Startup Week 2017: Startup Investing and Alaska's Entrepreneurial Ecosystem

  • Alaska Business Plan judge and Angel Investor Eric McCallum asks for clarification from a competitor. (Photo/Courtesy/SBDC)

These days, it is rare to find a successful entrepreneur whose company began and developed in a vacuum.

Entrepreneurship grows within an interdependent community of investors, entrepreneurs, educators and advisors, who share innovative new business ideas, test new business models and create new companies together.

Collaboration among these people insures that knowledge, experience and information is shared and that new enterprises are mutually supported. With collaboration, everyone learns and helps each other, and as a result, the entrepreneurial community matures together.

We now call this interdependent community an entrepreneurial “ecosystem,” which is a well-chosen word, reflecting the absolute necessity of collaboration.

An entrepreneurial ecosystem is not merely a collection of individuals; it is a collection of individuals who work together.

 

A healthy entrepreneurial ecosystem is the source of an economy’s dynamism. Like natural growth, the ecosystem regularly produces creativity, daring and a unique blend of skills that are applied to high-risk, high-reward new businesses. The ecosystem refreshes an economy with the companies and business sectors of tomorrow, insuring sustainability.

Because the rate of market change is remarkably fast in today’s interconnected world, increasingly, a healthy local economy must be dynamic, and this is why a healthy local economy today depends upon a healthy entrepreneurial ecosystem. Traditional economic statistics do not capture the existence of new enterprises that entrepreneurs create, and almost always economic analysis underrates their importance.

But such new enterprises are the seeds of future companies that diversify economies and ensure that those economies adjust with the times. Without them, economies risk becoming sclerotic and vulnerable to changing market demand.

Long ago, the destiny of the Alaska economy as well as the public treasury in Alaska was linked to natural resource development and has depended on levitating prices of the commodity products generated by that development.

That worked well for us for a long time, but as we all know, the drop in oil prices in recent years has demonstrated our economy’s vulnerabilities. Alaska has lacked a mature entrepreneurial ecosystem that might have offset our dependency on natural resource development by now. At present we are paying for that missing piece in our economy. We should not make the same mistake again.

If we want a diversified economy, Alaska needs to invest in entrepreneurship.

What the private sector in Alaska can do is to commit a portion of their resources and time in investing together in new businesses. In the past Alaska entrepreneurs with ambitious business plans have needed a place where they could go to secure the risk capital that they need to build the great Alaska companies of tomorrow.

Risk capital organized in venture funds dedicated to investing in startups is arguably the most important ingredient in developing entrepreneurial ecosystems. Startup venture capital is a central point where ambitious entrepreneurial activity clusters.

That is because new businesses that plan to meet big, new market needs and become the big companies of tomorrow cannot launch without investment today, and they especially need the complementary advice that experienced venture finance professionals bring.

Before 2013, permanent, professionally managed venture funds were missing in Alaska. That changed when three founding partners created Alyeska Venture Management. The mission of this firm is to raise and invest Alaska risk capital in new Alaska businesses that show a potential for high-growth.

In 2013 the firm began forming the Alaska Accelerator Fund I, which was capitalized at $2.3 million. That fund has nearly completed investing its deployable capital and a second, larger fund, the Alaska Accelerator Fund II is being organized. The firm intends to continue to raise and invest Alaska capital in Alaska startups into the indefinite future.

Several core investors in the Alaska Accelerator Fund I are also core members of the Alaska Investor Network. This latter group is composed of Alaskans and shares information about new Alaska businesses seeking startup capital.

As a good rule of thumb, each new venture-backed startup needs about 4-7 years to generate a return for investors. This means that startup investment activity needs time to prove that it is working.

One cannot and should not measure the success of startup venture financing by its ability to generate quick returns. No doubt, venture financing does generally yield good returns to investors, but the machinery necessary to consistently yield good returns requires time to develop.

Alaskans and Alaska companies that choose to invest in new Alaska businesses should expect to learn and will need to be patient, in order to build shared expertise.

Since 2013, a small group of Alaskans have gained and shared valuable investment experience, and hopefully more will participate. A virtuous cycle of entrepreneurial growth in Alaska depends upon the maturation of startup investing by individuals working together. If this critical part of the entrepreneurial ecosystem in Alaska becomes permanent, as its creators intended, serial entrepreneurship and investment experience will become common here as in other states.

A virtuous cycle of entrepreneurship combined with our state’s incredible economic assets at our doorsteps will eventually produce our economy of tomorrow. If more Alaskans participate, the results may someday lead us all to believe what some of us already believe, that our economy can be both diversified and environmentally-friendly, and that our state can become the richest and still remain the most beautiful state of the American Union.

Alaska Startup Week brings entrepreneurs, local leaders, and friends together during 10 days of events and celebration to build momentum and opportunity around our state’s unique entrepreneurial identity. Startup Week is a focal point of the Innovate Alaska (2.0) effort to diversify Alaska’s economic base. For more information and a full list of 2017 events, visit alaska.startupweek.co.

Dr. Forrest Nabors is Chair of the Department of Political Science and Associate Professor of Political Science and Business at the University of Alaska Anchorage, and a founding partner of Alyeska Venture Management. Before earning his doctorate, Dr. Nabors was a high-technology entrepreneur in Portland, Oregon. His book on American Government during the Civil War Era is entitled From Oligarchy to Republicanism: The Great Task of Reconstruction, and will be published in 2017 by the University of Missouri Press.

More from Startup Week 2017:

Startup Week 2017: Growing Our Economy through Entrepreneurship

Startup Week 2017: Lots of Progress, More to Come From Women Entrepreneurs

Startup Week 2017: Alaska Ocean Cluster Initiative

Startup Week 2017: Building Alaska’s Entrepreneurial Ecosystem

Updated: 
07/26/2017 - 7:35am

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