How Do We Stimulate Job Growth?  Startups

By William Clifford, CEO, Spencer Trask & Co.

Where does the responsibility lie in finding, financing and growing startups? Historically, that role was the domain of Venture Capital firms scouring the countryside, analyzing business plans, and committing the seed-level investment capital needed to launch a new venture.

But despite the savvy of the best and brightest, the track record of VC-backed startups is humbling at best; each year only a small percentage gain traction and scale to the point of long term sustainability.

A new bond is being fostered today in which both the private and public sector, working together, can change this dynamic by promoting and supporting innovative early stage companies. Real world examples of this public/private initiative are beginning to emerge with the city of Boston’s Innovation District being one of the most ambitious I’ve seen.

Cultivate a Culture of Innovation
During the recent Boston Regional Entrepreneur Week (BREW), Spencer Trask & Co. sponsored a symposium entitled ‘Building a Framework for Economic Stability and Job Creation’ – a panel discussion on the economic impact of early stage innovation. Moderated by Don Tapscott, author of such business blockbusters asMacrowikinomics: Rebooting Business and the World, panelists were unanimous in their belief that the ubiquity of the Internet, along with the emergence of web-based platforms that enable mass collaboration and crowdsourcing, hold the key to the successful creation and development of new startups.

Boston has the access to the intellectual talent from its superb universities that often spawn (or have already spawned!) the next Google, Facebook, etc., only to watch the fruits of that creative energy be realized and monetized 3000 miles away in Silicon Valley. A number of Spencer Trask financed companies have Boston roots, including InVivo Therapeutics, InnoCentive, UFood Grill, Idera Pharmaceuticals and Health Dialog – all of which were launched and remain in Boston, giving back much needed jobs and reinforcing Boston’s reputation as a locus of innovation.

Boston’s new Innovation District is located in the heart of a thriving metropolis in an up-and-coming area that exudes creativity and enterprise. Companies that set-up shop here have access to the city’s well-educated and highly-motivated employee base. These startups can test the waters of entrepreneurship in close proximity to ample venture capital funding and support from local government.

Be creative with what you have
Earlier this year, City of Boston’s Mayor Thomas Menino announced the Welcome Home Challenge – the winning business receives $25,000 to move to or expand in the Innovation District. Recently The Mass Challenge, a global startup competition and accelerator in the Innovation District, graduated over 100 startups, awarding $1 million to the most promising. These motivating challenges, coupled with local incentives inherent to the City of Boston, help to engage startups and encourage them to stay local.

Re-Imagine Investment
One key to Greater Boston’s startup ecosystem success is its investment community. The City has been working to bring investors closer to startups. It’s time for investors to experiment with new ways for funding new ventures. One example is the Welcome Home Challenge’s adoption of the Vencorps’ (a Spencer Trask company) software platform — a community of investors, entrepreneurs, service providers and startup enthusiasts from around the world that peer review startups, connect them with funding and help them solve problems big and small.

Don Tapscott hits on the potential of such innovation in MacroWikinomics, “VenCorps also shows how wikinomics-inspired innovation in financial services can not only fix the current broken system but also drive new growth by helping to discover and nurture promising ideas.” This revolutionary concept of Venture Capital 2.0 is set “to prove that a form of community-powered venture capital can both filter the global wealth of opportunities and channel more intellectual horsepower into making each investment successful.”

What’s Next?
We have a good start, but the future is uncertain. The tax reductions extended by the Small Business Jobs Act of 2010 come to a close on December 31, 2010 and revert back to the rates in effect before 2003 – hardly an incentive to redirect investable capital into riskier seed funding of new ventures. Given the current tax environment, there are a number of other steps that can be taken to make it easier to turn great ideas in to viable companies (like a much needed zero capital gains tax).

And it is these startup companies that will employ people in sustainable jobs and contribute to economic growth across the U.S. It is important to remember, as I stated previously, virtually all U.S. net job creation since 1980 have come from companies less than 5 years old. Again, if we want to create jobs, we must support the creation these early stage companies.

Other cities should take note of Boston’s progress and support to its entrepreneurial community. Doing so will ensure that startups continue to thrive and serve as catalysts for job growth in 2011 and beyond.