Knowledge Capital
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Knowledge Capital

Our tireless pursuit of Economic Development As A Service (EDAAS)

Photo by Christopher Burns on Unsplash

Introduction

Let’s talk about where we started. In 2018, we called ourselves a Startup Ecosystem Development Agency. Since then we have seen more organizations adopt this moniker although none execute the way that we do at KnowCap.

When we say that we are going to launch an ecosystem it carries with it education, building resources, hundreds of thousands of dollars in partnerships, venture funding relationships, operational expertise, and a desire to grow to the point the founders in that community no longer feel “the pull” to the coasts.

With more entrants into the SEDA conversation, we have been thinking of how we want to differentiate ourselves to reflect how different our activities truly are. It popped up in a conversation that really what we strive for is to impact and improve economic development in overlooked communities via entrepreneurship. We aren’t just for startups, but for the whole community: restaurants, makers, print shops, side hustlers, salons…everyone. Our mission dictates that we help people with ideas turn them into fast-growing companies. Nowhere does it single out startups, venture scalable companies, or tech products — yet that’s what we always get pigeonholed into.

There a likely two reasons for this.

1) Everyone is conditioned that there isn’t money to be made by investing in companies that will never become unicorns (this is already a fantastic blue ocean for us)

2) People always assume that anyone supporting entrepreneurs only want to su[port those with venture scalable ambitions

When we designed our economic model, we knew that even after we create this market, the followers wouldn’t be able to compete against our way of thinking. They will go unicorn hunting and lose, while we accept that unicorns may be the super rare exception while planning for the actual rules (exits of $1–10M).

Now that there are more options for liquidity events, everyone continues to chase the large dollars leaving a huge exploitable hole for us to operate in for the foreseeable future. Combine that with our ambition to own the idea layer of the global economy, and we have something magical on our hands.

Receiving pushback during ecosystem discovery calls

As research has shown, shifting our way of speaking — it shifts our way of thinking. That is exactly what we want to do here by shedding the “Startup Ecosystem Development Agency” moniker.

When we speak with economic development offices of municipalities or entrepreneur support organizations (ESOs) in a region, we are automatically approached with skepticism. They wonder how we are going to benefit them, where KnowCap is only concerned with how we’re going to benefit the community itself — and as a by-product benefit the ESOs.

When we are on the defense, we cannot effectively collaborate on a plan to improve the lives of the people within a community. For sure, we are not doing this for altruistic purposes, owning a layer of the economy will be extremely profitable. However, we are not looking to remove resources from our ecosystems, only to invest more into them.

KnowCap has been ghosted more times than I count. It has never made much logical sense so we chalk it up as an emotional decision. Our approach is direct and we seek to focus on our mission and how we can partner with others to accomplish it. This may rub some the wrong way but it is never our intention to do so. By performing fact-finding missions we can map out the current ecosystems, allowing us to ensure founders are being sent to the right people at the right time.

There is an air of pushback that concerns us, but we finally realized that we haven’t deeply covered why we do what we do. This piece will hopefully serve to answer that question and then some.

Economic Development as a Service

First and foremost, when we expand/launch a new ecosystem we look for areas where we can work together with economic development firms or local governments. Our goal is to become an extension of their work, a venture capital fund that is privately funded, but that they can trust to help develop their entrepreneurial talent and not “steal” them away to another state or city.

This is markedly different from anyone else in our space. Even more well-established accelerators will only post up in the flagship cities of a state or region. Most accelerators, venture funds, studios will only set up shop in one city. The more modern ones will have outposts in the hottest tech hubs.

No one is seeking to build relationships with every city within their given region. That’s what we want.

We are in constant search for relationships with cities of 10,000 just as we are for cities with 10 million. In our eyes, talent can come from anywhere and it can also be cultivated from anywhere. In 2016, I posted that the future of commercial real estate and corporate offices would be using a hub and spoke model …now look where we are. To me, what we have built with KnowCap is to adopt the same kind of hub and spoke model. Where each ecosystem is named after the main city of a region, however as we develop density within that region, we launch more ecosystems inside of it. This allows us to scale up as needed without expanding unnecessarily into communities that have the resources we are looking to offer.

If we can support economic development by helping their entrepreneurs succeed, we succeed and so does the community itself. Not approaching it with arrogance, but with an open mind to customer discovery — where the customer is the community itself. That is why we’ve conducted over 100 interviews with ESOs and economic development offices across the United States.

By partnering with economic development agencies, we help entrepreneurs who feel compelled to relocate in order to obtain the resources they require. We’d want to offer those services so that they can stay put and reinvest in their community.

Preventing the brain drain of entrepreneurial talent

When an entrepreneur with ambitions to change the world is learning how to build up their company, you better believe that are feeling pulled towards where the money is located. Unfortunately, that’s a losing battle for most local economies.

Until angel investing becomes more open and a way of life outside of tech hubs, a lot of aspiring founders are going to want to be where the action is. When we partner with communities, we are bringing the action to them.

Our aim is to prevent the spirit of desperation when you feel the roll of the dice that made you who you are, is in fact hampering who you want to be. KnowCap’s mission flies in the face of that. We believe that every idea is a good idea until it’s validated to be a bad one. Creativity is an expression of thought and therefore it becomes art as it is performed. Building a company is like art, anyone can do it and therefore we want to make sure that anyone can.

When a founder leaves their home and succeeds, they take with them so many benefits.

Increasing tax base and communities resources

One of those benefits is the tax base. For huge organizations that have succeeded outside of the typical tech hubs of Massachusetts, California, Texas, and New York…you see their benefit quickly within a community.

You hear about what Dug Song has done in Michigan since selling Duo Security to Cisco. How about what Ryan Smith has done in Utah after taking Qualtrics public?

Jobs are created. Angel investors are minted. Former angel investors gain confidence and choose to reinvest back into the region with a full-fledged fund. Philanthropy explodes.

In our opinion, so many things happen when entrepreneurs stay put. Things flow up and downstream in a manner like:

  1. An employee gets hired at a much higher salary (payroll taxes)
  2. Employee buys a house (property taxes)
  3. Employee buys their lunches from local businesses with the increased salary (business taxes and local resident’s increase in income)
  4. More scholarships are available for local residents seeking new professional opportunities
  5. Employee starts their own company supported and funded by original entrepreneur
  6. Employee then hires a recipient of one of the scholarship recipients that their taxes helped fund
  7. The scholarship recipient becomes the new employee
  8. The cycle continues

These are the kind of economic development opportunities our organizations is designed to catalyze. We know that the entity that helps change the most lives typically becomes the most valuable, and we aim to build a multi-billion dollar business by increasing the quality of life of millions.

Bringing investments to smaller communities

Right now, venture capital funding is concentrated. Almost unbearably so. In an article from 2018, it was estimated that 4 states control 80% of VC — leaving 46 states arguing over just 20% of the rest. Talk about the Pareto Principle, it’s no wonder why the highest volume of exits and unicorns “happen” to be in those 4 states.

If you let the industry tell it, it is because the talent is better. However, when you dig deeper you realize that those concentrated institutional dollars serve as kingmakers. They are in some ways creating and perpetuating a self-fulfilling prophecy which begs the question, is silicon valley so powerful because of the fact VCs only invested in companies near them up until 2020? Or, is it actually because the talent level there is better?

The answer resides in the question. Where is the talent from? Have they lived in the region long enough to be considered “sourced from the community? Of course not. The talent travels for the jobs. The jobs are created by the capital. The capital is following the proximity of the ideas.

This is an oversimplification, however, it does not make it any less factual once you check the statistical trendlines.

Our goal is to help founders create companies that are so good, with enough momentum and better deal terms, that institutional capital would have to actively be trying to lose their investor’s money in order to not invest. We want to become the verification layer that venture funds can look to make sure that a deal is reputable.

By building our brand into a credible source of social capital, we can then extend that social capital to our founders. Removing the need for warm introductions because KnowCap becomes their warm introduction. That is precisely why we roll up our sleeves at the earliest stages of a company’s lifecycle. We want to make sure the foundations are set with the right ingredients to scale successfully if given the capital.

If venture capital is rocket fuel. We want to position ourselves as the organization that helps founders build rockets (whereas some don’t bother and churn out Hondas). Ever seen what rocket fuel does to a Honda? It’s not pretty.

Cost of our economic development as a service offering

Our offering is free at the moment. All they have to do is commit to a pilot and allow us to do the work in proving ourselves out to the community.

Once the pilot is complete, we only ask that we can tell others that we have partnered with you as this is how we continue our momentum. The more partners we have, the deeper our network effects. The deeper our network effects, the more leverage we have to continue giving your local entrepreneurial talent unfair advantages.

We see a world where our constellation of connected communities allows us, collectively, to become our own kingmakers. When cities are moving in harmony together to support their local entrepreneurs in a region, there tends to be a new kind of outcome. When conducting discovery sessions it saddens me to hear that communities in the same region compete against each other. Especially knowing that once one wins, the money travels, and if everyone bands together…hopefully it never travels outside of the region. Reinvesting back into the undiscovered founders and overlooked communities that it came from.

If you are reading this, reach out to us, partner with us. Help us help your talent succeed and then kick off an innovation flywheel.

We will even put our money where our mouths are, if you are an ESO and mention this piece when you reach out, we’ll give your first five founders a 70% discount on our program fees.

This is why we do what we do.

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KnowCap is a startup ecosystem builder for cities & communtiies. This publication is dedicated to announcing new initiatives and sharing our vision.

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Stephen

Stephen

Just a guy who enjoys thinking about what could be. I build things for startups and communties.

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