Wednesday, November 11, 2009

Startup Ecosystems

Fred Wilson posted about this yesterday here.

The Lancaster/Central Penn area has suffered from the pull of the Silicon Valley and other tech centers, as entrepreneurs move their startups there and top developers get sucked into those ecosystems with the lure of good jobs at Google, Apple, and other large companies.

CoTweet moved "to be near Twitter". I moved ChiliSoft in 1997 to be near Microsoft. We deliberately located Mission Research in our hometown, but it's possible that might have slowed us down--it's definitely tougher to build tech companies here.

To really create a thriving startup scene and ecosystem in Lancaster, we need outside investment of about $100 million, split into two funds. With Fund 1, expect to lose everything, but fund a lot of startups. Maybe some will make it to a modest exit, maybe they would all fail.

But failure isn't a bad thing. Failure creates experience just as much as success does, and in a lot of cases it strengthens teams.

Fund 2 would be dedicated to investing in experienced teams that came through the first funding. Assuming 3 years of Fund 1 backing, and an average of $80k per employee (loaded), you can fund about 200 startup employees with $50 million. Revenue from those companies would fund more.

Fund 2 would likely produce enough return over the next 7 years to return the full $100 million. And in the meantime, you've created a tech industry where a very small one existed before. You've created the ecosystem of lawyers, accountants, coaches, advisors, seasoned tech entrepreneurs, engineers, developers, and marketers.

From there, Fund 3 can come from outside the area, in the form of investment from the VC industry just up the road in Philly or New York.

So the question is, what are we waiting for? Or maybe it's this: anyone have $100 million to spare?

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