October 11, 2016
Not every entrepreneurial ecosystem will lead the pack like Silicon Valley. For smaller ecosystems, underserved industries, and unattended niches, it can be difficult to start up in a meaningful way. But when it comes to startup ecosystem success, there are a few things you need to keep in mind, you matter how big or small your ecoystem is.
Key Ingredients of the Small Ecosystem
It should not come as a surprise that the key ingredients of a successful startup ecosystem boil down to capital, mentorship and community. This goes double for smaller ecosystems that are looking to crack open their startup activity.
The difficult part for action-oriented founders is accepting that it takes time to develop an ecosystem. One solution for budding startups is looking to startup giants in larger cities to can access to a flow of capital, to mentors or to advisors that aren’t necessarily based in your ecosystem.
Although there is plenty of capital to go around, investors tend to allocate angel and venture capital dollars to the big cities. For this to change, entrepreneurs need to continue to work hard to demonstrate their ability to succeed.
Advantages of Underserved Ecosystems
Being in a smaller ecosystem isn’t all bad though. There are a number of key advantages for smaller startups outside of the tech hubs like San Francisco and New York.
In smaller ecosystems, VCs must work twice as hard on behalf of their portfolio companies to help them build customers, develop partnerships and raise follow-on capital. Successful investors must fully commit to their investments, which means startups benefit from their attention and their expertise.
Additionally, in underserved areas, professional investors have an opportunity to be more generalist in their investments. For some, this approach could be a disadvantage, but the fundamentals of running a solid company should translate between sectors.
Finally, underserved ecosystems mean less competition and more cooperation between funds and investors, which should engender a collaborative atmosphere within the startup ecosystem. For many areas, there is a history of people working in silos, so anything and everything that helps preach collaboration helps.
Disadvantages of Underserved Ecosystems
As expected, underserved ecosystems also have a few disadvantages compared to the leading entrepreneurial communities around the country. First and foremost, capital can be a huge issue. Although there are typically plenty of angel investors and seed stage funds, startups require significant follow-on capital when starting out. Developed entrepreneurial ecosystems include multiple VC firms that are comfortable with leading Series A and later funding.
A pipeline of funding is critical to building a successful ecosystems. For better or worse, prior successes in an area tend to drive the identity of the ecosystem. A “tech mafia” may exist in nearly every city and those founders know how to support similar businesses better than others. However, the downfall is investors may only look for startups that are similar to the “success” story.
In an emerging region with less success in its history, there are much fewer successful founders becoming advisors and mentors. Clearly, the community takes time to develop and those early entrepreneurs will not get the support and guidance they need to succeed.
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