part of his or her job will be fundraising. The city of St. Paul said the goal is to provide entrepreneurs connections to other helpful groups in the region as well as eventually make seven to 10 investments in early stage, high-potential companies per year, of up to $500,000 each.
That may not sound like a lot of money, but similar efforts in northeast Ohio over time have produced results in areas without the economic strengths of the Twin Cities.
Of the $70.6 million JumpStart has raised in eight years through June, $23.8 million was invested directly into early stage companies. Moreover, as of June, 69 of its client companies had raised more than $1 million in additional outside capital, and JumpStart client companies have raised about a half-billion dollars.
And this is northeast Ohio, in towns like Akron, where only Goodyear is left of the big tire companies. Almost 19,000 jobs in greater Akron's rubber industry evaporated from 1980 to 2007.
JumpStart this year put $250,000 into a start-up that planned to make pads inspired by the feet of a gecko that will dissipate heat generated by electronics, one of a number of JumpStart's investments in Akron. According to a 2010 study, there were 45 companies in Akron's business accelerator, and accelerator graduates have produced jobs with an average annual salary in 2009 of $62,000.
Start-up funding activity in northeast Ohio has a ways to go before it reaches Silicon Valley proportions, but word of available capital has reached Minnesota.
"When we were out working on funding for Miromatrix [Medical]," Hines said of the Minnesota-based regenerative medicine start-up company, "we were told to take it to Cleveland," that it'd be "easy" to fund there.
Anything that makes start-up funding easier here -- nonprofit or for-profit -- is a welcome development.
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