North Dakota, like most U.S. rural areas, lacks capital for startup and
growing companies. Entrepreneurs have difficulty finding patient, long-term
capital to sustain company growth and rarely find seed stage equity investments
to fuel new company growth. In rural areas investment capital is the #1
missing ingredient that inhibits innovation, short circuits leveraged investment
from outside the region, and inhibits creation of growth companies.
To the lack of capital there is often added a risk-averse culture and
inadequate support for entrepreneurial ventures, particularly non-agriculture
ventures. An ethanol plant might raise millions while a small technology
company with an exciting idea and high potential goes lacking and oftentimes
packing.
Active angel investors are only a small resource for rural areas. Most
would-be angel investors lack experience and low confidence about pricing
and structuring investments, so it's only the occasional deal made by individual
investors. Capital markets in rural areas remain unorganized and are non-existent
in many communities, reducing their ability to compete and thrive in the
today's economy.
But some rural communities have shown the capacity and willingness to
provide equity capital resources to local entrepreneurs. They are winning
both the sprint and marathon race to create jobs, economic growth and prosperity
by kick starting their local early-stage investment market. Here's what
they are doing to create success in rural areas:
Showing potential investors how to play. Several years
ago a development professional in an urbanized rural part of Washington
summed it all up. "We're a very conservative farming and real estate
community. So investing in technology is downright scary. Getting them (potential
investors) in that process is the most critical issue that all of our communities
face, because they just simply don't know how to play."
Education and familiarizing potential investors with practices, tools
and peer experiences can be extremely useful.
Getting rural institutions involved as investors. Rural
areas only have a limited number of wealthy individuals with experience
in informal equity investments, so institutional investors must be enabled
to participate, e.g. banks, local development organizations, and cooperative
and investor-owned utilities.
Institutional investors were key in organizing and capitalizing the Center
of North America Capita Fund, LLC in Grand Forks over three years ago. The
fund has a "double-bottom line", meaning that ROI is critical
consideration but that making something happen is equally important. The
experience with this fund has shown that a small to moderate amount of true
equity can leverage considerable amounts of bank financing and development
funds.
Establishing the fund has also shown that brokerage firms and pension
funds can help create a direct conduit of investable capital from rural
areas to financial centers located in urban areas.
Avoiding "me too" economies. A central paradox
of investing is that the information available about an opportunity is inversely
related to the scope and scale of its real potential. There is a lot of
comfort when someone or everybody is already doing something and there is
a lot of information about the opportunity. There is less comfort with novel
ideas, and in rare cases for products that exist prior to customer demand
is even imagined, e.g. the mouse, but these often hold out the promise of
lucrative investment returns.
Showing entrepreneurs looking for money how to play. Recruiting
and using a board of directors is the proven and effective method for involving
people with money, know-how and connections in the development and execution
of a business model. But entrepreneurs greatly underutilize this method
in rural areas, often going solo and "owning it all".
The art of pitching to investors is something that can only be learned
by watching and learning from the exchange between entrepreneurs and investors.
Some communities have reaped the benefits of sponsoring entrepreneur and
venture capital forums where entrepreneurs watch others as they give their
pitch.
Speeding up the process ("It's not two days
until tomorrow"). Entrepreneurs, once knowing how to play,
are given a fighting chance to launch their young company. An unforgettable
editorial in a rural newspaper once chided that "if Bill Gates lived
here he'd still be waiting his turn." Going too slowly, waiting until
there is certainty about uncertainty, no longer works in today's rapidly
moving economy. Yes, prudence is good, but business opportunities are increasingly
ephemeral and the competitive landscape is now global. |
