Jodi’s Journal: Troubling signs in the startup world?

By Jodi Schwan

I’ve struggled a little with how to frame this message because I’m still not exactly sure what’s happening or the best way to articulate it.

But I have noticed a disturbing trend in the past couple of months that makes me fear we might be taking a small step backward in developing our entrepreneurial ecosystem.

Here’s why.

In mid-April, I interviewed Paul Singh, a Silicon Valley venture capitalist who is traveling the nation looking for startup investments.

Silicon Valley venture capitalist: Investment in Sioux Falls is likely

He told me ahead of his weeklong visit that he was fairly certain he’d find at least one investment opportunity here because there generally were a few key indicators that a city’s startup scene was ready for him.

First, the city needed a co-working space.

Second, it needed a coding school.

And third, it needed an angel investment fund.

Sioux Falls, at the time Singh booked his trip, had all three.

Less than four months later, a lot has changed – and not for the better.

First, the co-working space. Singh’s Q&A was one of the final events held at The Bakery, which closed its physical space May 1.

Co-founder Clint Brown told me there wasn’t enough demand from people looking for a physical co-working space, so he is working on an online model.

I believe it, given that the co-working business Meso also folded, and I don’t recall ever being asked by an entrepreneur where to find affordable communal office space.

I have a co-working membership at the Zeal Center for Entrepreneurship, which has put together a great option for entrepreneurs, but I’m not sensing momentum for any additional spaces in town, nor much demand for one. It’s concerning because, as Singh told me, other communities have moved more toward co-working spaces where entrepreneurial encounters can occur.

Second, a coding school.

Code Bootcamp was exciting to me when it started a few years ago as a way to address the need many businesses have for developers. The program canceled its adult summer session for three major reasons, co-founder Will Bushee told me:

  1. It couldn’t find an assistant instructor after the person took another job.
  2. It couldn’t secure a single business sponsor or scholarship and would have had to fund the program for a third year.
  3. It couldn’t get enough students. The three signed up would have meant operating at a loss.

“After three successful bootcamps and 15 new jobs created, we simply are not getting any support from the community and businesses,” he told me. “Even businesses who have hired our students have not stepped up to support us in any way. We’re at a loss as to how to proceed. We are still considering our options. I don’t want to sound too negative, but if the businesses are not going to support our endeavors, we’ll simply go do something move valuable.”

He instead is running six kids’ gaming bootcamps, which he said take a lot of time but he feels are valuable to the community. There’s been a lot of demand for those. They tend to sell out and at least break even.

I’ve seen similar success from other local businesses that teach kids STEM and coding skills.

But it’s not enough to teach our kids to do this and reap their skills in five or 10 years. We need to increase this skillset in our community now. So it’s concerning that neither students nor sponsors seemed to see the opportunity in Code Bootcamp.

Third on Singh’s list: Entrepreneurial cities have an angel fund.

Luckily, we still can answer yes to this one, as Falls Angel Fund has drawn a fair amount of interest and is offering a needed way for startups to access early capital.

But I even had a little deflating moment after it recently made an investment in a company called Myriad Mobile. This is a really promising startup based in North Dakota that develops apps and is getting into farming technology. I met some of the staff members when company had a small office in Sioux Falls. When I checked in after the investment, I learned it no longer has a presence here.

I think we ultimately will see local investments from this angel fund, but it certainly would have been nice to keep an office for an up-and-coming app developer in town.

And there are other smaller, but not insignificant, signals to me over the past few months. I don’t sense as much momentum for farmers markets – and we lost a couple of them this year. I haven’t seen many new food trucks. I’m hoping a new event we just announced this week – Night Market – will bring some energy and attract interest from area makers and chefs.

So, while I’m not trying to be a downer, I think maybe there’s a reason we haven’t heard about any investments yet coming out of Singh’s trip here. It sounds like some may be in the works, so I’m continuing to hope. But if we want Singh and other investors to come here again looking for opportunities, I think as a community we need to be mindful of continually cultivating an ecosystem that drives entrepreneurship.

One promising sign is the Sioux Falls Area Entrepreneurs Facebook group started recently by Falls Angel Fund leader and owner Matthew Paulson. It has been fun to watch entrepreneurs engage in wide-ranging discussions online, and I’ve learned about startups I didn’t realize existed. The group also has started hosting startup coffee sessions that have been well-attended.

Zeal, which has a wide range of valuable services for entrepreneurs, also recently started a new session of its annual business accelerator with four promising startups. SiouxFalls.Business will be following those businesses in the coming months.

I asked Paulson if he thought my larger concerns about local entrepreneurialism were warranted.

“I feel like the entrepreneurial community is actually in a better place than 18 months ago than when The Bakery was at its height. I think it’s different because a lot has moved online. I’m excited about the accelerator at Zeal, I think they’re doing a good job, and there are more worthwhile events to go to,” he said.

“I don’t know if I would use Paul Singh’s three criteria for a good startup community. I’ve got my list, which is not the same, but I feel like we’re in a good place.”

And I’m not trying to say we’re in a bad place. But when I see warning signs, I think it’s important to point them out. Maybe there’s a better model for some of the concepts that have struggled to take off. Maybe it’s just several individual circumstances that happened to occur at the same time.  All I know is we have many ingredients that should support Sioux Falls becoming a hub of entrepreneurship. But we can’t get complacent.

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Jodi’s Journal: Troubling signs in the startup world?

I’m not trying to say we’re in a bad place, but when I see warning signs, I think it’s important to point them out.

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