Flyover State Venture Capital: A Rant and Action Plan

John James
Feb 19, 2015 · 7 min read

Let me start at the end of the story so I can establish a little street cred with those of you who have never heard of me (substantially everyone)…

My Arkansas- based ecommerce company quietly raised $104 million dollars of venture capital, and sold a majority stake in our business at a 9-figure valuation.

Raising this much venture capital is rare anywhere — in Arkansas, and most other flyover states, it’s unheard of.

Despite my company’s success, it’s still darn near impossible to raise even a small amount of seed capital in my state.

I want to fix that.

I don’t talk about it publicly very often, but I hope sharing a few details of our story will benefit other entrepreneurs located in underserved regions like ours.

I’ll start by rewinding the clock half a decade.

While it’s super hard today, raising even a small amount of seed funding in Arkansas was literally impossible five years ago.

Knowing what I know today, it doesn’t make any sense that we couldn’t raise capital. I was a successful serial entrepreneur building my fourth company, my co-founder had an impressive exit under his belt, and we were operating a profitable $3 million ecommerce business. Despite a great resume, we couldn’t get a meeting with ANYONE. There simply weren’t any early stage investors in our area to meet.

After wasting a year searching for an investor, we finally raised angel funding from an out of state investor.

(Side note — to all the folks who wouldn’t return our calls in 2009, the valuation of our company rose ~50X in the next three years. Take that, haters!)

Given our personal struggle raising seed stage funding, we decided to pursue a two-fold mission: a) build a billion dollar ecommerce business and b) help build an entrepreneur-friendly culture in Northwest Arkansas.

At the time, we rightfully heard a lot of chuckles when we shared our oversized vision. In hindsight, both missions certainly sounded like delusions of grandeur. Today, nobody is laughing at us — while a lot of work remains, we’re making progress on both goals.

As a result the work of a few forward thinking groups coupled with my company’s success, there’s a nascent startup network beginning to form in our area.

I’ve personally angel funded and advised over a dozen companies (including being the first capital in Arkansas only Y Combinator Alum DataRank.) My investments are drop in the bucket.

A couple angel groups are getting traction — but so far they are just another small drop in the bucket.

Last week, I attended a contest that featured 34 startup pitches, and had nearly 300 attendees. As with any similar event, most of the companies sucked — but several of them were quite worthy of a seed round.

Unfortunately, to my knowledge, zero dollars changed hands between startups and investors. There’s a lot of activity, but nowhere near enough active seed capital to support it.

Despite it’s small size, Northwest Arkansas is home to three Fortune 500 companies and more billionaires per capita than any other MSA. There’s PLENTY of investment capital in Northwest Arkansas, but it’s not directed towards seeding new ventures.

As a region, it seems that we have lost our focus on entrepreneurship. Rather than train up the next generation of entrepreneurs, our colleges and universities have (rightfully) been busy training corporate-types en masse to support these incredible Fortune 500 companies.

After a string of IPO’ing a Fortune 500 company each decade (Tyson in the 60s, Walmart in the 70s, J.B. Hunt in the 80s), we haven’t had a F500 company come from our region in 31 years.

I’ve witnessed similar characteristics in several other cities across the south and midwest:

  • an active and growing startup scene
  • minuscule seed investment in those startups
  • plenty of money on the sidelines
  • corporate educational focus in local University business school
  • nostalgic references to the “glory days” when entrepreneurship was king

Similar to other regions I’ve visited, we have rested on our past successes for far too long. In Northwest Arkansas, it’s high time we educate, mentor, and fund the next Sam Walton, Don Tyson, and J.B. Hunt.

In Memphis, they should be looking for the next Fred Smith and Pitt Hyde.

In Little Rock, they need to find the next Jack Stephens and William T. Dillard.

Etc, etc, etc…

Recently, there’s been a renewed interest from our state’s leaders to rejuvenate our state’s entrepreneurial roots.

Our state government is doing a great job creating a fertile environment. They have set up equity investment tax credits, venture matching incentives, etc. — yet progress has been slower than desired.

While Arkansas has dedicated substantial energy towards attracting venture funding to the state, there has been little progress in creating fast growing, job creating gazelles like my company.

In our desire to manufacture the next Fortune 500 IPO, the state is right to try to attract venture capital. Since 1999, over 60% of all IPOs have been venture backed.

I think we are going about it the wrong way — contrary to popular belief, a lack late stage venture capital isn’t the problem. Lack of venture capital is a symptom of the disease, not the cause of the disease.

Our state’s problem is without a doubt at the top of the funnel — efforts to bring large amounts of venture capital to the state will continue to fail unless we build a more robust pipeline of impressive early stage companies.

Build it and they will come.

Trust me — my team in the middle of nowhere, and the best from both coasts begging to fund it.

While other parts of the country may claim to have a glut of seed funding, I can assure you that’s not the case in Arkansas. Even with a nascent angel network emerging, best I can tell, the entire state funds well under ten new seed stage ventures a quarter. That’s not enough.

The entire state funds well under ten new seed stage ventures a quarter.

As a by-product of inconsequential seed activity, true series A fundings are almost unheard of in Arkansas — if we’re lucky, one or two companies each year will raise over $5 million in series A funding.

As a result of very little “top of the funnel” seed funding, very few companies progress through the typical venture funding cycle:

Seed — > Series A — > Series B — > Series C — > Acquisition / IPO

Nationally, only 27% of companies that raise a seed round will successfully raise a series A. And only 35% of series A rounds will result in a series B.

That means only 10% of seed funded companies will progress to a series B. That is where REAL and SUSTAINABLE job growth truly begins.

With so few seed fundings, it’s no surprise that Arkansas, to my knowledge, has only produced one company (mine) that has progressed as far as series C in the past decade.

The solution is simple in concept, and difficult in practice:

We need to create, fund, and mentor more and better early stage ventures with the potential to quickly reach $100 million in revenue.

In the right hands, the cost to start a new business has never been lower, the speed to market has never been faster, and the ability to disrupt any industry from anywhere in the country (including Arkansas) has never been higher.

Unfortunately, most of the best and the brightest graduates are choosing the path of least resistance — they are going to work for Fortune 500 companies rather than pursuing entrepreneurship.

Adding to the disadvantage, our state (and likely yours) lacks individuals with experience in launching, scaling, and funding disruptive ventures like these. We are at a tremendous disadvantage — I am one of the few Arkansans that has “been there done that.”

I feel an overwhelming desire to do my part and give any knowledge I’ve gained back to the local startup community, one entrepreneur at a time. In addition, I hope to share the entrepreneurship Kool-Aid with any top-notch student or wanna-be entrepreneur willing to listen.

To put some additional structure behind my commitment, I am raising capital to build a and help create formal entrepreneurship education programs in Northwest Arkansas.

Venture studios are not a new concept —they have been done successfully many times. (Though more often than not, incubators suck. Suck hard.)

Drawing from two decades of experience building successful Internet businesses, I have some hard earned knowledge I’m excited to share. My hope / goal / dream is to build an engine that will help local entrepreneurs turn raw ideas into businesses capable of scaling to $100 million in revenue.

As Nova Spivack, one of the pioneers of the studio approach suggests, we will use shared resources (capital, technologies, growth strategies, connections, etc) to spin up solutions that will eventually operate as fully-operational businesses. We will do this by partnering with talented, incredible people with an overwhelming desire to become entrepreneurs.

While it’s a small contribution, I hope this vehicle will allow me to add meaningful value to a few budding entrepreneurs, and make seed capital more readily available to deserving ventures.

With a world-class university and the world’s largest retailer in our backyard, the area is a powder-keg ready to be ignited for entrepreneurship. I hope my small push, coupled with the efforts of many others, will help catalyze a revolution in Northwest Arkansas.

It seems that every city in the nation is trying to become a hub for entrepreneurship. Despite this widespread effort, Austin and Boulder are two of the only overwhelming success stories that spring to mind.

Building a hub for innovation is not a short term project. It requires thinking (and investing) decades into the future. Brad Feld (one of the key players in Boulder’s success) says, “building a startup community requires a 20 year time horizon.”

As daunting as that sounds, I’m encouraged by the words of Bill Gates. He said, “Most people overestimate what they can do in one year and underestimate what they can do in ten years.”

Reach out and lend me a hand — any help you can provide (even if it’s just words of encouragement) would be much appreciated.

- John James, M.D. (

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