Growing Your Own Still Key To Vibrant Economy

from Business First of Louisville – EDITORIAL

Louisville, KY (August 28, 2009) – Even before this recession reared its ugly head, it was small businesses and startup companies that were creating most new jobs, not the corporate giants. As the recovery begins to take hold, communities that foster entrepreneurism are best positioned to take advantage of the opportunities a growing economy offers.

Unfortunately, although Louisville is making some strides, it lags behind other regional cities, such as Cincinnati, Indianapolis and Nashville, when it comes to the availability of private-equity funding and ideas for viable business startups. Simply put, Louisville doesn’t have enough entrepreneurs with good ideas or enough private-equity funds to create a large volume of new businesses.

A story in last week’s Business First noted that Louisville has one large venture-capital firm, Chrysalis Ventures, a small group of angel funds and networks and several early-stage funds.

The good news is that the number of private-equity firms in Louisville is growing. CapitalSouth Partners, a Charlotte, N.C., based mezzanine lender, opened a permanent Louisville office last month. And two networks, Enterprise Angels Group, operated by Greater Louisville Inc., and the Louisville Angel Investor Network, began last year.

Although most of the companies funded by the 16-year-old Chrysalis Ventures are outside Kentucky, Chrysalis’ investment in the state demonstrates the value of such a venture fund. Since its inception, Chrysalis has invested about $60 million in 19 Kentucky-based companies.

These companies went on to receive an additional $200 million in public-equity financing and another $320 million in private-equity financing. The most important statistic is that the 19 companies have created about 3,200 jobs.

Private investment firms are not charities. They exist to make money for the investors who put money into their funds. There would be more private-equity firms in the area and more firms outside the region willing to invest if there were more viable businesses to fund here.

High-tech startups are attractive to private-equity firms. Google Inc. started with a $100,000 investment from an angel fund and now has about 20,000 employees. There have been some very successful high-tech startups in Louisville, including Genscape Inc., Hosting.com and High Speed Access Corp., but they are the exception not the norm.

Veteran entrepreneur Kent Oyler hit the nail on the head when he told reporter Terry Boyd that Louisville lacks “intellectual density.” He said some urban areas, such as San Francisco, have a critical mass of smart entrepreneurs who are cycling in and out of early-stage businesses. Oyler did note that an advantage Louisville has is that it is cheaper to build a company here than it is in many of the high-tech hot spots.

The ultimate solution to increasing the number of private-equity firms and startup companies here is to increase the number of area young people getting college and graduate degrees, particularly in science, technology and mathematics. Educated people create businesses or make great employees for existing businesses.

Until we do a better job of growing our own entrepreneurs, we’re not going to be growing a lot of new businesses.