Tag Archives: small business

Building An Entrepreneurial Buffalo, Part 2

19 Aug

‘Earlier this week, I wrote about making Buffalo and WNY a more entrepreneurial city and region and questioned whether the importation of innovation was the most effective way to improve our economy.

In many ways, the notion of “imported innovation” is the core tenet of our local economic development strategy.  We strive to identify companies who will move here or we struggle to keep existing companies here, but we do little to help generate innovation and entrepreneurship.

I took a stab at identifying the core issues that hold us back from making Buffalo’s entrepreneurial engine roar once again.

The reason Buffalo struggles to innovate is related to the lack of an innovation community, a self-perpetuating problem.  We lack a thriving community of innovative and energetic entrepreneurs who are willing to take risks.  Sure, there are some, but they are a disconnected group and access to capital to fund their ideas is limited, at best.

So, in essence, the problem set is defined as follows:

  • Lack of leadership on economic development from elected officials
  • A crumb hoarding mentality from wide swaths of our existing business community
  • Lack of capital for innovative small companies
  • Lack of an innovative and networked entrepreneurial community

Well, damn. That’s a big sticky problem, eh? No wonder our elected officials focus on the window dressing, this is a tough problem to tackle.

I think I have the skeleton of a solution, but I’ll need your help to flesh it out. This idea has come from lengthy discussions with a dozen or so young emerging entrepreneurs over the last year or so (our own pocket network effect).  We figured if we want to empower entrepreneurship, we should start by asking others to help us create the vision.

We start with a community wide venture capital investment fund.  One in which we all pay what we can to fund the next wave of companies that will employ our friends, neighbors and our children.  Let’s stop looking for someone else to save us when the answer is right in our own wallets. If our Mayor and civic leaders are disinterested in signing up for the Kiva City program, we’ll take the idea of their program and use it to inspire our own.

Kiva City extends microfinance to small businesses across America. With Kiva City, credit unions or other financial institutions partner at a local level to facilitate the loans, while community groups and civic leaders build awareness among small business owners and refer them to the program.

The basic concept is that not every business idea needs a $500,000-$10,000,000 initial investment.  Most need some seed funding for basic salaries, access to technology and office space, time, mentorship and community.  A good example of what this would look like is a community funded version of Y-Combinator.

Y Combinator does seed funding for startups. Seed funding is the earliest stage of venture funding. It pays your expenses while you’re getting started.

Some companies may need no more than seed funding. Others will go through several rounds. There is no right answer; how much funding you need depends on the kind of company you start.

At Y Combinator, our goal is to get you through the first phase. This usually means: get you to the point where you’ve built something impressive enough to raise money on a larger scale.  We make small investments (rarely more than $20,000) in return for small stakes in the companies we fund (usually 2-10%).

Y Combinator has a novel approach to seed funding: we fund startups in batches. There are two each year, one from January through March and one from June through August. During each cycle we fund multiple startups.

So, we combine the best of two programs to make our own, The Buffalo Fund.

We estimate that we’ll need live/work space and an initial funding stream of $2,000,000 to fund 8-10 companies at a maximum of $20,000 in the first year.  Ideally, we want to raise money from the community, in small denominations.  We want everyone invested in the idea of creating innovation and the companies which will employ the people of our region.  Let’s stop thinking of economic development as a top-down planning mechanism and treat it like a grassroots campaign.  When people are invested in the business community, even at a small scale, they become active participants in the local business environment.  Not pawns in a multi-national corporate game of pleasing distant shareholders.  We begin to think locally, we begin to empower entrepreneurs, we begin to see what’s possible.

We aim to build companies that look beyond the horizon of our own region and export their goods and services to the nation and the world. We’ll utilize our intellectual capital to create our own network effect.

Is it possible to raise $2,000,000 in Western New York through small donations from Joe Six-Pack in Lancaster and Tom Twelve-Pack in Hamburg?  Maybe.  However, we’d need to identify some larger investors who are not part of the existing power structure to provide our own seed funding and provide the mentorship for these budding entrepreneurs.

Each investor, no matter how small, get a weighted vote on which businesses get funded.  There will be a fund manager and a CEO hired who will report to a board of directors elected by the wider membership.  The board will manage the program, provide leadership and advise the membership.  Everyone is eligible for a leadership position as half of the board would rotate each year.  This would be a corporation, not a non-profit.

During the startup phase, we group the entreprenuers together and they hack away at their projects with legal oversight and receive guidance from guest speakers, advisers, and business planners.  We set them up for success by letting them focus on their business idea while giving them the tools to grow the idea.

So, I’ll leave it to you to tell me what you think.  Add to the idea, tell me what we’re missing or what we have right.  We’re walking the idea around town to people we’ve identified as potential partners and seed investors and I’ll post updates as the idea either blossoms or stalls.

It’s time we took control of our economic future, help make it happen.