Kansas City is home to the Kauffman Foundation, a $2 billion organization dedicated entirely to research and funding of entrepreneurial efforts. And beginning February, entrepreneurs will descend upon the city in KC’s version of a startup incubator: Kauffman Labs, which is paying entrepreneurs for up to six months while they build out their startups. But while the city hosts several of Kauffman's offspring--and there is an emerging angel investment community that's being activated to support homegrown talent--it isn't yet a hotbed of startup activity.
Bo Fishback, who runs Kauffman Labs, told us about the Kauffman legacy and why Kansas City’s budding entrepreneurial ecosystem has long-term potential.
What makes Kansas City a great place for startups?
Kansas City has uniquely embraced the idea that the entrepreneurs who found companies can build them to multibillion dollar companies and be truly transformative. And that is something that a lot of places you hear people kind of really preach the opposite of that, so this idea of companies that are built to last by the entrepreneurs who found them is just something that is embraced here, and the way that entrepreneurs are cultivated and how they engage with the ecosystem, I think you see that here more than almost any other city that I’ve been to.
The willingness of entrepreneurs who have been successful to come to the table and help people at the very earliest stages when there is nothing in it for them is also unique. They embrace the idea that helping entrepreneurs is good for everyone in the world really, but certainly in a regional ecosystem, is more pervasive and widely held here than almost any other city on the planet. Part of that is because so many of those entrepreneurs were helped along the way.
Who are some of those entrepreneurs?
The Helzberg Entrepreneurial Mentor Program was created by this guy named Barnett Helzberg who started Helzberg Diamonds whose company was acquired by Warren Buffett, and his mentor was actually Mr. Kauffman. So it’s quite of a robust program and it is to help the founders of companies who’ve gotten to a stage where they’ve got the real potential to scale.
Another program that happens earlier stage here that is just such a cool one is called KTech Pipeline. It is a program that is geared at attracting the most talented early stage founders in the region and basically, it actually pays them a stipend. It’s like a fellowship program that goes along with helping them for two years to kind of help take their company to the next stage, and it’s all about how you help entrepreneurs think about scale and think about how to grow well outside of the region and to really be a global company. And Kauffman Labs is something we’re spinning off, and what it is it’s a laboratory, but it’s a laboratory for starting billion dollar companies with entrepreneurs.
What is the role of the Kauffman Foundation in the Kansas City startup ecosystem?
The whole reason the Kauffman Foundation exists is because Mr. Kauffman did not believe that entrepreneurs are this unique breed of person and after they are successful, that’s because they were this kind of special human being that was kind of born as an entrepreneur. So one of the amazing things in Kansas City is that that legacy is palpable here with the other entrepreneurs who are here, and as you talk to people who want to build the next great companies, or the people who built multibillion dollar companies in the last 20 years, you find a very direct lineage between actually many of them and Mr. Kauffman. So a lot of the programs that are here to help entrepreneurs and a lot of the investors, actually there’s still a very direct correlation there. So there’s a few multibillion dollar companies in town that have been built in some ways on the heels of that ecosystem. There’s a company called Cerner, I think it’s maybe a $7 billion company today. Another company that I’m sure you’ve heard of called Garmin the GPS company is based here.
These are multibillion dollar companies and what I want to say about them is not that they are multibillion dollar companies and they happen to be in Kansas City, what is amazing is about those two companies, and there’s a few other examples here, but I think Kansas City has an amazing legacy of companies that are founded, grown and run even at the multibillion dollar level by the entrepreneurs who created them. The culture here is not one of there’s a group of guys with great ideas, who get a company to a certain state and then you have to bring in professional management to help take it to the next level.
What types of startups do better in Kansas City?
I think Kansas City does really well in companies that are infrastructure plays that require real commitment and longevity and true infrastructure-like support to be successful. This is not a place that really heavily embraces the quick flip. Cerner is a company that is revolutionizing the way that electronic medical records impact healthcare. That is not a company that you build and sell for $25 million to Google next year. That is a company that was founded 20 years ago and is just now at the point where people are really understanding how important that is to do things like erase medical errors in the hospital system. So it is like this big visionary company, it is a long play, and it doesn’t mean it needed to raise a billion dollars in venture capital. It went public, it raised venture capital, but it is a company that took a long term commitment to build. And that is why I think there are technology companies like that.
If you think about ecosystems of talent where there’s unfair advantages, I would say healthcare, healthcare information technology and healthcare services are huge here. I just had breakfast with a guy a couple of weeks ago who moved here from another city to found his company because of the unique kind of healthcare expertise here.
Another area is mobile. Sprint’s world headquarters are in Kansas City. Sprint’s contraction actually over the last few years has been a big boom to the entrepreneurial ecosystem because they’ve been laying people off and a lot of those people are going to found companies. So there’s a huge talent base for both mobile developers, but more importantly than mobile developers, there are people who understand the infrastructure it takes to build a company In that space, and what does it mean to sell to a carrier. If you want to sell to Sprint, AT&T or Verizon, and I don’t mean sell your company, I mean sell your product, that’s kind of a bit different than a consumer Web play or something like that. That means your sales cycles take two years and that kind of stuff. The fact is that there are thousands or maybe even tens of thousands of people who’ve grown up in that environment are now looking for opportunities to go build companies, and there’s a huge huge talent base there.
What kind of capital is available for entrepreneurs in Kansas City?
There’s not a lot of organized venture capital here, but there’s a huge amount of angel investment here. The great thing about Kansas City, the wealth here is easily moved to invest. So on the one hand there are some particular assets here. There’s a thing called the Kansas Bioscience Authority which is right outside of Kansas City that has a $500 million fund that exists to help support bioscience entrepreneurs here. So there’s a half a billion dollar fund here just to help bioscience companies to be more successful. There is scattered venture capital, but this is not a place that really believes venture capital is the recipe to help fuel that entrepreneurial ecosystem.
There’s always this underlying conversation about is the money there to help those companies scale? We know the money is here. All you have to do is drive down Ward Parkway and look at the kind of houses there and you get to see in person the entrepreneurial legacy, and angel investors one through 300. There’s just now starting to be a lot more transparency around who those investors are and how you get them involved.
One of the things we’ve seen is that the entrepreneurs here as soon as they are successful turn around and become angels. There’s a company called Proteon that signed about a $700 million deal with Novartis last year and immediately the founder of that company, Nick Franano, founded a new company that is wholly focused on helping other biotech entrepreneurs in town be successful. I think we think a lot about angel investors here who can really help people grow.
For more from this series:
- Why you Should Start a Company in...Austin
- Why you Should Start a Company in...New York
Why you Should Start a Company in...Los Angeles
- Why you Should Start a Company in...Chicago
- Why you Should Start a Company in...Boston
Laura Rich is a freelance writer and co-founder of Recessionwire.
[Photo by Caleb Zahnd]