Do Vermont Startups Have a Community to Thrive?
Being a Vermont startup isn’t easy. The headwinds are fierce for anyone starting a business in Vermont. In fact, being a startup anywhere isn’t easy. However, it’s particularly harder in Vermont.
I’ve been working in the startup world for over 30 years. I’ve seen the startup ecosystem change. Today, the digital transformation is disrupting just about every industry and is being led by startups.
I love startups because of the energy and fluidity required to make it. I’ve been involved with Startup Grind, TechStars, TiE Rockies, Rockies Venture Club, and many other organizations across the globe. Let’s face it startups are job creators, and it just might be what Vermont needs. But can it get its legs under it?
Over the past four years, I’ve met with industry leaders, entrepreneurs, service providers, funders, incubators, co-location owners, and startup founders in the Vermont startup community.
Additionally, I’ve read every article I could get my hands on including online forums and comments. I learned a lot and here are my findings.
During Denver Startup Week, I helped several local people attended for FREE, travel included. When they got out there, they were treated to tours of successful startups, met with CEOs and founders, and more.
It was a big eye-opener for them. Incubators and accelerators like TechStars (headquarters); Boomtown, Galvanize Accelerator, MergeLane and Catalyze CU are hot. They are startup hubs where people can meet, share ideas, and form new companies.
Sure, there are occasional unicorns like Airbnb and Uber. However, most startups fail, even if they have cash, customers, and a promising business model. They can’t seem to scale.
Even bringing in the grown-ups to professionalize the startup typically doesn’t work.
Today, startups are taking the tech industry by storm. The market is hot! Market sectors like DevOps, robotics, autonomous vehicles, artificial intelligence, and biotechnology.
With Microsoft?s $7.5 billion acquisition of GitHub, we can now declare a trend: 2018 is shaping up as a good year for U.S. venture-backed M&A.
This year, acquirers have spent just over $20 billion in disclosed-price purchases of U.S. VC-funded companies, according to CrunchBase data. That?s about 80 percent of the 2017 full-year total.
Entrepreneurship is emerging as a transformational megatrend of the 21st century given its capacity to reshape economies and industries. The drivers of economic growth are entrepreneurs.
They are the lifeblood of an expanding economy, generating jobs, introducing new products and services, and promoting greater value-chain activities.
Where do you think the majority of today?s hottest businesses are starting a business? Silicon Valley or maybe New York City? Surely you?re thinking to yourself that Silicon Valley must lead the startup scene.
If so, you?re wrong. The traditional startup epicenter is shifting away from these traditional startup areas.
HowMuch.Net, (Data-visualization site), used census data to show cities with the highest concentrations of startup jobs as a percentage of total jobs. When it comes down to it, Silicon Valley was not even in the top 100 cities.
According to the data, the top three locations for startups include:
- Midland, Texas (population 123,933)
- Greenville, North Carolina (population 89,120)
- Madera-Chowchilla, California (population 17,383)
Why small towns? High taxes and strict regulations in larger metros traditionally associated with startups often hinder growth.
In fact, these businesses tend to perform best in smaller towns. What is missing in a town like Burlington, VT?
As a Vermont Web Design Agency, with full-service in Denver, Colorado, we’ve been involved with the startup scene since 2013.
So What Does it Take for Startups to Bud and Thrive?
Thriving startups communities have three pillars:
- Access to capital
- People and skills
- Innovation ecosystem
It’s these three components that are the pillars of a successful startup ecosystem. I’ll break these down for the Vermont startup community later in the article.
Thriving startup communities are happening all over the U.S. Cities like Greeley, CO, Greenville, NC and Midland, TX. What’s different?
These regional innovation clusters that have active accelerators, entrepreneurship boot camps, and the startup communities that are being led by founders and entrepreneurs within them and they are thriving.
They offer the startup team a strong pool of founders, capital, startup events, business, participating government, and research universities and community colleges.
Hiring in U.S. startups has reached a five-year high and is growing. With over 80 percent say they are adding employees, while just 1 percent plan to cut their workforces in 2018. The top three job descriptions that startups are seeking to fill our product development, technical positions, and sales.
The outlook for startups is strong. Ninety-five percent of startups believe that business conditions in 2018 will be the same as or better than 2017 for companies like theirs. Those who say it will be much better rose 4 points to 27 percent according to Silicon Valley Bank.
Raising capital is easier. In 2017, 69 percent of startups surveyed successfully raised capital, and nearly one-quarter of them say the current fundraising environment is not challenging. This is a significant change from the year before when only 12 percent said that it was not hard to raise capital.
Using the CB Insights database, I was able to identify the most-well funded VC-backed technology startups by state based on disclosed equity funding.
This report excluded funding from debt as well as lines of credit, and only considered companies that have raised at least $1M of equity funding from 2015 to May 2018.
Here are Six Reasons Why this Year Could be a Banner Year for Entrepeneurs.
Why not Vermont?
- The Gig Economy is a huge blessing to entrepreneurs. Freelancers and other on-demand workers are having an impact on small businesses. It’s cheaper and more flexible for startups than having to add full-time employees and enables them to hire talent with a more entrepreneurial bent. This is an area Vermont startups could get relief from the lack of talent. Moreover, they don’t have to live in Vermont.
- Venture capital investment in startups has surged to its highest level ever over $148 billion in 2017. More than 40 VC-backed companies achieved billion-dollar valuations and joined the unicorn club in the last 12 months.
- Artificial Intelligence (AI) is huge and can’t be ignored. AI ventures including machine learning, advanced robotics, and autonomous vehicles are expected to grow to $13 trillion market opportunity by 2025, says McKinsey.
- Intellectual property (IP) education is becoming crucial to the entrepreneur. IP now accounts for 38.2% of total U.S. GDP that’s over $6 trillion a year and a surprising 30% of total national employment.
- The patent system is getting better and fairer. However, now there are signs that this unreasonable government-sponsored IP against startups may see some relief.
So just what makes a Vermont startup community successful?
Startups need a nurturing environment if they have any chance of success. The founder’s in the startup team are like a family with their newborn. Remember that little gem, it takes a village to raise a child.?
There is some truth to that as it relates to the startup community. I’ve never seen a startup nor management team making it by going alone. It just doesn’t happen.
Vermont Startups Landscape
The purest of maple syrup, tasty ice cream, and finely roasted coffee not to mention miles of mountainous and cross-country skiing: These are among the lures of Vermont.
In population, Vermont is the second-smallest state, ahead of Wyoming.
At $30 billion, Vermont has the smallest economy in the U.S. Its five-year average unemployment rate of 4% was the fourth-lowest among states, but Vermont suffers from business costs that are 12% above the national average.
The state’s economic outlook is also weak projected to be the second-worst in the U.S. over the next five years. Income growth is also expected to lag the rest of the country (Source: Forbes 2017).
Entrepreneurs starting a business in Vermont will have to contend with high costs. The state has the fourth-worst business tax climate score in the country (tied with Minnesota and Rhode Island). The cost of living is 20.5 percent higher than the national average.
Business founders looking for funding to help cover those costs with a loan will be hard. Vermont has the fourth-lowest rate of small business loans in the nation, just 41.3 per 1,000 small business employees.
According to GoBankingRates, Vermont businesses are also held back by the state’s low GDP per capita and employee availability. Vermont also has a higher-than-average rate of business failures. Even though the state has the highest density of small businesses, it still ranks among the worst states for entrepreneurs.
Vermont?s job growth in 2017 was a lot slower too. The official numbers showed the state growth rate of 0.9 percent, slower than the national average. Since June of last year, Vermont could only add 100 jobs.
The state’s 1.4% growth in average weekly wages between December 2016 and December 2017 was the eighth-worst in the country. Vermont is #41 according to U.S. News.
VERMONT EMPLOYEE SIZE
As the graph above shows, the greatest share of working Vermonters is employed in mid-sized firms ? those with 20-500 employees. These firms are considered small regarding U.S. firm size.
However, that range represents Vermont?s ?sweet spot? in terms of growing and sustaining firms. The share of employees in Vermont?s largest firms had been growing but ticked down in recent years. Recent downsizing and relocations for some companies mean this trend is likely to continue.
Startups are a gamble, but you have to understand why some thrive and many more die by looking at the ecosystems in which they operate. What are Vermont?s ecosystem and the playbook for making Vermont launch more startup?s and succeed? It is unclear there is one and if there is it is not working.
For Vermont’s startups to bud and prosper they need three things:
- Access to capital
- People and skills
- Innovation ecosystem
It’s is these three components that are the pillars of a successful startup environment. Let’s break these down as it relates to Vermont.
Access to Capital in Vermont
The Series A Round is typically the first institutional round of financing, and it is lead by venture capital investors. Typical Series A rounds range from $3,000,000 to $5,000,000, but can be as high as $8,000,000 to $10,000,000.
Series A investors typically get 25 to 35 percent of the company, but it can be as high as 50 percent or as small as 10 to 15 percent, depending on the market opportunity, uniqueness, and value of the solution you?re providing to the market.
Vermont startups have access to capital. It?s never been easier to access capital than today. You will most likely need to look outside of Vermont, but it?s there. Heck, there?s more accessible today than I?ve seen in my past 30 years working with startups.
There are the old standbys? like F&F, angel, venture capital, Small Business Administration (SBA) Loans, and investment banking funding. More recent funding lanes include peer-to-peer and crowdfunding.
There are four types of crowding funding: rewards-based crowdfunding; donation-based crowdfunding; equity crowdfunding; and debt crowdfunding. If you are looking for funding, these are great alternatives.
People and Skills in Vermont
Vermont is hurting here. Not only does it have a lack of a strong pool of founders but it lacks the talent to round out the startup management team and support staff.
Burlington, VT has tons of web design agencies but lacks other critical marketing services to launch a startup. Your inbound agencies are not prepared to handle a 250,000 micro-brand launch. It’s not a $3,000/mo package that you will see. The HubSpot partners.
Vermont?s unemployment rate holds at 2.8% while job creation is stagnant in a booming economy. A hundred jobs were added to the state since June of last year, according to Art Woolf. He continued, if we compare that number to the national average at 1% we should have added nearly 3,000 new jobs. Ouch.
?Vermont is suffering from demographic challenges,? stated Aaron M. Renn is a senior fellow at the Manhattan Institute. ?It has the fourth slowest population growth of any state since 2000.?
?Vermont has trouble convincing its progeny ? it?s young, talented and educated graduating seniors ? to stay in Vermont,? said Brady. ?Outside of Chittenden County, nearly every county in Vermont is losing young people.?
According to the researchers, the top two reasons people are leaving Vermont for greener pastures. ?My work is located outside Vermont,? and, ?I can earn more money outside of Vermont,? according to an article in Vermont Watchdog.
For Chris Campion, a life-long Vermonter and a former resident of Essex Junction, those are the reasons he left for a new life in North Carolina. “If I wanted to earn more money and have more career opportunities, it wasn?t going to be in Vermont,? Campion told Vermont Watchdog.
After working for organizations including General Dynamics, Keurig Green Mountain Coffee, Champlain College and the University of Vermont Medical Center, the 47-year-old business analyst became frustrated with the lack of growth opportunities and began looking elsewhere.
Since switching states, Campion?s salary has jumped 65 percent, and he?s already in line for a promotion. Moreover, he says his cost of living on everything from energy bills to groceries is about 10 percent more affordable.
Vermont?s best young talent is leaving because of the lack of jobs, upward mobility, and local pay structures. Vermont has a shrinking workforce that is creating a downward spiral. With fewer workers, Vermont has less revenue, and the state is becoming less and less affordable. Just ask anyone who pays property taxes.
“It’s possible for companies to be more virtual than they have in the past and it’s possible for them to have teams spread across the country or the world, and I think that actually bodes well for Vermont,” Crain Cross said.
The government is trying to help bring in talent to Vermont, but the government can?t build a startup community. I?ll give my friend Brad Feld?s a plug for his book, called Startup Communities: Building an Entrepreneurial Ecosystem in Your City. If you are in a startup community or think about building one you should read it.
Innovation Ecosystem in Vermont
Vermont?s innovation ecosystem lacks a pool of strong entrepreneurs and founders needed to sustain a viable startup community. The numbers just are not there. There are a few but not many. With the lack of new ideas, the community can?t prosper.
For most startup communities there exists a strong tie to the academic research community specifically engineering, computer science and business schools.
These schools produce ideas, patents, and talent needed for the startup community to survive. Without this ecosystem, the startup community tends to grow with peaks and valleys but no sustained growth pattern.
While some startups can leverage workers remotely, location still matters. Starting a business in a location where a critical mass of other founders, funding, and innovation is occurring brings many benefits. The startup community matters.
UVM does not have a strong engineering school and the MBA program is in its infancy. Vermont lacks a startup feeder system to create viable startups.
If you are interested in startups, you should get familiar with these databases. Here is what I found for the Vermont startup count. You have to dig because these databases are polluted with funders, service providers, acquired, and closed businesses.
- Startup Blink = 53
- AngelList = 147 (many of these have closed, acquired or are service providers)
- Crunchbase = 74
If you do some extrapolation, the figure is about 50 and most of these are not hyper-growth companies. Later, I?ll list the most recently funded startup in Vermont later.
The Kauffman Index Support the Vermont Startup Picture
Among the 25 ?Small? States in the United States, the state of Vermont ranked 25 in Growth Entrepreneurship.
Past Vermont Funded Startups
Here?s a list of funded startups in Vermont that received funding in the last five years. The Series A Round is typically the first institutional round of financing, and it is lead by venture capital investors.
Typical Series A rounds range from $3,000,000 to $5,000,000, but can be as high as $8,000,000 to $10,000,000. Series A investors typically get 25 to 35 percent of the company, but it can be as high as 50 percent or as small as 10 to 15 percent, depending on the market opportunity, uniqueness, and value of the solution you?re providing to the market. (See one missing let me know @gschildge)
Marathon Health, Winooski, Vermont
Total reported funding*: $30M
Most recent funding (private equity): $30M minority stake, led by Goldman Sachs, July 2016
Marathon Health offers workplace onsite primary care, health assessments, coaching, and disease management programs, supported by an online portal delivering medical content, interactive diet and fitness tools, and electronic medical records.
Revision Military, Essex Junction, Vermont
Total reported funding: $12M
Most recent funding: $12M, May 2013
The company, which develops eyewear, headwear, and other protective equipment for military and law enforcement customers.
Step Ahead Innovations, South Burlington, Vermont
Total reported funding: $7M
Most recent funding: $1.5M, June 2017
Step Ahead makes advanced aquarium water-monitoring systems for home and commercial customers.
Parent.co, Burlington, Vermont
Total reported funding: $5.2M
Most recent funding: $1.6M Seed, October 2015
Digital media site focused on parents.
Faraday, Burlington, Vermont
Total reported funding: $5.1M (includes $1 million Dept. of Energy grant, 2014)
Most recent funding: $2.48M, May 2016
Faraday uses AI to help businesses in consumer goods, financial services, and energy/utilities to acquire and retain customers and optimize B2C revenue.
Social Sentinel, Burlington, Vermont
Total reported funding: $3.3M
Most recent funding: $3M Series A, October 2016
Social Sentinel is a social media threat-alert tool for college campuses, K-12 schools, and public safety. In the past year, the company grew its revenues 125% year over year and now works with campuses and communities in 23 states.
Horse Network, Burlington, Vermont
Total reported funding: $2.54M
Most recent funding: $500,000 Seed, July 2016
A digital media site covering equestrian competition and lifestyle.
Localvore Inc., Burlington, Vermont
Total reported funding: $2.5M
Most recent funding: $1.5M convertible notes, June 2017
Online recommendation engine for local foods, offering restaurants, farms, and food producers.
Sustain Natural, Burlington, Vermont
Total reported funding: $5.5M, with $2.5 million Series A investment from new strategic investors including Seventh Generation CEO John Repogle, Asana Co-Founder Justin Rosenstein, ThirdLove Co-Founder Heidi Zak, modelFIT Founder Vanessa Packer, famed industrial designer Karim Rashid, and others. Sustain Natural, a brand that creates sustainable, non-toxic and organic sexual wellness products
DRINKmaple, St Albans, Vermont
Total reported funding: $5.4M
DRINKmaple pure maple water is the sap that comes straight from maple trees. It boasts a subtle hint of maple flavor.
Recent Local Perspectives on Vermont?s Startup Community
IrisVR relocated to New York City, Blu-Bin left for Silicon Valley and Ello to Colorado. These companies left in search of bigger markets, more networking, and greater employee satisfaction, reported by Alicia Freese over at Seven Days.
IrisVR secured a coveted spot in New York’s Techstars accelerator program, which nurtures startups. Beatty and co-founder Shane Scranton began their business in Middlebury. They won the annual LaunchVT competition. The $25,000 check that the founders took home, along with $45,000 of in-kind benefits, helped jump-start the software company, but it pales in comparison to the $1.6 million round of seed-funding that IrisVR secured in New York.
Mike Lane, at Fluency, stated, ?How is Vermont doing at attracting and retaining young companies? Not that great.? He added, ?state officials do not know how many tech startups are in Vermont.? It?s about 50.
David Bradbury, president of the Vermont Center for Emerging Technologies, said ?our challenges in Vermont “are not rocket science.” He continued, ?We need housing stock and affordable housing.?
“We appreciate our employees in Vermont very much, but it’s a challenging place to do business and we don’t feel welcome,” Paul Frascoia of Critical Process Systems Group said in a recent article in the Free Press. He continued, ?The Legislature, in particular, makes us feel unwelcome with the laws they pass or threaten to pass.?
?Burlington has all of the ingredients to become a vibrant start-up culture, and while I think we’re close to hitting a tipping point, we aren’t quite there yet. We have innovative, collaborative, and people,? stated Jon Torrey.
Cairn Cross, co-founder of FreshTracks Capital in Shelburne stated, ?an early-stage venture capital fund, said, ?Vermont does well by startups, but not so well by companies that are scaling up.?
These are just a few comments and reflections of people within Vermont?s startup ecosystem. It?s how they view it and they are valid in their own right.
Conclusion Vermont?s Startup Community
What is the next IDX, Green Mountain Coffee, Seventh Generation, Dealer.com or Burton? Many of those company?s jobs left the state. As the region shed?s jobs to states like New York, Massachusetts, and Georgia what is the next economic generator for Vermont?
Moreover, let?s face it Vermont will not attract another elephant-like IBM. It?s a great story about how they landed here. It?s going to be up to the entrepreneurs and founder acting as the catalyst.
It?s been a long time since 1978 when Ben & Jerry?s was a small startup. However, the Vermont startup community is still in the early stage of development and still learn in to walk. There are efforts to help boost the community and components to help it thrive.
My read on the Burlington startup community is kind of what it was like in Boulder in the late 80s. The Burlington startup community may never follow the path of Boulder?s, but some of the components are in place.
We have a quasi-accelerator, small venture capital firm, some angels, shared office spaces, and tons of service providers. Moreover, it lacks new viable ideas, founders with proven track records along with the human capital to build out the startup.
While I was interviewing folks in the startup community I was told that I didn’t get it. Vermont is unique. However, to succeed you don’t need to reinvent the wheel. Vermont entrepreneurs must reach out to other networking communities like TechStars, Startup Grind, among others in the bigger starter community.
These networks carry a lot of weight and can help Vermont?s startup community be successful by offering proven models, supporting mentorship, and global exposure. Most of the startups are in Burlington Vermont as startups struggle to find and retain talent.
So if you think Silicon Valley and the startup hubs around the U.S. are the only places to start your next venture, think again. Today, great business ideas can come from anywhere, and this article should be your wake-up call for Vermont entrepreneurs despite the challenges.
Is Vermont’s startup community ready for take-off? Your guess is as good as mine. I?m a big believer in processes. If we look at the startup engines without a strong feeder of new ideas and innovations the engine stops.
Whether you currently think Burlington?s startup community is vibrant or not. Its future will change and evolve by the people within it. I?m excited to be here, learn and watch the ever-evolving startup community in Burlington, VT.
To help people either within or wanting to participate in the Vermont Startup Community, I’ve created a Vermont Startup Canva to help you. This is a living startup document for Vermonter’s, and you can add to it as you see fit. Go here to access the Vermont Startup Canva.
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The top startups in Vermont include Ben & Jerry’s, Dealer.com, Burton, and Vermont Teddy Bear.
Where can I get support for my startup in Vermont?
The?Burlington,?Vermont Startup Canva?you may access it?here. This is a living document created by the start community for the Vermont startup community.
Where can I list my Vermont startup?
Get your Vermont startup listed on?StartupBlink.
Where can I get marketing support for my Vermont startup?
Since 2002, Matrix Marketing Group has been helping startups grow and scale to exit.