Is It Time To Kiss Silicon Valley Goodbye? 6 Cities Say Yes

This story has been updated from its original publish date of Aug. 8, 2012. The cities of San Antonio, Des Moines and Miami have been added.

NEW YORK (TheStreet) -- A battle cry can now be heard in cities and towns across the U.S. Banners have been hoisted in a crusade vital to American success: Keeping America's businesses both small and large from leaving for bigger metropolitan areas, or even worse, heading for another country.

For some cities, not fighting is not an option. Between the soft economy, persistent unemployment and global competition, it's a matter of life or death for their local economies. The cities are even joining ranks to fight side by side.

"There's been this slow awakening in the country among cities and MSA's (metropolitan statistical areas) in particular. Cities that really used to fight tenaciously over city borders are much more open to regionalism," says Thom Ruhe, vice president of entrepreneurship for the Kauffman Foundation.

Ruhe says this trend is a byproduct of global competitive realities. "Kansas City can't look like they're competing against Des Moines when they're struggling to be economically relevant on a global stage," he says.

Cities all across the U.S. must figure out ways to attract and retain big Fortune 500 companies, but equally as important, nurture and support the growth of their entrepreneurial ecosystem.

When it comes to local government support as well as resources for growth, small businesses have historically been the under-served market. That's changing in cities from Cleveland to Louisville, Ky., and it's a movement being led by progressive city governments that are thinking outside the box when it comes to economic longevity, Ruhe says.

 

TheStreet plans to highlight more rising cities over the coming months that are making the case to attract and retain entrepreneurs.

1. San Antonio



As the seventh largest city in the U.S. and with the biggest chunk of its population between 25 and 34, San Antonio is a perfect place to add to the rising cities list.

The city is pouring money into revitalizing its downtown area to encourage young professionals to make San Antonio their permanent homes as well as developing its angel investor and venture capital networks to help address the needs of smaller startups.

"San Antonio has always had a very strong small business presence," says Rene Dominguez, director economic development for the City of San Antonio.

"We have some industries that really lend themselves to small-business formation and growth like the tourism industry. There are a lot of small-business opportunities within that industry from restaurants to retail," he says. "More recently there are emerging industries that are very conducive to small business such as IT and cyber. We have a very strong small-business cyber-community here."

One of the more recent sparks for small business is the support by Rackspace founder Graham Weston.

"Rackspace has a desire to make San Antonio an IT, tech-driven community and it matches up with the city's goals as well," Dominguez says.

>>>Rackspace Not on 'Cloud 9' Anymore

From establishing Geekdom, a collaboration space that is a point of concentration for tech and entrepreneurialism in San Antonio, and a major supporter behind TechStars Cloud, a San Antonio-based accelerator launched in January 2012 that funds companies focused on cloud computing and cloud infrastructure.

"San Antonio has a lot to offer tech startups," says Jason Seats, managing director of TechStars Cloud. "The community is small, but concentrated and because of initiatives like Geekdom it's very easy for newcomers to get acclimated and meet everyone. Local investors are just getting the angel-investing bug and there is healthy support to see San Antonio-based companies succeed."

Startups are also launching within the biotech and medical device industry, particularly with unique assets to the city like University of Texas' Health Science Center and several biotech incubators, such as T3DC, that all lend themselves to fostering small business creations, Dominguez says.

Among its myriad of city-supported programs and initiatives, the San Antonio Economic Development Corporation (SAEDC) was created in 2010 by the city council to help spur the development of innovative companies and bring high-paying jobs to the city. It has the authority to make equity investments in companies, mainly within bioscience and health care. The investment funds are provided through grants approved by City Council to the SAEDC.

"We're not necessarily venture capitals because we're not looking for risky ventures," Dominguez says. "We're looking for projects that are focused on economic development."

Most recently though, the city announced plans to launch Café Commerce, a clearinghouse aimed at becoming a one-stop-shop incubator for small companies.

Similar to Geekdom, which focuses on the tech industry, Café Commerce will give business owners access to resources, market data and other assistance needed to launch businesses as well as a physical location for collaboration. Mayor Julian Castro introduced the initiative in his State of the City speech last month.

Alex Lopez, the assistant director of the city's small business office, says San Antonio was lacking an easy way to find all the resources available to entrepreneurs and small-business. The program's physical location will likely be in the city's Central Library. The city also plans to use US SourceLink and the Ice House Entrepreneurship Program, both developed with support from Kauffman Foundation, to centralize the business resource information.

Another major component of the initiative is the creation of curriculum to learn more about entrepreneurism - not just the logistical aspects of starting a business, but to "develop that kind of thinking," especially among the city's youth, Lopez says.

 

2. Des Moines

 

"To be honest I came through Des Moines and was trying to fill some time before I left and headed to the Bay ... and I ended up finding that there was a unique knowledge base here and a unique support system," says Ben Milne, founder and CEO of Dwolla. "And then I found Iowa-based investors that offered support that I couldn't get outside of Iowa like the Technology Association of Iowa. They helped me along every step of the way and I just never needed to leave to find the things that the company needed next."

The mobile payment network, which competes with the likes of eBay's PayPal and Square, launched in December 2010. With 30 employees and growing, Dwolla's initial success is emblematic of the growing startup activity centered in Des Moines.

As one of the largest insurance hubs in the nation, as well as having a large banking outfit, many smaller companies are finding success selling product solutions back into those industries.

"Startups are thriving," says Jay Byers, CEO of The Greater Des Moines Partnership, a regional economic development and community organization serving central Iowa. "There's just a lot of great momentum that's happening here. We're looking at doing some other efforts within bioscience and advance manufacturing that are to work in conjunction with what we've done."

Residents also appreciate the quality of life in a place like Des Moines, where surely costs for food, fuel, car insurance are lower than in major metro hubs -- not to mention Iowa is one state not running a deficit, something to be appreciated in the troubled economic times.

Perhaps that's why population in the Greater Des Moines Region, which includes eight counties is projected to grow 6.8% by 2017, according to the organization's Web site.

Additionally, according to Moody's, the cost to operate a business in Des Moines is 17% below the national average, cites Byers.

"The ability to live close to work, to be able to buy a big house and have a great quality of life" is appealing to professionals, Byers says.

"The view toward Midwest has changed a lot in the last 10 years," says Mike Colwell, head of business development for the Greater Des Moines Partnership.

From business incubator StartupCity Des Moines to the accredited angel investors, Plains Angels, there are plenty of organizations ready to help out young, promising companies.

"What's interesting that's changed now were seeing VC startup funds that are focused only in the Midwest," Colwell adds. "I find it very encouraging. A lot of people are seeing the deal costs and the valuations on the coastlines that are so high. In the Midwest, we're looking at people trying to raise a $1 million that are already at revenue."

Although Milne acknowledges that as the company grows it is already expanding outside of Iowa, he says Dwolla's hub will remain in Des Moines.

"The reality is we have access to a ton of really talented engineers and people to help us on the support side . . . and there's a lot of tools in the city that didn't exist 10 years ago, that give us the ability to benefit from the architecture and the infrastructure and the knowledge base that's already built here," he says.

"Des Moines is a very supportive community and not in the way that they're looking for the next magazine cover, but it's full of good people that just want to see other people succeed," Milne says. "Time and time again I've been astonished by the level of support I've received in Des Moines."

3. Miami

Miami's sheer diversity and number of Latin American immigrants makes for fertile ground for startups and small businesses, but the city's growing entrepreneurial system isn't just within its historically multicultural residents.

Kauffman's forthcoming Index of Entrepreneurial Activity will show that Miami has one of the nation's highest levels of entrepreneurial activity per metropolitan area, according to Dane Stangler, its director of research and policy.

According to 2007 census data, Hispanic-owned firms represented 60.5% of businesses in the Miami-Dade area, compared to 22.4% for the state as a whole.

But while there were lots of startups, it isn't exactly known as place where innovators convene.

Miami is at a "ripe moment" to build its startup and entrepreneurial community, says Matt Haggman, Miami program director at the Knight Foundation, which makes grants in the journalism and media space but also in the community engagement space.

Citing venture capitalist Paul Graham's 2006 essay "How To Be Silicon Valley" where he says a city must have both rich people and nerds in order to be a hub for startups, Haggman says while Miami has plenty of rich people, it didn't have the "nerds" or innovators.

So it needed to start attracting them. "Three things attract nerds: you need good urban, dense city life. They don't want to be lost out in suburbia. You need a really strong university system to back it up and you need the cool factor, meaning strong cultural life," Haggman says.

"Miami, 15 years ago would be hard pressed on any of those accounts," he admits. "Miami, in the last six years, has seen its downtown population double and jump again. The big trend has been because of the urbanization and cultural awakening in Miami, which it didn't have 15 years ago," he says.

As the city builds out its infrastructure and urbanizes, "our focus is the broad goal in helping make Miami more of a place where ideas are built," Haggman says.

The Knight Foundation sees itself as having three main ways of doing that: by "animating" the physical places where entrepreneurs can gather and share, by holding events, meetups and workshops; it also participates in events that look to foster the Miami entrepreneurial community such as Start-Up City: Miami, a one day conference hosted by The Atlantic .

It also looks to expand mentor networks and increasing the access to investors.

"One of the things about Miami is there is significant wealth, but trying to connect with those people to share ideas is very hard," Haggman says.

In January, the Knight Foundation launched a $2 million grant over five years to launch Endeavor Miami. Endeavor is a nonprofit organization that has built entrepreneurial communities across the world by identifying high-potential entrepreneurs and providing them with mentorship support. It is making Miami its first U.S. outpost, despite being headquartered in New York.

The media has also paid a lot of attention to University of Miami's Launch Pad program, a free mentoring program for students that also provides resources and workshops for aspiring entrepreneurs, making entrepreneurism more than just a series of classes to be taken.

But Haggman says what Miami needs most to jumpstart the initiatives is examples of success.

"That would be helpful in providing a much greater sense of belief that this is a place where people with ideas can build," Haggman says. "The elements are here but Miami needs more examples of that. Knight is just one group playing a role, but I still think it's very early in that process."

One success story is that of online learning platform Open English, based in Coconut Grove, Fla. The company launched in 2008 but last summer it secured over $40 million in financing from a venture capitalist firm, Insight Venture Partners.

According to the Miami Herald, the company has over $55 million in financing from investors.

4. Kansas City

Officials in the greater Kansas City area, which encompasses the two cities with the same name separated by a state line, are on a mission to make the city synonymous with entrepreneurism. They seem to be well on their way.

Large companies have made Kansas City their home include Sprint, H&R Block and Hallmark. It also is home to the Ewing Marion Kauffman Foundation, with assets of $2 billion devoted to entrepreneurism and education. The foundation was established in 1966 by pharmaceutical entrepreneur Ewing Kauffman. Kauffman wanted the foundation to help young people get a quality education and recognize enterprise and individual talent as a way to spur the economy.

As a result of the Kaufman history, "We feel like we have a particularly strong claim to that and we have the assets to make that a reality," says Greater Kansas City Chamber of Commerce president and CEO Jim Heeter. "This is a city that is built on entrepreneurism."

In 2010, the Chamber of Commerce reached out to the community to solicit ideas on how to better the city's community and create economic growth and jobs. After 182 ideas were submitted, the Chamber of Commerce announced in September 2011 the "Big 5 Ideas." Making Greater Kansas City the number one region in which to start and grow a business was third on the Big 5 list.

To expand its entrepreneurial roots, the first phase of the Big 5 initiative was to bring awareness to the community of the overall initiative and to survey the community on what assets it already had and what was needed. This phase was completed last June and commemorated by a 10-day celebration of entrepreneurs.

"We wanted to make a thorough inventory of what the small entrepreneurial ecosystem of Kansas City looked like," Heeter says. "It's even stronger than we thought. There are an extraordinary number of assets for small businesses and for those who would like to start a business."

The next phase will gather those resources into a one-stop online shop for business owners.

One of the most exciting initiatives to come to Kansas City is the rollout of Google Fiber.

Google announced in July 2012 that it had chosen the Kansas City area to launch its broadband Internet service, making Kansas City the first area where Google's ultra-high speed Internet service would be available.

"Already we're seeing entrepreneurs and small businesses locate in Kansas City or express interest in coming to Kansas City simply to take advantage" of the high bandwidth, Heeter says. "Kansas City is the first to have it and it starts now."

Still for all the public outreach and promotional events to boost the cities' entrepreneurism, Heeter says there are also some very telling reasons why Kansas City and other cities must support startups and small companies.

"Entrepreneurs and small businesses, without a doubt, are the leading creators of new jobs and economic growth in America and in every community. That is simply a fact. So if a community wants to choose success and economic growth and job creation it absolutely has to -- it is critically important -- to do everything possible to foster successful entrepreneurial businesses and assist the growth of its small businesses," Heeter says.

He also emphasizes the need for cities like Kansas City to start competing on a global scale.

"Entrepreneurism and the growth of small business is occurring all over the world. As a country, as a community like Kansas City, it is imperative we compete internationally and that means competing in establishing and growing entrepreneurial businesses, particularly in technology and bioscience," he adds.

Besides tech and bioscience, Kansas City is also cultivating small manufacturers in the area.

5. Atlanta

Entrepreneurs are attracted to various cities and metropolitan areas for different reasons and to attain various goals. With its low-cost of living, family-friendly city, as well as strong local, state and federal tax incentives, among other benefits, Atlanta considers itself to rank among the cities with a strong offering for entrepreneurs looking for long-term success (as opposed to a short-term "build it and sell it" mentality in Silicon Valley, for instance.

But that doesn't mean the industries it considers sweet spots are slow-moving. Between health, technology, entertainment, mobile payments and mobile technology, logistics and strong research and development facilities at its many universities, business in Hot 'Lanta certainly isn't cooling off or slowing down soon.

 

Invest Atlanta, the city's re-launched economic development authority was established in January 2012 to strengthen Atlanta's economy and global competitiveness by creating increased opportunity for Atlanta citizens. The research-based organization focuses on residential, business and investment growth in the city.

According to its Web site, initiatives include developing partnerships between public entities and private companies to accelerate job creation, neighborhood revitalization and entrepreneurship through bond financing, revolving loan funds, housing financing, tax increment financing and tax credits.

It also offers several business financing options for small businesses and entrepreneurs, including; a business improvement loan fund, the Phoenix Fund and the Opportunity Fund.

"So what we really want is not only for people in Atlanta to be encouraged to start a business, but we also want people across the country to know entrepreneurship doesn't just happen in places like Silicon Valley and Boston and New York. We think Atlanta has got probably more than most cities," says Brian McGowan, president and CEO of Invest Atlanta.

Atlanta is "one of those cities that really has a surprising base and advantage for small businesses and entrepreneurs," McGowan adds. "It really is a city that was built on innovation and entrepreneurism -- everything from Coca Cola to Delta to CNN and Turner Broadcasting to Tyler Perry to Spanx."

McGowan, who joined the agency earlier this year, comes with an impressive resume. He was previously the U.S. deputy assistant Secretary of Commerce and chief operating officer for the U.S. Economic Development Administration, among other positions.

This summer, Invest Atlanta announced its Start Up Atlanta initiative, a Web-based platform that visually maps out resources such as incubators, accelerators and service providers, as well as connections to a support network for entrepreneurs to succeed in building a business in Atlanta.

"Our first priority is how do we make it easy for an entrepreneurship to come here . . . and see all the things available," says Eloisa Klementich, Invest Atlanta's director of business development and head of the Startup Atlanta initiative.

"Atlanta has a long history of being very friendly to business. This is really putting a bow around a lot of programs and initiatives that are already exciting, but to really try to tell the world Atlanta is a place where entrepreneurs are welcome," McGowan says. "We felt very strongly this is a way to create Atlanta's next chapter."

6. Omaha

"Omaha probably is not as well-known as a lot of the other large-to-mid-sized cities out there," says David Brown, executive director of the Greater Omaha Chamber of Commerce. "We have this really interesting mix of businesses that work together that have a common vision to make this a great place for businesses."

For instance, it is unusual to have a Fortune 500 CEO commiserate with a small print shop, but that's exactly what goes on in the Omaha business community, Brown says.

"We realize we can be really successful creating big business as long as we pay attention now to the environment for creating small business. Our big businesses are some of our biggest supporters of the small business community," he says.

Another strong benefit to Omaha is its strong economy -- one that surely helped it withstand the recession. "Our economy continued to grow during the recession. Unemployment never got above 5%. Right now we're sitting at 4%. We've seen continued growth during this down cycle," Brown says.

Brown emphasizes that part of the reason the area was shielded from the recession was its diverse economic base -- insurance and financial services, engineering, construction, health care, military, food services and transportation, to name a few -- industries that were able to offset each other. He specifically highlighted engineering, telecommunications and medical specialties as industries that particularly thrived in the area.

Three years ago, the chamber began an aggressive effort to increase the number of successful startups in Omaha. The chamber had a goal of creating 60 successful companies over a period of five years. With two years left, it has already met three-quarters of that goal.

"What we're trying to find here are companies that have a fit for the kinds of suppliers that we need here to grow our existing businesses and tap into the existing labor market," Brown says.

Brown cites Mutual of Omaha as one company's supporting small businesses through its effort to purchase technology solutions from local companies. (Mutual of Omaha did not return a request for comment before publication.)

Two notable area conferences to help that mission along include the Midwest Franchise Seminar and the Big Omaha tech conference.

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Omaha's efforts are working.

Paul Lee, a partner at Lightbank, a Chicago-based venture capital firm (its claim to fame is its founders were also the brains behind Groupon), was an attendee at this year's Big Omaha conference.

The company, which looks for early-stage tech companies, typically invests in California, New York and Illinois, but has been increasing its efforts combing the Midwest for companies.

"We spent a lot of time combing the Midwest for companies but we have an underlying thesis that great companies are being formed everywhere (due to lowered costs of technology and distributed learning)," Lightbank partner Paul Lee writes in an email.

"From my interactions with Omaha startup folks, they're smart, authentic, hustling entrepreneurs who would rather lose their house than their investors' money. We love that ethos and are bullish on the region," he says.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

 

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