FEBRUARY 2019
SCALING UP IN THE CITY OF GOOD NEIGHBORS LESSONS FROM MAPPING THE TECH ENTREPRENEURSHIP COMMUNITY IN BUFFALO, NEW YORK AUTHORS: Lili Török, Project Leader at Endeavor Insight ([email protected] I @lilitorok) Rhett Morris, Director at Endeavor Insight ([email protected] | @rhettmorris)
ABOUT ENDEAVOR INSIGHT:
Endeavor Insight is the research division of Endeavor, a non-profit organization that supports high impact entrepreneurs across the world.
Its work seeks to answer three questions:
1 How do entrepreneurs reach scale at their companies?
2 How do entrepreneurs reach scale in local networks or ecosystems?
3 What can policymakers, philanthropic leaders, investors, support organizations, and other stakeholders do to empower more entrepreneurs to reach scale in their communities?
The methodology utilized in this study builds on previous Endeavor Insight research supported by the Bill and Melinda Gates Foundation, the Omidyar Network, the Kauffman Foundation, the Inter-American Development Bank, the Heron Foundation, Foundation, as well as partners in the Global Entrepreneurship Research Network.
SPECIAL THANKS: The authors of this report would like to thank their colleagues at Endeavor including Maha AbdelAzim, Leah D. Barto, Penmai Chongtoua, Liliana Harrington, Patrick Linton, Dustin Poh, Adrián Garcia-Aranyos, and Linda Rottenberg, as well as Clark Dever, Jack Greco, and Ian Hathaway from the Techstars team. In addition, the following individuals provided valuable input as Endeavor Insight developed the methodology used in this project as well as its analyses and content: John Gavigan, Mariam Khan, and Maria-Jose Fernandez-Concha.. EXECUTIVE SUMMARY
1 THE TECH ENTREPRENEURSHIP COMMUNITY IN BUFFALO HAS 3 OPPORTUNITIES: DESPITE POSITIVE TRENDS, UNDERGONE A NOTABLE TRANSFORMATION IN THE PAST DECADE. TECH ENTREPRENEURS FACE SIGNIFICANT BARRIERS TO SCALING. In 2010, there were no more than 90 tech-enabled businesses Despite Buffalo’s reputation as a research hub, founders founded or headquartered in Buffalo. By late 2019, there were rated access to qualified managers and engineers as some over 220. The dramatic growth in the number of companies of the top obstacles in running a business in the area today. coincided with a rapid proliferation of support activity, and today Access to managerial talent, in particular, was frequently there are more than 20 entrepreneurship support programs cited as a major obstacle for scaling entrepreneurs. such as incubators, accelerators, and economic development Network analysis demonstrates connectivity in the local organizations to help founders start and grow companies. community has been growing rapidly in the last five years, but Over half of these support organizations are funded by the the type of high quality connections that often drive productivity State of New York through Empire State Development or remain relatively rare. The vast majority of the relationships in SUNY Buffalo. A significant number of support programs the Buffalo entrepreneurship community are between young are economic development initiatives, and nearly all are entrepreneurs, and employers, mentors, and investors who focusing on the earliest stages of a company’s life. Together, do not have leadership experience at high-scale companies. they employ over 50 people in Buffalo. There is a support The entrepreneurship communities of Buffalo and Rochester program for one in ten tech companies, and a support are growing in isolation. Buffalo and Rochester are two staffer for every four to five local tech entrepreneurs. entrepreneur communities with similar levels of development Amidst the proliferation of software companies and support but complementary assets. Currently, founders have more organizations, the founding of ACV Auctions in 2014 was connections to investors and support organizations in New York a defining moment for the entrepreneurship community. City than in Rochester, a city a little more than an hour away. Founders Joseph Neiman, Dan Magnuszewski, and Jack Greco The current demographics of tech founders do not match created a marketplace for auto dealers, and now ACV Auctions the city’s demographics as a whole. For a city that is about employs more than 1,100 across the United States, 450 of 38 percent African American, less than 5 percent were them in Buffalo. Its founders have used every opportunity to African American among the founders in the study. invest in the next generation of tech founders in the city. 4 RECOMMENDATIONS: There are a number of steps 2 ANALYSIS: SCALED COMPANIES LIKE ACV AUCTIONS, LIAZON, that decision makers in Buffalo can take to address the AND CAMPUS LABS HAVE CREATED MOST OF THE ECONOMIC challenges that tech-enabled entrepreneurs face. OUTPUT AMONG ENTREPRENEURIAL COMPANIES IN BUFFALO. In total, tech-enabled companies employed 26,000 people Recommendation 1: Shift resources to support scaling in Buffalo in 2019, but 90 percent of these people worked companies and put resources behind the existing at the 13 percent of local tech companies with 50 or more entrepreneurship initiatives led by high-scale founders. employees such as ACV Auctions, Athenex, Liazon, and There is a willingness among scaleup entrepreneurs Synacor. Only three companies were able to grow beyond 50 to actively support recent founders, but they are employees in the past decade. The most likely candidates to crowded out by the overwhelming institutionalized reach scale soon are companies that are scaling fast today, support activity that characterizes Buffalo today. such as Clearview Social, Hioperator, or Kangarootime. Recommendation 2: Build deeper connections with the neighboring Rochester metro area, another community The founders of the fastest growing tech-enabled businesses with historic strengths that could complement those in have distinct features. The founders of the fastest growing 10 percent of companies tend to have more work experience before Buffalo. A more integrated community could balance the starting a company. They are also more likely to have received influence of government-funded support organizations. mentorship or investment from founders that previously grew Recommendation 3: Leverage and expand the expat network companies to a hundred or more employees, a common trait of of Buffalo natives who became successful entrepreneurs, successful entrepreneurship communities around the world. executives, and investors outside the community to address the talent shortage that keeps companies from scaling faster. Recommendation 4: Dedicate resources to community outreach to make the entrepreneurship community more inclusive. Buffalo’s community is still nascent. The existing demographic divides are less likely to be entrenched if addressed in the near future.
1 RESEARCH QUESTIONS
In the fall of 2019, Endeavor Insight Tech-enabled companies and tech partnered with Techstars to assess companies are used interchangeably The purpose of the study the entrepreneurship ecosystem for throughout the report to denote any was to provide a snapshot tech-enabled companies in Buffalo. companies in the three target industries. of the current state of The purpose of the study was to Companies were only considered for the provide a snapshot of the current state research if they were for-profit, founded or the entrepreneurship of the entrepreneurship community, headquartered in the Buffalo metro area, community, and study and study the relationships between and entrepreneurial — founded by people, the relationships between tech-enabled founders and key service not governments, or other corporations.. tech enabled founders providers such as investors, mentors, and institutional support organizations. and key service providers Three principal research questions The following findings are based on over such as investors, guided the research process: 80 interviews with tech entrepreneurs mentors, and institutional in Buffalo, interviews with more than 1. What is the current state of the support organizations. 20 investors and entrepreneurship entrepreneurship community for support organization leaders, as well as tech-enabled companies in Buffalo? additional secondary data on founder work histories, investment rounds, and acquisitions on 226 local tech- 2. What is the role of support enabled companies and 276 founders. organizations and other institutions in fostering entrepreneurship and The scope of the study extends to economic growth in the sector? the entire Buffalo Metro Area, and it excludes Rochester. It is limited to 3. Where do opportunities exist tech-enabled companies, including to accelerate the growth of this software, advanced manufacturing, and community so that it can generate life sciences. While the entrepreneurship more jobs and wealth for the region? community includes companies in other sectors, national data suggests that tech-enabled companies will create more jobs than non-tech-enabled firms. 3 CONTEXT: THE TECH ENTREPRENEURSHIP COMMUNITY IN BUFFALO HAS UNDERGONE A NOTABLE TRANSFORMATION IN THE PAST DECADE.
The Buffalo entrepreneurship community program for every 10 to 12 companies, and included in this analysis do not limit their has experienced remarkable growth in a staffer for every 4 to 5 founders. Unique activities to the Buffalo area, or to tech- the past ten years. The number of tech- to Buffalo, there is also a relatively large enabled companies, but all of them offer enabled companies more than doubled, number of entrepreneurship support services to entrepreneurs in Buffalo. and today there are an estimated 226 local programs with a stated mission to develop In the past decade, venture funds have also tech companies operating in the city. An the local economy. Over half of the begun to show interest in tech-enabled estimated 151 of them came from software; programs identified in the study are funded companies in Buffalo, especially once 48 from life sciences; and 27 in advanced by the State of New York through Empire companies like Liazon and ACV Auctions manufacturing. Together, these companies State Development or SUNY Buffalo. demonstrated that it was possible to stay have employed an estimated 26,000 The first movers of entrepreneurship and scale in the city. A few companies people on a full-time, permanent basis. support were focused on helping founders were able to raise B rounds, including The vigorous entrepreneurial activity in the earliest stages of the company’s Postprocess Technologies and Viridi of the past decade has coincided with a life, most prominently Z80 Labs, Launch Parente. Unlike most support programs, proliferation of entrepreneurship support NY, and 43 North, a pitch competition these funds were typically based in initiatives in Buffalo. Today, there are that seeks to attract entrepreneurs to New York or Silicon Valley, and had very 15 to 20 local support programs with a start companies in Buffalo. (Both Z80 and small portfolios and low engagement, mission to support entrepreneurship in 43 North are funded by the State of New compared to the 20 to 40 of the Buffalo- Buffalo. More than 50 people worked at York through the governor’s Buffalo Billion based support programs in the study. these initiatives in 2019. There is a support initiative.) Many of the organizations
NUMBER OF TECH-ENABLED COMPANIES IN ADVANCED MANUFACTURING, HEALTHCARE, AND SOFTWARE
Advanced Manufacturing Healthcare Software
140
120
100
80
NUMBER OF FIRMS TOTAL 60
40
20
0 2010 2012 2014 2016 2018
Source: Endeavor Insight. Sample size: 225 tech-enabled firms..
4 NUMBER OF ACTIVE SUPPORT ORGANIZATIONS AND INSTITUTIONAL INVESTORS OVER TIME
Economic Development Competition Incubator Accelerator Venture Capital
30
25
20
15 NUMBER OF ORGANIZATIONS OF NUMBER
10
5
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Endeavor Insight.
ACV Auctions: Demonstrated Scale in The success of ACV Auctions was in Buffalo, and to Buffalo-born founders Buffalo Tech important for the community for a number elsewhere that operating a company of reasons. Beyond its direct contribution in Buffalo can be a smart choice. Amidst this proliferation of software to economic growth, ACV was the first companies and support organizations, the ACV is more than a poster child for growth company to demonstrate that it was founding of ACV auctions was a defining in Buffalo. Its founders and CEO have been possible to stay and grow a business moment for the Buffalo entrepreneurship actively reinvesting their skills in the next in Buffalo, New York to a point where community. When founders Joseph generation. They are in the leadership and the company surpassed a billion-dollar Neiman, Dan Magnuszewski, and on the boards of several support initiatives valuation last year. ACV’s track record in Jack Greco created a marketplace including Z80, Launch NY, and now, raising several rounds from prestigious for auto dealers in 2014, they tapped Techstars; they have organized Buffalo funds like Bessemer Venture Partners and into a dynamically growing market Open Coffee Club, a casual event to bring Bain Capital Ventures signalled to other of 20 million wholesale cars per year founders together, and most recently, they investors in Silicon Valley and New York that are sold through dealers. Nine have participated in a Slack to facilitate City that there may be other potential fundraising rounds later, ACV employs idea exchange among founders in Buffalo. investment deals in the area. It has also more than 1,100 people across the singalled to SUNY graduates that there United States, 450 of them in Buffalo. may be long-term career opportunities
5 Buffalo’s greatest advantage is a When local founders were asked to strong sense of community. speak to the advantages of operating a business in Buffalo, they often talked Over 60 percent The founders of ACV Auctions were not about themes related to a tight-knit of respondents the only ones to give back to the next community or support system. Over mentioned a strong generation when they became successful 60 percent of respondents mentioned entrepreneurs. Liazon founder Ashok community in a strong community in their response, Subramanian, Athenes founder Chuck their response. more than the low cost of living, the Lennon, and Campus Labs founder location, and access to talent. Erich Reich are all known for their active role in the community as mentors.
MOST FREQUENTLY CITED ADVANTAGES OF OPERATING A BUSINESS IN BUFFALO TODAY
Community
Cost of Living
Talent
Location (Weather, Access, Traffic)
Start Up NY Tax Benefits
Support Organizations in General
History of Manufacturing
Regulation
0% 10% 20% 30% 40% 50% 60% PERCENTAGE OF RESPONDENTS WHO MENTIONED TOPIC AS AN ADVANTAGE OF HAVING A BUSINESS IN BUFFALO
Source: Endeavor Insight. Sample size: 65 founders.
6 7 ANALYSIS: SCALED COMPANIES LIKE ACV AUCTIONS, CAMPUS LABS, AND LIAZON HAVE CREATED MOST OF THE ECONOMIC OUTPUT AMONG TECH-ENABLED COMPANIES IN BUFFALO.
The number of tech-enabled companies in the Buffalo Billion, but in 2019, recently Buffalo has been growing at a spectacular founded tech-enabled businesses only Of the 26,000 jobs that rate for the past decade. Between 2010 employed an estimated 2,000 workers. 1 and 2019, the number of active companies were created by tech- The reason for the discrepancy between increased by nearly 150 percent. However, enabled companies in new business creation and job growth is new companies were not able to make that only three tech-enabled companies Buffalo, over 90 percent significant contributions to productivity. were able to reach scale in the past decade. came from companies In 2019, 226 tech-enabled companies Of the 26,000 jobs that were created that employed 50 employed an estimated 26,000 people by tech-enabled companies in Buffalo, on a full-time, permanent basis in Buffalo, people or more. over 90 percent came from companies but 24,000 of them were employed at that employed 50 people or more. Of companies that are more than 10 years old. companies founded since 2010, the only Between 2010 and 2019, the State of companies to achieve this level of scale New York has invested over $300 million have been ACV Auctions, Postprocess in economic development initiatives to Technologies, and PLS 3rd Learning. support job creation in Buffalo excluding
JOB CONTRIBUTION BY FIRM SIZE AMONG TECH-ENABLED COMPANIES IN BUFFALO
Firms with 50 or More Employees Firms with Less Than 50 Employees
100%
80%
60%
40%
20%
0.0 Percentage of Firms Percentage of Jobs
Source: Endeavor Insight.. Sample size: 226 tech-enabled firms.
8 The founders of the fastest growing tech- First, the founders of these companies Second, the founders of fast-growing enabled business have distinct traits. spent significantly more time in the companies were more than twice as workforce before starting their own likely to be connected to successful The most likely founders to reach 50 or business. Jack Greco was a finance entrepreneurs. Over 60 percent of fast- more employees next are going to be the professional for over 10 years before growing founders received mentorship, ones who are growing their companies co-founding ACV auctions; Oscar investment, or support from a successful faster than average today. Understanding Pedroso worked for several years before founder, compared to slightly more what high-growth founders have in co-founding Gradfly; Donald Jacobs than 20 percent of other founders. This common will help decision makers was in the workforce for over 15 years association between connections to find and support the next generation of before founding PLS 3rd Learning. On experienced founders and entrepreneurial these company founders and potential average, the founders of the fastest performance aligns with academic community leaders. The fastest growing growing companies had 11 years of work research in other geographies that found ten percent of tech-enabled companies experience collectively, compared to that connections to experienced founders in Buffalo such as ACV Auctions, other founders who only spent about 7 with one hundred or more employees are Postprocess Technologies, PLS 3rd years in the workforce. This is supported measurably linked to high growth.3 Learning, and others have a number of by academic research across the country distinctive traits in common. that demonstrates the typical founder of a high-growth business is at mid-career (early to mid-40 years of age) 2
9 OPPORTUNITIES: DESPITE POSITIVE TRENDS, TECH ENTREPRENEURS FACE SIGNIFICANT BARRIERS TO SCALING.
Buffalo needs more tech-enabled their founders succeed, they are able to contributed less than 10 percent of the companies to reach scale for reinvest their skills and resources into full-time jobs among tech-enabled entrepreneurs to contribute to economic the community. (Endeavor Insight) companies. Decision makers in the growth. Companies with 50 or more private sector and the public sector There are still considerable barriers employees drive productivity. They are should dedicate resources to the barriers to scaling a company in Buffalo. In the also more resilient in times of crisis, that prevent founders from scaling past decade, less than 3 percent of new and they tend to pay higher wages on tech-enabled companies in Buffalo. companies were able to reach scale in the average than smaller companies. When sector, and as a result, new companies
PERCENTAGE OF RESPONDENTS WHO RATED EACH CHALLENGE AS SEVERE OR VERY SEVERE
80%
60%
40%
20% % RATED AS ‘SEVERE’ OR ‘VERY SEVERE’
0% Access to Access to Access to Access to State Distance from Capital Managers Engineers Customers Regulation Major Hubs
Source: Endeavor Insight. Sample size: 65 founders.
1 ACCORDING TO FOUNDERS, ACCESS the first entrepreneurship community the ropes of building a successful tech TO MANAGERIAL TALENT AND ACCESS TO that Endeavor Insight has studied over company enough to help build another. the past 10 years where more than CAPITAL ARE THE GREATEST BARRIERS Another 40 percent of respondents half of the interviewed entrepreneurs TO SCALING A COMPANY IN BUFFALO. rated access to engineers as a severe or rated access to managerial talent as very severe challenge. SUNY Buffalo and There are a number of barriers that a ‘severe’ or ‘very severe’ obstacle. prevent entrepreneurs from scaling in RIT graduate 2000-3000 engineering greater numbers, but founders ranked As one founder explained, the main students every year, and for the past access to qualified managers and access challenge is not access to talent in several years, and SUNY Buffalo has been to capital first. Most entrepreneurs general. There are thousands of SUNY reporting a record number of freshmen. outside Silicon Valley have difficulty students and graduates to provide a The challenge is retaining these graduates accessing capital, but the overwhelming junior talent pool to companies. The long enough to turn them into senior 4 5 concern over access to managerial talent challenge is that there is a shortage of programmers or software architects. is highly specific to Buffalo. Buffalo was experienced managers who have learned
10 2 CONNECTIVITY HAS BEEN RAPIDLY Endeavor Insight analyzed the founders, and illustrate the way in which GROWING IN THE COMMUNITY, BUT connections that exist among local founders take the knowledge and INSTITUTIONAL SUPPORT IS CROWDING tech-enabled companies and other resources they acquired from founding OUT ENTREPRENEURIAL CONNECTIONS. stakeholders in Buffalo using a one firm, and use it to launch another. methodology developed by members of Network connectivity has been growing Connections to other entrepreneurs are the Global Entrepreneurship Network. just as rapidly as the size of the sector. both crucial and highly valued in Buffalo. The methodology looks at three specific Social connections are considered to relationships among founders, their Today, 165 organizations are connected be one of the most important factors companies, and the investors and support through 276 connections in the tech- of success among local founders. Over organizations who work with them. enabled entrepreneurship community two thirds of interviewees agreed that through experience, investment, and These three connection types are “having the right social connections” support. Of the 165 organizations in the experience (former employment or serial was essential to becoming a successful network, 80 percent are tech-enabled entrepreneurship); investment, and entrepreneur in the city. The fastest companies, and 20 percent are other support. These connections help trace growing entrepreneurs were often organizations that worked with them. connected to high-scale entrepreneurs. the flow of information and skill among
11 CONNECTION GROWTH IN THE ENTREPRENEURSHIP COMMUNITY BETWEEN 2010 AND 2019
Experience Investment Support
250
200
150 NUMBER OF CONNECTIONS OF NUMBER 100
50
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Endeavor Insight. Sample size: 276 connections.
Entrepreneurship support programs institutional support connections through Empire State Development or and investors have been driving increased by a multiple of six, compared different initiatives at SUNY Buffalo. up connectivity in Buffalo. to entrepreneurial connections like The map across the page is a mentorship, angel investment, and former Connectivity has been growing so quickly visualization of the social network of employment, which have increased by that its growth has outpaced the growth tech-enabled companies, investors, a multiple of three. Today, over half of of the sector. In 2019, there were 2.4 and entrepreneurship organizations the connections in the network come times more tech-enabled companies in in Buffalo. Each circle represents an from organizations, and not tech- Buffalo than in 2009, but there were more entrepreneurial company or support enabled companies or their founders. than three times as many connections in organization, the size of the circle the network. However, this growth was In large part, the fast paced growth reflects the organization’s influence as primarily driven by institutional actors, of institutional support has been measured by its outbound closeness and not entrepreneurs. sponsored by the state. centrality based on its connections to other companies through experience, The growth of the entrepreneurship In over 60 percent of support mentorship, and investment. Companies network has been a result of increased organization connections in Buffalo, the are blue; other organizations are grey. institutional support and investment source was an organization that was activity in Buffalo. Over the past decade, funded by the state of New York, often
12 YEAR FOUNDED: BEFORE 1989 1989–2004 2005–2012 2013–2019
ACTORS: CONNECTIONS:
ENTREPRENEURIAL COMPANIES EXPERIENCE: Former employment or serial entrepreneurship OTHER ORGANIZATIONS (e.g. accelerators, investment firms) SUPPORT: Mentorship or program participation
The size of the circle reflects the number of INVESTMENT: Angel or venture capital connections originating from the founders of each company or the leaders of each organization. Founders and leaders are represented by their most prominent company or organization.
13 Institutional connections have Labs, Synacor, Coachmeplus, and other other as well. 84 percent of founders said been crowding out entrepreneurial companies who work hard to support that they trusted other entrepreneurs connections between founders. others in the community in leadership in the community, which is comparable positions, and also emergent private to the U.S. average of people’s trust in Entrepreneurship communities are more initiatives like coffee clubs, meetups and their own friends and acquaintances. productive when entrepreneurs are mastermind groups. 7In comparison, trust in economic more influential.6 As it is visible on the development organizations is quite low map across the stage, entrepreneurship The willingness among founders to in Buffalo. Only 48 percent of founders organizations are more influential in help each other is remarkable and said that they trusted these organizations, Buffalo than entrepreneurs. Three of the measurable. Over 90 percent of which is more comparable to the U.S. five most influential organizations in the respondents said they were “pretty open average on trust in complete strangers. network are not entrepreneurs. Only 57 about connecting entrepreneurs with percent of the 226 local tech-enabled people in their network”, and the same companies are connected to the network percentage agreed that helping other at all, as are only eight of the 25 largest entrepreneurs was good for their own companies. business. 85 percent of respondents said that values like transparency, There is reason to believe that honesty, honoring commitments, and entrepreneurs would be willing to step accountability are widely embraced by up to fill the gap if institutional support the entrepreneurship community. was less prominent. Entrepreneurs in Buffalo reported There is a small, but dedicated group of extremely high levels of trust in each founders from ACV Auctions, Campus
PERCENTAGE OF RESPONDENTS WHO TRUSTED THE FOLLOWING GROUPS SOMEWHAT OR COMPLETELY (N = 34)
People in Buffalo 88%
Local Entrepreneurs 84%
Neighbors 80%
Local Support Organization Leaders 72%
Other Entrepreneurs in Sector 64%
Economic Development Organizations 48%
Corporate Executives 32%
Investors 28%
Politicians 8%
14 3 THE ENTREPRENEURSHIP There are significant resources in Rochester has been historically the COMMUNITIES OF BUFFALO AND both Rochester and Buffalo that are home of large corporates like Xerox, ROCHESTER ARE DEVELOPING IN ISOLATION. underutilized due to this isolation. Kodak, and today, Constellation Together, the two cities’ population would Brands, and it is known for its Rochester is a 70-minute-drive away from be the size of Atlanta and the level of numerous professional services firms Buffalo. The two cities are comparable venture-backed startup activity would and abundant managerial talent in the size of their populations and be larger than Ann Arbor, Michigan When the founders of successful entrepreneurship communities. They or Charlotte, North Carolina. A larger companies in the two cities are have experienced the rise and fall population and the access to both SUNY connected to talented entrepreneurs of the manufacturing sector in the Buffalo and RIT could help ease the in both communities, not just one, the United States in parallel. And yet, the challenges related to access to talent that entrepreneurship communities are more two entrepreneurship communities founders reported. According to Startups likely to become prouctive. There are are developing in isolation. Buffalo USA, Rochester has a significantly higher some notable early movers who have entrepreneurs were just as likely to influx of financial capital both based on made investments across the border. have an investor in Rochester (70 miles number of deals and on their value.8 away) as in New York City (300 miles Most notably, Tom Golisano of Paychex away). In the words of one founder, today, has made a $20 million investment in Postprocess Technologies.9 entrepreneurs from both cities only get together to see the Buffalo Bills play.
4 THE CURRENT DEMOGRAPHICS OF women account for less than 13 Buffalo is not alone with these concerns. TECH FOUNDERS DO NOT MATCH THE percent of tech enabled founders, and Black and Hispanic entrepreneurs CITY’S DEMOGRAPHICS AS A WHOLE. only 12 percent of companies have at are underrepresented everywhere least one founder who’s a woman. in the United States, and women are There are drastic discrepancies between underrepresented everywhere among It is important to note that tech enabled the demographics of the Buffalo tech founders.12 In fact, Buffalo is better businesses are no less diverse than metro area and the demographics of positioned to improve the status quo other businesses in Buffalo, where less its entrepreneurship community. In among tech enabled founders because it than 1.5 percent of all businesses had a a city where over 30 percent of the is a relatively nascent entrepreneurship Black founder, and less than 2 percent population is African American and community. Unchecked network had a Hispanic or Latino founder in over 12 percent of the population is dynamics tend to make communities less 2016 according to Census data. They Hispanic or Latino, less than 3 percent inclusive, but Buffalo is early enough in its are, however, less inclusive of women of tech enabled companies had a Black trajectory that conscious efforts to make founders — 18 percent of all businesses founder, and less than 3 percent had the community more inclusive could lead 10 had a woman founder overall, but only 12 a Hispanic or Latino founder. While to significant improvements over time. less dramatically underrepresented, percent of tech-enabled businesses.11
15 RECOMMENDATIONS
There are a number of steps that decision makers in Buffalo can take to address the challenges that scaling tech-enabled entrepreneurs face. To start, decision makers could focus on four priorities.
RECOMMENDATION 1: RECOMMENDATION 2: Shift resources to support scaling companies and put resources Build deeper connections with the neighboring Rochester metro behind the existing entrepreneurship initiatives led by high- area, another community with historic strengths that could scale founders. Current levels of involvement from successful complement those in Buffalo. Rochester has more capital, and an founders like Ashok Subramanian, Chuck Lannon, Dan Gigante, abundance of talent in professional services; Buffalo has SUNY Erich Reich, George Chamoun, and Jack Greco and George Buffalo, cultural amenities, and and vibrant entrepreneurship Chamoun suggest that there is a willingness among scaleup community, among many other assets. A more integrated entrepreneurs to actively support recent founders, but they are community could balance the influence of government-funded crowded out by the overwhelming institutionalized support support organizations and provide solutions to the challenges in activity that characterizes the entrepreneurship community. access to financial capital and managerial talent that founders reported.
RECOMMENDATION 3: RECOMMENDATION 4: Leverage and expand the expat network of Buffalo natives who Dedicate resources to community outreach to make the became successful entrepreneurs, executives, and investors entrepreneurship community more inclusive. Buffalo’s outside the community to address the talent shortage. community is still nascent. The existing demographic divides Buffalo has a large number of accomplished professionals and are less likely to be entrenched if addressed in the near future. entrepreneurs who stay connected to the city for the duration of their careers. The entrepreneurship community should leverage these connections to address the challenges that entrepreneurs reported, particularly those related to hiring.
16 17 ENDNOTES:
1 Empire State Development Corporation. “The FY 2018 Executive Budget”. 17 Jan 2017. budget.ny.gov/pubs/archive/fy18archive/exec/agencyPresenta- tions/appropData/EmpireStateDevelopmentCorporation.html Accessed 6 February, 2020. 2 Azoulay, Pierre & Benjamin F. Jones et al. “Age and High-Growth Entrepreneurship.” Northwestern University. April 2019. kellogg.northwestern.edu/ faculty/jones-ben/htm/Age%20and%20High%20Growth%20Entrepreneurship.pdf Accessed 6 February 2020. 3 Feldman, Maryann & Ted Zoller “Dealmakers in Place: Social Capital Connections in Regional Entrepreneurial Economies” Regional Studies 17 Nov 2011. tandfonline.com/doi/abs/10.1080/00343404.2011.607808 Accessed 6 February 2020. 4 Rochester Institute of Technology, Kate Gleason College of Engineering “Key Facts.” https://www.rit.edu/engineering/key-facts Accessed 6 February 2020. 5 “Record-breaking enrollments continue at UB” University of Buffalo News Center. 12 Sep 2018, buffalo.edu/news/releases/2018/09/017.html Accessed 6 February 2020. 6 Feldman, Maryann & Ted Zoller “Dealmakers in Place: Social Capital Connections in Regional Entrepreneurial Economies” Regional Studies 17 Nov 2011. tandfonline.com/doi/abs/10.1080/00343404.2011.607808 Accessed 6 February 2020. 7 World Values Survey Wave 6 (2010-2014) worldvaluessurvey.org/WVSContents.jsp Accessed 20 December 2019. 8 Center for American Entrepreneurship. “Rise of the Global Startup City” October 2018. startupsusa.org/global-startup-cities/report.pdf Accessed 6 February 2020. 9 “Tom Golisano invests $20 million into Buffalo-based 3-D printing startup” WGRZ. 12 November, 2019. wgrz.com/article/money/business/tom-golisa- no-invests-20-million-into-buffalo-based-3-d-printing-startup/71-ab2f8af7-6449-430e-81ca-5e4b3fd26683 Accessed 20 January 2020. 10 Data USA “Profile of Buffalo, NY” datausa.io/profile/geo/buffalo-ny/ Accessed 6 February 2020. 11 US Census. “Annual Survey of Entrepreneurs, 2016” Last revised 13 Aug 2018. census.gov/data/tables/2016/econ/ase/allcompanytables.html A ccessed 20 January 2020. 12 Endeavor Insight, forthcoming.
18 19 METHODOLOGY:
GLOSSARY: SAMPLING FRAME: DATA COLLECTION:
Angel investment: an investment in a Companies were considered “targets” The data collected for this project comes company made by an individual, not on and included in the sampling frame primarily from surveys and interviews with behalf of a business or investment firm. if they met the following criteria: local entrepreneurs and stakeholders.
Entrepreneurial firms: for-profit This study began by identifying “VIP 1. The company is local. businesses that are started by individuals entrepreneurs” and other stakeholders who possess ownership and control of Companies were included if they were: who had an in-depth perspective on the firm. This excludes businesses that the sector (Heads of venture capital a. Founded in the Buffalo began as either government entities firms, government officials, etc.) in each metropolitan area, or or subsidiaries of larger companies. city. VIP entrepreneurs selected for b. Currently headquartered in the interviews were identified based on: Local companies: businesses that were city’s metropolitan area after founded or are currently headquartered a. Scale – i.e., the current largest they were founded elsewhere. in the Buffalo metropolitan area. companies in the sector, or Target companies also included businesses b. Influence – i.e., companies that have Mentorship: a connection through which that have closed after being founded or made large exits, received a large a mentee will meet the mentor at least headquartered in the metropolitan area, and investments, or were otherwise three times for a minimum of 30 minutes those that have been acquired after being noteworthy or influential. to discuss critical business issues. founded or headquartered in the area. Metropolitan area: the boundaries The preliminary interviews, which were of a city’s metropolitan area are 2. The company fits the definition of mostly in person, focused on these defined using local input. a financial technology company. important stakeholders. The responses helped establish a list of the sector’s Serial entrepreneurship: the Financial technology companies most “influential organizations,” i.e., activity of founding of a company by were defined as companies that have organizations with outsized influence. someone who previously founded developed or offer a technological It also provided critical data on the one or more companies. solution dedicated to enabling financial challenges, city characteristics, and services, or as technology companies Software companies: firms where each industry’s entrepreneurial scene whose corporate revenue is mainly linked that helped inform later analysis. the primary business activity is to the financial services industry. either software development, The resulting primary company list formed fintech, or e-commerce. 3. The company is entrepreneurial. a basis for the study, along with additional Spin-off: a company started by a former companies identified through other sources Entrepreneurial companies are those employee of another company. including databases such as Pitchbook, started by individuals. This excludes D&B Hoovers, and Crunchbase, as well as Startups: companies founded no businesses that began as either: the portfolio companies of investors and more than three years earlier. a. Government entities, or entrepreneurship support organizations operating in the city. Only target companies Target companies: entrepreneurial firms b. Local divisions of corporations moved forward for further investigation, founded or currently headquartered based in other cities. in the city’s metropolitan area i.e., those founded or headquartered and in the software industry. in the mapped city, entrepreneurially founded and in the selected industry, Top performer: a company in the top and those fitting the aforementioned decile of all local, entrepreneurial criteria on scale and influence. companies founded in the same year based on its number of employees. Entrepreneurs from the target list received invitations to fill out an online survey or set up an interview (either in-person or over the phone).
20 This mass outreach campaign used scope of the first two. Angel investment founder’s investment firm, followed by standard questions, but the interviews included all forms of investment. the accelerator or support organization. were adapted to be more conversational. Mentorship was expanded to include any The size of an organization’s influence type of entrepreneurship support from The survey has remained relatively in the network was based on directed a stakeholder in the sector, such as an unchanged over the past few years, with only closeness centrality for unconnected accelerator or a business plan competition. minor updates to reflect city-specific factors graphs. In other words, the size of an and to address areas where entrepreneurs To learn about these connections organization was a function of the number have been most reticent about sharing within entrepreneurship communities, of first-, second-, third-, etc. degree data. Endeavor maintains confidentiality, the surveys and interviews discussed connections that the organization and its and collected data is accessible only to above focused on five core questions: entrepreneurs had to others in the network. Endeavor and its research partners. 1. Who invested in your company? There was no limit to the degrees of In order to ensure that the company list (This includes both angel and separation that factored into the centrality was comprehensive, a secondary list of institutional investors.) score. For example, if one mentor led to a companies was compiled from those 2. Who was your mentor during chain of mentorship among entrepreneurs, mentioned in the interviews and surveys the growth and development the original mentor’s centrality score will that were not already on the primary list. of your company? increase even if the mentor only directly The secondary list also included additional mentored one entrepreneur. All connections 3. Have you founded other tech companies sourced from the portfolio on the map were weighted equally. companies in your city? companies of those associated with the Financials and employee counts did not new mentions. The secondary list also 4. Which of your former employees factor into an organization’s centrality. included new companies found on LinkedIn have gone on to found tech Connections accrue to an organization while collecting data on entrepreneurs companies in your city? based on the time period in which the and companies. These secondary targets 5. In which entrepreneurship connections occurred. Where the year of then received invitations to complete support organizations has your a connection was unknown, two different surveys and interviews. The research and company participated? approaches informed the date used outreach process was repeated multiple in the study. Where year information times depending on the size of the city. The survey and interviews also asked about work and education history. LinkedIn for a former employee, investment, or NETWORK ANALYSES: provided data to fill in the gaps for founders founder connection was missing, it was assumed that the year of the connection The network analysis process within an who did not respond. The responses to these between the source and the target entrepreneurship community typically questions formed an edge list of connections companies was equal to the year the target lasts 6-9 months, from the preliminary among organizations, along with a company was founded. To estimate a data gathering to the concluding analysis. corresponding set of four types of outbound connections. The edge list then informed all mentorship relationship start year, authors Previous research by Endeavor Insight has subsequent network analyses and created reviewed mentorship relationships. found that there are four main connection the network map visualizations in D3. Companies were only included in the types among entrepreneurs that drive analysis if it was possible to identify their the growth of an industry. For analyses For all network analyses, each founder founding year. For companies whose that only include connections between was assigned to only one company or employee count could not be determined, entrepreneurial tech companies, these are: organization. Where an entrepreneur had founded multiple companies, his or authors used the median number of 1. Angel investment; her most prominent company represents employees for companies founded in the 2. Mentorship; his or her influence in the analysis and same year, where companies founded over ten years ago were combined into one 3. Serial entrepreneurship; and on the map. This was based on an index of founding date, number of employees, cohort. Companies that were no longer 4. Former employee spinoffs. total investment, and exit sizes. Where an operating were included in the analysis if it For analyses that also included support entrepreneur had founded an investment was possible to find enough data to target organizations and other stakeholders in firm or support organization, it was the them. For companies that were acquired, the sector, these same four connection company entity that took precedence the number of employees at the time of types were used while expanding the (if they founded one), followed by the acquisition were used.
21
24