Brad Feld’s book “Startup Communities: Building An Entrepreneurial Ecosystem In Your City” (Wiley, 2012) is recognized by many as the manual on how to launch a startup community.
1. Entrepreneurs must lead the startup community.
2. The leaders must have a long-term commitment.
3. The startup community must be inclusive of anyone who wants to participate in it.
4. The startup community must have continual activities that engage the full entrepreneurial stack.
His model goes on to group the various actors in the ecosystem into “Leaders” (entrepreneurs) and “Feeders” (everyone else who feeds the ecosystem and supports the entrepreneurs).
I’ve been very active since 2010 in encouraging the development of a startup community in Québec City. After five years, it is starting to show some signs of life, as entrepreneurs themselves are getting involved in creating and leading various activities. I am proud of how our community is evolving.
However, as our startup community gains momentum, and the Leaders are starting to see the benefits of a stronger ecosystem, I am left with a nagging question:
What about the Feeders?
The working hypothesis behind the desire to contribute in building a Startup Community is that as the ecosystem matures and more entrepreneurs start to generate investments and revenues, there will be more money circulating, benefitting the Leader entrepreneurs and the Feeders who support these entrepreneurs.
Larger players such as law firms and accountants have the resources to invest in providing low-cost support to startups, in the hopes that these proto-businesses will grow to become profitable clients.
Investors want to tap into early deal flow, so they are also motivated to invest time, money and effort to build the ecosystem.
Government gets involved with money and resources, to encourage local economic development and job creation.
However there is a whole network of individual service providers, professionals who have a lot to bring to the community, who willingly invest a lot of sweat equity because they believe in their community. The problem is that there is no near-term or long-term business model to sustain our efforts. Entrepreneurs at the pre-funding startup stage don’t have the means to pay for our help at the level we deserve to be paid, so we have to cut our fees or find other sources of revenue to stay in the game.
Setting aside a potential long-term benefit, what is the short-to-medium term win for us independent professionals to get involved as Feeders? I’ve asked this question directly to Brad Feld a couple of times, and his answers have left me unsatisfied. My impression is that he wants us to “build it and the money will come”. The problem is that as the ecosystem matures, the money goes around us.
In my experience, a startup community eventually aligns along a “Founders and Funders” axis. Independent service providers are seen as “parasites” by entrepreneurs, who eventually disinvite us from activities. Government agencies use our tax dollars to compete directly against us. Investors want access to our deal flow, but are not able to pay us for it because of securities regulations. Or even if they could they wouldn’t want to pay us for it anyways. Startup entrepreneurs, hungry for launch capital, gravitate to whomever can give them cash.
The larger Feeders condition the startup entrepreneurs to get a lot for free or at highly discounted rates. As the local startup community gathers steam, competition to gain the best entrepreneurs as clients becomes more and more fierce, squeezing independents out of the game.
As an independent professional, I don’t have the resources to work for free. Nor is it a prudent business decision for me to accept equity, even if the startup had any to offer, because equity does not pay my bills. There is also the conflict of interest when professionals accept equity, between helping the entrepreneur or maximizing the short-term value of the equity stake (two elements which are not always compatible).
So I am left scrambling to be funded by various government programs. With it, I can keep my head above water, but I cannot get ahead.
I suppose I could start a fund and get involved managing other people’s money. But that is not a role which I choose to play, because it is not my strength nor my passion. I’m not interested in joining a VC fund.
On the other hand, I know that I bring a lot of value to our startup community, to the entrepreneurs in it, and especially to the Funders who benefit from the higher quality of deal flow that results from my efforts. I am proud when I see startups I have coached go on to get funding, find traction and take off. My passion is to help entrepreneurs succeed. Which is why I feel strongly about the success of our Startup Community.
Brad Feld’s Startup Communities model is incomplete. There needs to be a better business model to enable passion-driven, independent Feeders, like me, to bring our expertise and our experience to the table.
We want our startups to succeed. But if only well-funded Feeders can afford to dedicate the time, effort and money to supporting an emerging startup community, the risk is that the ecosystem becomes a “Chamber of commerce” for startups.
At this time, I don’t know what a sustainable business model for us independent Feeders looks like, but I know it has to go beyond relying on the diminishing largesse of government. Maybe it starts with the Funders, who are the ecosystem players with the most to gain financially?