By Dustin McKissen
This piece originally appeared on Venturebeat.
Using a framework developed by the Ewing Marion Kauffman Foundation, PitchBook recently identified three critical factors present in a robust VC ecosystem: density, resources, and talent. Those three qualities are important. However, the report doesn’t encompass (nor is it meant to) some of the building blocks of those three factors.
Over the last three-and-a-half years, I’ve been involved with the St. Louis-area startup ecosystem, first as an entrepreneur, then as an economic developer, then as an entrepreneur (again).
Based on my experience, here are a few foundational qualities startup ecosystems need to have before they can even score well on the indicators identified in the PitchBook report.
1. An understanding of how important education is to entrepreneurship.
To measure talent retention, PitchBook identified the percentage of founders in the three ecosystems studied (California, Illinois, and Florida) who earned their degree from a local university.
Earning a degree from a local university is more complicated than it sounds. In order to earn that local degree, students must receive a K-12 education that prepares them for college, and universities need to offer relevant degree programs at an affordable cost. In other words, any state using an approach to educational policy that decimates public schools and universities is undercutting its ability to create a thriving entrepreneurial ecosystem.
That’s not just pro-education propaganda.
Four of the five states with the most local capital per venture-backed startup (Connecticut, Massachusetts, New York, and Washington, D.C.) are also ranked in the top 10 for per-pupil public education spending. In fact, New York, D.C., and Connecticut are ranked #1, #2, and #3 in per-pupil spending.
The relationship between education and entrepreneurship is complicated, but it’s not a stretch to say that well-funded public school systems produce smart kids who earn degrees and start companies VCs want to invest in.
2. An approach to workforce and economic development that understands the changing nature of work.
During my stint as a consultant and senior executive with a St. Louis-area economic development organization, I came to a sad conclusion: Too many workforce and economic developers lack even a dim understanding of the technological and employment changes happening in the economy. When workforce developers discuss talent issues, the discussion was almost always some version of the “How can we get kids to stop studying philosophy and learn more welding?”
To be clear, there is nothing wrong with being a welder. My dad was a welder. He even won the state welding championship in high school. Seriously. That’s how many welders the economy needed in 1974, the year my dad graduated from high school. Being a welder is a fine job, and an honorable way to earn a living.
Local economies need welders, plumbers, and carpenters, and there is nothing wrong with programs that help workers enter those professions. It’s just that a workforce strategy designed to help create a robust startup ecosystem has to go far beyond the all-too-typical approach to workforce development of criticizing liberal arts graduates and extolling the virtues of vocational education.
A successful workforce strategy needs to help fill gaps in skilled trades and recognize that a liberal arts education can be a path to startup success.
After all, philosophy degrees worked out okay for Reid Hoffman and Peter Theil.
3. VC ecosystems and thriving startup communities depend on immigrants, so stop demonizing them.
A report by the National Foundation for American Policy found that 44 of 87 startups valued at more than $1 billion as of January 2016 were founded or cofounded by immigrants. The immigrant-founded companies created an average of 760 jobs.
Of course, there are a lot of politicians building their brand on an anti-immigrant platform right now.
If you are trying to create an entrepreneurial ecosystem that attracts venture capital and you happen to live in a state or city led by one of these politicians, you have two choices:
Building a startup ecosystem in a smaller state without the sort of diverse mega-cities found in California, Illinois, or Florida requires visionary leadership that has the courage to take risks.
Ecosystems aren’t just built on the risks taken by founders. The risks taken by political and civic leaders are important, and your ecosystem needs leaders who advocate for a well-funded education system, call for reform of an outdated approach to economic and workforce development, and speak in defense of immigrants and their role in creating successful startups.
Once that happens, your ecosystem can start working on the building blocks identified in the PitchBook report.