We need more money.
Hey, don’t we all?
In this case, this isn’t a personal problem, but a regional one. Let’s explain.
We now have two new studies on the state of the economy in the region that covers the New River Valley, the Roanoke Valley and Lynchburg — a grouping defined by the state economic development council known as GO Virginia.
The first of those, which came out in December, looked at a particular part of that economy — our ability to start and grow new businesses. We often talk about how our region needs to create a new economy as we transition from the industrial age to the information age. There are two ways to do that: We can either attract companies from the outside, or we can grow our own. In practice, we want to do both, but we have more control over the latter than the former. If you look at the places most identified with the new economy — say, Silicon Valley and Seattle — they all grew their own companies.
So how are we doing? Not as well as we could.
The December study — by the Ohio consultant TEConomy Partners — found that our region lagged behind peer communities in the number of new businesses being created. It also found that the region was losing college-educated workers, the people most necessary to a technology economy. From 2012 to 2017, the region saw a net loss of 23,974 people with college degrees. By contrast, the peer communities we were benchmarked against — Austin, Texas; Birmingham, Alabama; Charlotte, North Carolina; Chattanooga, Tennessee; Dayton, Ohio, and Gainesville, Florida —all gained workers with degrees.
This is a problem, one that once again underscores the public policy initiatives by various local governments to emphasize quality-of-life amenities. We need more people to stay here. There’s also a chicken-and-egg aspect to this, of course. Those 23,974 people may have loved the region, but they likely found better job prospects elsewhere. More bike trails might not be enough to keep them. We also need something else and the second study, out last week from the Valleys Innovation Council, looks more deeply at just what that is: Investment capital.
Here’s how all these things tie together: There may be lots of reasons why we’re not growing enough new companies: We have too many educated workers leaving the region; we underperform against our peers in the number of patents being issued here; and a lot of research conducted at local universities doesn’t translate into commercial applications. Those are all hints and clues that pop up in these studies. The other is the lack of investment capital to fund those companies that do get started.
This is hardly a problem unique to this part of Virginia; it’s part of a nationwide phenomenon that neither political party is talking about — but which is shaping our economy in some ways that are stressing our social fabric. In 2012, almost 58 percent of the nation’s venture capital went to just five “superstar” metro areas — San Francisco, New York, Boston, San Jose and Los Angeles, in that order. By 2017, that figure was close to 81 percent. The rich really are getting richer. Virginia hopes that the arrival of Amazon will elevate technology-rich Northern Virginia into Silicon Valley East. Keep in mind, though, that the entire Washington, D.C., metro area only draws about 2 percent of the nation’s venture capital. Roanoke, Blacksburg and Lynchburg? Not even on the national scale.
The better comparison, though, is how we stack up against our peers, which is what the latest study does. The answer is: Not very well. For this study, our peers were identified as Birmingham, Charlottesville, Chattanooga and Greenville, South Carolina.
Of those, Birmingham and Chattanooga did the best job of birthing and growing new companies. (For purposes of this study, the researchers looked at what we’ll loosely describe here as technology companies that meet certain criteria; your neighborhood doughnut shop doesn’t qualify, no matter how tasty the cream filling.) Between 2015 and 2018, they grew 38 and 31 apiece. Our region registered 15 — less than half their total. Actually, that’s a pretty good figure because our Regional Acceleration and Mentoring Program only opened in 2017. In the two years since then, it’s had 13 fledgling businesses go through its program, so we’re making up ground quickly. If things continue at the same pace, we’d be batting at the same average as Chattanooga although still behind Birmingham.
The more difficult part is the investment capital. The financial world defines three different types of investments. Whichever definition we use, though, our region comes up at or near the bottom compared to our peers.
Angel investors: The industry-recognized PitchBook, a financial data service, measures $5 million between 2015 and 2018. That’s less than half the next-lowest community — Chattanooga with $11 million — and well below No. 1 Charlottesville with $55 million.
Seed capital: We had $200,000, just below Greenville at $400,000, and well behind No. 1 Chattanooga with $12 million.
Venture capital: We measured $32 million, just ahead of Greenville at $30 million, but well behind No. 1 Chattanooga at $167 million or even No. 2 Charlottesville at $138 million.
If you’re a start-up company in the region, these aren’t numbers you want to see. On the contrary, if you’re an entrepreneur who needs investment to get your Big Idea to market, these are the kind of numbers that might lead you to, as LeBron James once said, take your talents elsewhere. One of the region’s economic challenges is to come up with more investment capital. There are creative solutions afoot. We now have our own local pitch competition, the Roanoke Star Tank. The Virginia Tech Foundation and Carilion Clinic have teamed up to create several funds —totaling $22 million — to invest in companies spinning out of research there. Georgia Tech helps attract investment for some of its alumni’s projects by hosting a “Georgia Tech Day” in Silicon Valley each year that draws hundreds of investors to hear their pitches. There’s now talk here of Virginia Tech trying to do the same.
The good news is we have a lot of the assets necessary to make it in the new economy — but we also have a lot of work to do, and some of it will be very unglamorous things like generating more investment capital. That’s hard to put on a bumper sticker, but that doesn’t make it any less true.