Leaders in this rust belt city used Opportunity Zone legislation to create a $10M fund for high-potential startups.
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By Dustin McKissen Founder and CEO, McKissen + Company @DMcKissen
Imagine, if you will, living in a city that does not require engineers making six figures to live in RVs and donate plasma once a month just to stay fork deep in Top Ramen. Imagine, if you will, launching your entrepreneurial dreams in (fill in the blank city), right here in Middle America.
That has essentially been the sales pitch of nearly every American city outside of the coasts over the last few years: Start your startup here, where life is simpler, cheaper, and safer.
Come to our small pond.
We've been waiting for a fish just your size.
There's one big problem with many of these sales pitches from rural, small, and mid-size cities: Money. There simply isn't enough capital available for entrepreneurs to take a chance on Topeka/Fort Wayne/Twin Falls/name your town.
But one city in the Great Lakes region recognized the shortcoming of the typical non-coastal pitch to startups. The Erie Innovation District--located in Erie, Pennsylvania--just announced the formation of a $10M fund designed to attract cybersecurity, information technology, and Internet of Things (IoT) startups to a small city known primarily for heavy industry. The fund, created in partnership with CapZone Impact Investments, will make use of the Opportunity Zone legislation that incentivizes investment in economically challenged communities.
"This fund will truly be a game changer," said Karl Sanchack, CEO of the Erie Innovation District. "It is not enough for Erie, or any community, to rely on features like a low cost of living to attract entrepreneurs. This new fund will help provide real resources that give founders the early-stage money they need to capitalize their ideas, products, and platforms. It truly is an example of economic development at its best. Over the last few years, we have created an innovation-focused culture that has now attracted the attention of outside investors. We expect that to continue."
Sanchack and his team believe the fund is just the beginning of attracting substantial outside investment in Erie's innovation community. And, while $10M may seem small compared to the capital available in any Bay Area coffee shop, Erie is not trying to become the "next Silicon Valley."
Instead, the city is trying to become an attractive launching pad for startups in specific industries. Having a dedicated fund available exclusively to startups willing to base their business in the city is a benefit few comparable communities can offer.
"This is an important step in the remaking of Erie," said Brian Slawin, Regional Director & Portfolio Manager of Ben Franklin Technology Partners, a Pennsylvania-supported provider of seed-stage capital to startups in Pennsylvania. "Offering access to real, early-stage money through the use of Opportunity Zones is something few cities can offer. This fund and additional outside investment will create a future where Erie can compete for startups and talent against much larger communities."
In other words, the difference between a Middle American startup scene and Silicon Valley is not a $10M fund.
But innovators in Erie, Pennsylvania believe $10M is just a start, and that other outside investors will see the same grit and dedication to reinvention that CapZone Investments saw.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.