A start-up epidemic is spreading across the country, but are some sectors falling behind?

February 8, 2013

Dozens of entrepreneurs and investors gathered at the White House this week to update administration officials on the progress of start-up ecosystems in their hometowns and pitch policy recommendations for the coming year.

But they didn’t fly in from traditional innovation hubs like Boston and Silicon Valley; they came from cities like Lincoln, Neb., Nashville, Tenn., and Iowa City, Iowa.

“In the last couple years, there’s really been a groundswell of entrepreneurial activity in places not traditionally known for that,” Andy Stoll, co-founder of Seed Here Studio, a networking start-up for young companies in Iowa City, said in an interview. “Geography doesn’t have a monopoly on good ideas, and we are just trying to find ways to unlock that latent entrepreneurial talent in places like Iowa. We’re not saying we’re better than New York or San Francisco, we’re just asking ‘Why not here in the Midwest?’ ”

Once largely confined to a few metropolitan areas along the coasts, the “entrepreneurial bug,” as one venture capitalist put it, has started spreading to towns and cities around the country. Alan Patricof, founder and managing director of Greycroft Partners in New York and Los Angeles, said the movement seems to have sparked a surge in the number of start-ups nationwide, reversing a recent decline in new business formation.

“Do we have a lot of start-up activity or don’t we?” Patricof asked during a separate event in Washington on Tuesday sponsored by the ­­­Kauffman Foundation, a research group focused on entrepreneurship. “The statistics seem to keep saying we don’t, but I can tell you, I can judge by the number of invitations I get to speak on panels around the country, and in my opinion, the entrepreneurial bug has hit this country.”

Related: Where is America’s next Silicon Valley?

In his more than four decades in the business, Patricof said he has never seen start-up activity to match what he has observed in the past three years – “and it’s not just New York, San Francisco and Boston… it’s happening in Kansas City, it’s happening in Ames, Iowa, it’s happening all over this country.”

The movement has been accelerated, he said, by public-private entrepreneurship programs, including Startup America, which promotes private-sector investments in early-stage enterprises and has in the past two years built a network of regional outposts in places like Kansas, Utah and Missouri.

But more than anything, greater connectivity and the declining costs of technology are opening doors for prospective entrepreneurs, including advances in cloud computing and outsourced computer programming, which have significantly reduced the up-front costs for firms in various sectors and made it possible to launch start-ups with little concern for geographical location.

“Entrepreneurship has been democratized in the past few years, and by that, I mean that if you have an idea for a business, the barriers to entry have just collapsed,” said Stoll, who presented at the meeting at the White House. “There are people all over the country, they see these tools that are available, and they want to figure out how to use them to get started.”

Equity-based crowdfunding, which has been approved by legislators but delayed by regulators, could render location even more obsolete in the years ahead, according to Jeff Fagnan, a partner at Atlas Venture in Cambridge, Mass., who spoke at the Kauffman event. The Securities and Exchange Commission was tasked with implementing new rules to govern crowdfunding by the end of last year, but concerns about investor protections have led to missed deadlines.

Once the online financing platforms are up and running, Fagnan says he expects them to further “help investors find innovation that happens in Louisville, in Ann Arbor, and in Chicago,” even if those investors continue to live in more innovation-dense areas like Silicon Valley.

“The previous mindset that you had to be right next to an entrepreneur to make it work is just bogus,” Fagnan said. “Some of the best entrepreneurs I work with, we text three or four times a day, we Skype at night. The whole board meeting concept of coming in and going through a five-hour meeting—it’s not needed.”

But while entrepreneurship disperses geographically, it doesn’t appear quite so uniform across all industries.

Ramana Nanda, a professor of entrepreneurial finance at Harvard Business School, says young businesses in fields like energy and biotechnology, which often require larger, long-term investments to get off the ground, have faced higher hurdles than those in other industries. In fact, venture funding in those industries has continued to decline even as the overall economy has shown signs of recovery.

“This is really heretical to say, but we almost have too many start-ups in the technology world right now, and a lot of them are imitative,” Patricof said, adding that half the pitches he now hears are copies of something already on the market. “We need people with more innovative ideas that are differentiated, and a lot of them are capital intensive, so we need to find a way to solve that problem.”

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J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he manages the Post's On Small Business blog. Before arriving in 2011, J.D. covered innovation and technology for Portfolio in New York City. He has a master’s in journalism from Columbia University and a bachelor’s degree from Wake Forest University (Go Deacs).
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