Entrepreneur assesses Louisville’s startup ecosystem, questions advice doled out at Insiders Meetup

By Patrick McMahon

The recent Insiders Meetup — entitled “Does Louisville have what it takes to support startups?” — was disenchanting because the panel seemed out of touch with the local startup community. Hunter Hammonds actually laughed about his inclusion and admitted he hasn’t been around Louisville for several years, while 98 percent of Katie Bush’s clients are located in Silicon Valley.

The recent Insiders Meetup

Recent Insiders Meetup on startup capital.

There were several founders and advisors in attendance that perhaps could have made more relevant observations. Rather than healthy debate, attendees heard generic, somewhat condescending advice like, “If you go on LinkedIn, you can see who people are connected to.”

Nevertheless, everyone ought to agree there is room to improve the local startup ecosystem. Mark Suster’s blog post based on Brad Feld’s “Startup Communities” has some practical advice on how to do just that. Here are the keys he lists:

  1. Strong Pool of Tech Founders
  2. Local Capital
  3. Killer Events
  4. Access to Great Universities
  5. Motivated Champions
  6. Local Press / Websites / Organizational Tools
  7. Alumni Outreach
  8. Wins
  9. Recycled Capital
  10. Second-Time Entrepreneurs
  11. The Ability to Attract Engineers
  12. Tent-Pole Tech Company

Based on this, Louisville has a lot of potential. Nos. 1 and 2 represent the heart of the debate, and I’ll revisit those later in the post.

Starting with No. 3 — Killer Events: NuluFest may not be SxSW, but in terms of an event that could showcase our startup scene, it is the frontrunner. I was blown away last year by the crowds and how well the event was organized. I suspect its success will only continue.

Oval-Commons-University-of-LouisvilleNo. 4 — Great Universities: People aren’t confusing Stanford’s Cardinals with Louisville’s Cardinals. The University of Louisville is great at real estate development and monetizing athletics. My alma mater, the University of Kentucky, isn’t considered a great university either. But when combined with Bellarmine, IUS and Spalding locally, along with Centre College, Transylvania, Western, Eastern, and Northern Kentucky universities in the region, Louisville ought to have a decent population of hardworking, inexpensive college graduates to draw from.

No. 5 — Motivated Champions: As brand ambassadors, we have people like Dave Durand and Forest Giant, City Collaborative and the Urban Design Studio, Mayor Fischer and “Bourbonism.”

No. 6 — Local Press, Websites and Organizational Tools: Insider Louisville, StartupLouisville, GLI, Venture Connectors, Velocity, and OpenCoffee. (Thank you, in particular, Melissa Chipman.)

No. 7 — Alumni Outreach: The cool factor makes a difference. Our music scene is ranked in the top 10 nationally. Coincidentally, Houndmouth was in New Albany for Velocity’s Demo Day last spring and popped in to see what it was all about. My Morning Jacket plays secret shows. The most beloved actress on the planet is from Louisville. Muhammad Ali.

No. 8 — Wins: This may be the biggest factor because it has the potential to affect Nos. 9-12. Stacy Griggs, CEO of El Toro, made this point at last Monday’s OpenCoffee. He suggested that one “alpha” could dramatically and quickly change the entire landscape. El Toro, which consists of several second-time entrepreneurs, is probably our city’s best chance for a huge tech win. They have the potential to be the “Tent-pole tech company” (see No. 12) we need.

Nos. 9 and 10 — Recycled Capital and Second-Time Entrepreneurs: The “Recycled Capital” from an El Toro exit would be great for the entrepreneurial community. Another game-changing second-time entrepreneur is Fred Durham of Durham Labs. The founder of CafePress has returned to lead his former company, and unfortunately it appears the robot and restaurant incubator is on hold. GearBrake’s CEO Chris Bailey worked out of Durham Labs for a period, and he is having great success. This illustrates the effect startup density can have – when smart, ambitious, hardworking people share ideas and collaborate on ventures, good things tend to happen.

No. 11 — Ability to Attract Engineers: Unfortunately, having ubiquitous road construction doesn’t count. Louisville’s low cost of living is perhaps a tailwind, but this gets into the “Are we good at anything?”/Vertical Accelerator/Strength Finder debate.

Is there something inherent that makes Louisville good for starting fast-food franchises, or is it just a coincidence? If it’s the former, then what is it? If it’s the latter, then creating a food niche may be an advantage because of the potential customer base, acquirers and human capital, but that’s different from a competitive advantage that can be leveraged. The same is true for health care companies like Humana. Consider the conundrum from an innovator’s perspective: One industry is great at delivering inexpensive, fattening food e.g., “The Double-Down,” while another spends millions trying to come up with diabetes solutions.

While I agree it makes sense to focus on our strengths, we need to clearly articulate them. We can’t just continue to say people are nice and accessible here, and then list Humana, Papa Johns, etc.

Silicon Valley is what it is in large part because of the federal government’s defense spending during WWII. We don’t have that luxury. However, we can piggy back off UPS’s due diligence and leverage a geographic reality that isn’t going away anytime soon. For instance:

Via engadget.com: “The Derby City has generally temperate weather and is about a two-hour flight from 75 percent of the U.S. population, and a four-hour flight away from 95 percent of other folks in the nation.”

The Worldport and the other inherent logical advantages Louisville has, including the Ohio River, is our biggest strategic asset. That’s the “why” that must start our story.

FirstBuild, LVL1, and Velocity’s MakerMobile are all early movers in the coming bespoke manufacturing revolution. This is where losing a founder like Alex Frommeyer really hurts. As retail interfaces go increasingly online, it only makes sense for production to occur close to global distribution hubs.

And now back to Nos. 1 and 2 — Strong Pool of Tech Founders and Local CapitalOver the last four years Louisville has lost its share of tech founders. Some of that was due to funding and some was out of strategic necessity.

Consider SuperFanU: There isn’t a more connected entrepreneur in Louisville than Tendai Charasika. Yet the startup raised capital from an angel group out of Lexington. At least the company stayed here.

The author, Patrick McMahon (second from left), co-founded local startup Groom HQ.

The author, Patrick McMahon (second from left), co-founded local startup Groom HQ.

In my own experience, I’ve heard a lot of, “Too early. Come back when you have users, revenue, or both.” That’s fine. But if we reach that point, we’ll likely shoot for more strategic investment partnerships elsewhere.

The problem isn’t about money, it’s about mindset. The old money capable of seeding startups is conservative. There doesn’t seem to be many local investors looking to hit home runs, comfortable with the fact that 9 out of 10 shots will fail. The flipside is there may not be many tech founders with this kind of ambition.

No doubt we need more attempts like Calcalingua, and it hurts to read a postmortem piece like this from its founder. You won’t find a more technically qualified team in the city.

As more and more Louisville businesses get acquired or become targets, it’s critical for the city’s long-term viability that we have a healthy startup ecosystem. Many of the pieces are already in place, but we can’t afford to lose the Velocity Accelerator.

Given where interest rates are and the generous Kentucky Angel Investment Tax Credit, isn’t there room for more private support. If you are interested in making a difference in the community as well as return on investment, Peter Thiel’s Zero to One is a great primer.

The companies we found today may become some of Louisville’s largest employers 20 years from now. We’ll look back and say 2015 was a pivotal juncture.

About the author: Patrick McMahon graduated from the University of Kentucky in 2008 with a degree in Finance. He worked at bCatalyst before it was acquired by Hilliard Lyons, then joined RQSI, a local investment firm. In his last year at RQSI (2013), he worked on an incubator/partnership project, which is when he first learned about the Lean Startup method. In the fall of 2013, McMahon co-founded GroomHQ, and the team was accepted into Velocity’s Winter 2014 cohort.