Cities deprived of venture capital look for ways to share the wealth

Entrepreneusrs in the Valley are working to draw attention – and venture capital – to startups in Arizona, which are often overlooked by investors who funnel money to more traditional tech centers. (Photo by Don Hankins/Creative Commons)

WASHINGTON – Jonathan Cottrell understands that when it comes to available venture capital, the Valley is no Silicon Valley.

But he and other entrepreneurs don’t know why that can’t change, and they have started various networking and mentoring efforts in hopes of turning things around.

At stake is billions in potential capital funding that is now concentrated in a handful of cities on the coasts.

Of the $58.6 billion of venture capital available in the U.S. in 2016, just $220 million – or 0.3 percent – went to startup companies in Arizona, according to the MoneyTree Report by PwC/CB Insights.

More than three-quarters of the funds wound up in California, New York and Massachusetts, according to the report, which said that more than half of the available startup capital that year, $31.4 billion, went to California.

For startups in states like Arizona, it can be hard to get noticed, said Brandon Clarke, a Phoenix native and founder of the StartupAZ Foundation.

Clarke attributes that to inertia: Venture capitalists usually feel more comfortable investing in established hubs with a track record of success, such as Silicon Valley.

The foundation he started in 2015 looks to change that by connecting beginning entrepreneurs with more-seasoned executives of successful startups.

Cottrell started #yesphx as a hashtag campaign in 2014 for the Arizona startup community. It eventually developed into a community aimed at creating what he calls a better startup “ecosystem” in metro Phoenix by bringing together innovators and startup owners.

The question for Cottrell is whether entrepreneurs in greater Phoenix “can … drive digital density to help then create the energy and momentum” that will bring in capital.

“What happened is we finally started connecting and collaborating more as a community, as all of these disparate islands,” he said.

The organization hosts regular meet-up events to help connect like-minded founders. Included in its network so far are successful local businesses such as Tuft & Needle, which is focused on producing cheaper-than-market mattresses, and WebPT, a medical software company started in 2008 which now has more than 300 employees. Phoenix-based Carvana, an e-commerce platform for used-cars that recently filed for an initial public offering, is probably the biggest name in #yesphx.

They are not the only groups trying to spread the venture capital around the country. AOL founder Steve Case started Rise of the Rest to help bring venture capital funding to regional cities.

Case was in Phoenix last year with Rise of the Rest, which hosted a shark-tank-style competition. Scottsdale-based NeoLight, a medical device startup won the prize of $100,000.

So far, the organization has traveled to 26 cities and invested $2.6 million.

“You want to get everybody who has ideas, get them on the playing field and give them that shot,” Case said during an event.

-Cronkite News video by Ziyi Zeng