‘New’ Startup Technology Hubs Rely on Deep Roots, According to Kauffman Foundation Paper

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Startups spawn from strong, established technology sectors.

A white paper released today by the Ewing Marion Kauffman Foundation finds that Kansas City and other areas viewed as “new” startup hubs actually have been fostering a culture of entrepreneurship for some time. Many of these cities have a history of strong technology sectors or experienced strong growth among technology startups over the past two decades.

The paper, "Path-Dependent Startup Hubs – Comparing Metropolitan Performance: High-Tech and ICT Startup Density,” says that a strong regional or local culture of technology entrepreneurship is not a recent phenomenon, contrary to the opinions of many. The top 10 cities in 2010 also ranked among the top 20 cities two decades earlier.

However, some cities, like Kansas City, which ranked No. 3 in high-tech startup growth among large metropolitan areas between 1990 and 2010, are surprising.

“What Kansas City’s growing tech density demonstrates is that the metropolitan area had a strongly growing technology sector prior to recent milestones, such as the advent of the high-speed Internet service potential of Google Fiber,” said Dane Stangler, director of Research and Policy at the Kauffman Foundation and the paper’s author.

The analysis shows that many cities’ recent adoption of new entrepreneurship programs is more an indication of the underlying strength of the region and its base of talent on which those programs can build than it is a cause of startup activity.

Cities such as Kansas City, Seattle, Portland and Boise “all owe their emerging entrepreneurial ecosystems to many years of spinoffs and entrepreneurial spawning,” the white paper says.

Research universities and other postsecondary institutions are important for metropolitan entrepreneurship, but are not the sole cause in spurring such activity. Instead, the most fertile source of entrepreneurial spawning is “the population of existing companies, which has implications for economic policymaking and economic development strategies,” the white paper notes.

The white paper confirms – at least impressionistically – the importance of spinoff activity for fostering vibrant entrepreneurial cultures. It cites research showing that the “peak age” for entrepreneurs ranges from about 35 to 45.

“Entrepreneurs come from somewhere – this seems obvious,” the white paper says. But that observation “runs against the prevailing stereotype that entrepreneurs are, or should be, recent college grads or college dropouts. That ‘somewhere’ usually is a previous job in a big company or at an institution, such as a university, which helps explain the age distribution of entrepreneurs.”

However, the paper warns, regions should be careful in turning these observations into policy. While spinoffs are important for tech startup growth, such a strategy could be wrongly interpreted as supporting traditional economic development strategies of tax incentives for big companies.

“More work must be done to understand the local and regional dynamics of entrepreneurship, barriers that may exist to catalyzing a self-fulfilling dynamic of entrepreneurial spinoffs and what the proper role of supporting institutions should be,” Stangler said.

About the Kauffman Foundation
The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that aims to foster economic independence by advancing educational achievement and entrepreneurial success. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo., and has approximately $2 billion in assets. For more information, visit http://www.kauffman.org, and follow the Foundation on http://www.twitter.com/kauffmanfdn and http://www.facebook.com/kauffmanfdn.

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