Arkansas entrepreneurs, investors react to government startup statistics

Startup watchers in Arkansas agree that the state has come a long way in fostering entrepreneurship. But they also say national government statistics related to growth in resources for and diversity among early-stage businesses doesn’t paint a clear picture of the Arkansas reality.

The statistics, released late last year by the White House under former President Barack Obama, said: “Access to capital for high-growth entrepreneurs has improved significantly since 2009, with venture capital investment up an estimated 200%, far exceeding its pre-recession peak, and angel investment up 40%, approaching its pre-recession peak.”

Arkansas investors say while most of that money was on the coasts and other larger areas, the state saw improvement over that time period, especially with smaller funds.

“I think from an angel investment perspective we did feel that in central Arkansas,” said Jeff Standridge, founder of Cadron Creek Capital and team leader of the Conductor, an entrepreneur-support program sponsored by the University of Central Arkansas in Conway.

Cadron Creek was started June 2015 and is one of the largest member-managed funds in the state, Standridge said, adding that the group is now raising money for its second fund. He also believes there is more room or growth in angel funding, but potential investors within the state need to be educated. In fact, 75% of investors in Cadron Creek’s first fund had never bought into a venture fund or company or a venture before.

“Many communicated to me that they had just never considered it before because they didn’t know about or understand it,” Standridge said. “Elevating the venture investing acumen of central Arkansas,” was part of Standridge’s mission in founding the Cadron Creek and is now a cornerstone in founding the Conductor Angel Network, a group which will begin meeting with fund-seeking entrepreneurs in February.

Rick Webb, founder of Grit Studios in Rogers and an investor through Tonic Fund and NewRoad Capital Partners’ funds, said while the statistic of a 200% rise in venture capital investment since 2009 rang true for him on a national level, much of the money was isolated geographically to areas like San Francisco, Boston and Austin, Texas.

Arkansas, historically, has not had large amounts of capital that are readily accessible, Webb said, but he and other investors agree that injection of funding alone is not the solution, but rather a piece of the puzzle. Capital investment should grow alongside a deepening pool of skilled technical talent and seasoned founder talent.

Part of the solution to attracting investors is to show those who do invest fast, positive results, Webb said. That’s supported by Grit’s mission to provide mentoring and other resources to area entrepreneurs, setting them en route to an exit or to an “evergreen platform” where they can find success, Webb said.

Jeremy Wilson, managing principal of NewRoad in Rogers, said “High-growth companies that are led by highly skilled and qualified management teams have access to capital from the state of Arkansas and beyond, and for those teams this is largely true during periods of economic downturn as well.”

Wilson said that while most funds do not seek out Arkansas, “They are out there. You just have to know where to look.”

At NewRoad, Wilson said the team looks for investment opportunities all over the United States, including Arkansas, and “invest opportunistically in the best companies we find.”

“We give great deference to Arkansas companies and try harder to invest in Arkansas than any other fund we are aware of. We invested nearly 100% of our NewRoad Ventures fund I capital in Arkansas, while over 70% of the capital invested came from outside Arkansas, Wilson said, referring to a $21 million fund raised in 2013.

“In the end, it’s all about the caliber of the management teams,” he added. “Our focus as a state should continue to be on creating clusters of the best entrepreneurs in Arkansas and ensuring we foster that talent.”

Ramsay Ball, executive broker at Colliers International in Rogers, has invested in several area funds, including Alpha Fund, Tonic Fund, Fund for Arkansas’ Future, VIC Growth Fund and VIC Investor Network. Looking at the national data, Ball described what he sees as a gap in funding.

“There has been quite a few more sources for capital but, in Arkansas, primarily angel and seed capital. Early- and later-stage venture capital is still lagging,” Ball said.

Ball said he believes the state has done a good job making investment happen in Northwest Arkansas, but it could benefit from more equity investment tax credits from the Arkansas Economic Development Commission, raising them from 33% to 50%. Standridge agreed on that point, adding that tax credits were a key topic of conversation with investors.

On a national level, Ball said retaining the carried interest income tax provisions will continue the upward trend in venture capital nationwide. However, President Donald Trump on the campaign trail said he would like to see that provision go, so its future is uncertain, Ball said.

DIVERSIFIED ECONOMY
More Latinos, African Americans and immigrants owned businesses in 2015 than 19 years earlier in 1996, according to the White House statistics. Also the number of women-owned businesses grew by 74% between 1997 and 2015, according to the 2015 State of Women-Owned Businesses Report commissioned by American Express Open.

Women now own 9.4 million companies in the U.S., or 30% of American businesses. Of those female-owned companies, African American women control 14%, or an estimated 1.3 million businesses. That’s more than the sum of all minority-female-owned companies in 1997, according to the report. In fact, the number of businesses owned by African American women grew 322% since 1997, making black females the fastest growing group of entrepreneurs in the U.S.

Brett Amerine, chief operating officer at Startup Junkie Consulting in Fayetteville and investor in the Tonic Fund, said the demographic information appears consistent with what he and the rest of his team have seen, while working closely with the U.S. Small Business Administration to address the lack of minorities in entrepreneurship during the last few years.

“This sort of progress is outstanding for the US economy. It means new businesses, which means new jobs, new products, services and solutions that our communities and country needs and wants, new tax revenue which will help our cities, states, country and overall infrastructure, and diversification of our economy. Cities, regions and states will be less reliant on a few industries.”

Amerine pointed to Lauren James, which he says is “a great case study.” Co-owned by Lance and Lauren Stokes, the company has most of its sales outside of this region.

“If something happens to the big-three companies here,” Amerine said, referring to the Fortune 500 companies in Northwest Arkansas, J.B. Hunt Transport Services, Tyson Foods and Wal-Mart Stores, “Lauren James will still be in business and still employing folks. Now, multiply that by all of the new women- and minority-owned businesses that we are seeing created, and that equates to greater economic diversification and a more stable economy.”

Amerine said he believes the key moving forward is to continue supporting entrepreneurship and that success stories underserved segments of the population will speak for themselves, so that “people can see that anything is possible in this country, no matter who you are,” he said.

The White House press release also pointed to the United States’ position atop the Global Entrepreneurship Index, which rates 137 countries based on favorable conditions for entrepreneurs to start and scale new companies.

Ball said the ranking holds true.

“Yes, the USA is still the best place to start a company. There has always been an appreciation for young companies. With innovative curriculum such as the Walton School entrepreneurship programs, starting a company rather than joining a company is being taught to a new generation of young people,” he said, referring to programs led by Carol Reeves, associate vice provost of entrepreneurship at the University of Arkansas Sam M. Walton College of Business. “It’s very exciting to see.”