As small to mid-size cities begin to invest in early-stage firms and development, civil society and local municipalities play an ever-increasing role in providing technical and other forms of support to these companies.
The relationship between civil society and municipalities and new firms plays an increasingly important role in shaping local order. Below are helpful considerations for small to mid-size cities undergoing an economic Renaissance.
De-politicize Economic Development Civil Society and Startups
Founders occupy a nebulous space in the local order. On one hand, they are receiving significant investment from the community to launch their venture. They must lead a growing team and gain the perspective and capability to operate within the sinews of civil society.
For would-be elected officials, advocating for startup support is tempting to garner political will. Supporting small business development should be part of the debate during political campaigns and at the Board level of nonprofits.
However, small cities should ensure that politics stays in those circles.
Many entrepreneurs, especially first-time founders, are starting the firm from scratch. The same is true for the founders’ personal development. It is a clunky and messy process for founders to scale their firm and climb the ranks of civil society. A community that doesn’t build processes to negotiate these transitions risks burning out underdeveloped founders and ruining the integrity of the startup ecosystem.
In other words, takes a big deep breadth investors must fund across the aisle. Funding must occur based on the merit of the new idea not based on political affiliation. Further, founders cannot be required to return political favors.
Failure to de-politicize the process is an obscene and undemocratic overreach on the part of elected officials.
Be Realistic About Costs
For community organizations with limited resources, it is difficult to justify the risk of investing in new opportunities. Many small to mid-size cities don’t have open capital markets for investments. Some markets are broken such as real estate.
Broken markets lead to substantial inefficiencies and cost overruns.
Small to mid-size cities must recognize that they are assuming more risk when investing in the new economy because they have virtually no infrastructure in place to mitigate risk. For startups, this infrastructure extends to the digital world and can include digital distribution
For an investment to succeed in the long-term, local economies are fighting uphill to reverse long-term trends associated with decline. Those costs should be factored into the costs of doing business for firms operating in these areas but can lead to significant upside in local markets. There is opportunity there!
Local communities should use per capita metrics to understand the opportunity available in local markets across deal-flow, capital, and number of investors.
Secure Follow-on Funding at the Time of Initial Investment
For long-term investments to succeed, they will need initial capital and growth capital applied at regular interval across the firm’s expansion. Local organizations should ensure that enough capital exists across the continuum of the investment cycle not only at the early stages. Community organizations should have growth capital in place before making early stage investments.