We Create Capital: A 5-Month Progress Report
Meet Maria Meyers, director of the UMKC Innovation Center and founder of KCSourceLink and U.S.SourceLink. Below, she shares the progress Kansas City has made since KCSourceLink published the We Create Capital report in June 2015. You can download the summary and full 72-page report and action plan at www.wecreatekc.com/#capital.
Both investors and entrepreneurs will tell you that in Kansas City it is hard to provide the access to capital needed to fuel our companies.
Just five months ago on June 1, KCSourceLink released its We Create Capital report that identified many of the issues and suggested ways to improve the landscape for access to capital.
What did we find?
We are leaving millions of dollars in loan, grant and equity capital on the table. To bring those dollars to Kansas City and our entrepreneurs, we need to build a continuum of funding mechanisms to support our entrepreneurs, whether they are technology related or not. And we have a lot of holes in the continuum.
> Goal: Increase the availability of alternative loans to $10 million by 2020
We can build a continuum of loans that can support an entrepreneur from credit development through loans of up to $250,000 for unbankable clients, then support high-risk bank loans through U.S. Small Business Administration Loan guarantees, moving our entrepreneurs to being fully bankable.
To do that we can take advantage of several federal mechanisms to bring additional loan capital to the region. This requires federal certification for organizations to become loan intermediaries and then helping entrepreneurs access those loans.
The KCMO CDE through a new organization called AltCap has received its CDFI designation. This federal certification from the U.S. Treasury allows the organization to draw down funds from the U.S. Treasury to create capital pools. AltCap is beginning to support entrepreneurs with these loans.
The Women’s Business Center has launched the WELend fund based on a gift from Sam’s Club to establish the experience it needs to become certified and apply for the CDFI designation as well as bring the $5 million SBA-backed microloan to the community. WELend is now offering microloans and hopes to achieve CDFI designation as well as garner the SBA loan pool over the next 18 months.
Justine PETERSON continues to operate the Kansas City Regional Microloan Fund.
To put these mechanism in place, we will need support from the community. Both private philanthropic dollars and bank community reinvestment act funds are needed.
> Goal: Increase grant funding to $6 million by 2020
We are still working to develop a strategy to increase the number of Small Business Innovation Research grants that come to our community. Stay tuned on that.
In the meantime, thanks to the Missouri Technology Corporation, additional funding for Digital Sandbox KC and the new LaunchKC grants became available this summer. Funding from MTC with match from the community increased the amount available through Digital Sandbox, which has a rolling application period, and helped LaunchKC provide $50,000 grants to emerging and growing companies in the region.
> Goal: Increase seed capital to $10 million by 2020
This is one of the big issues in Kansas City. How do you get the capital between proof-of-concept and Series A? Since June, the following has happened:
- Northland Angel Investment Network announced and now has several investors
- iiM announced funding at the $50,000 - $500,000 level for Ag and Biotech
- Angel Capital Group has reorganized and is loading an early-stage fund to support this level
- The Collective Fund has been announced and will support a fund and a “collective” of 36 non-accredited investors, hoping to train the investors of the future
> Goal: Double the number of venture capital investments by 2020
Thanks in great part to the Greater Kansas City Chamber of Commerce, key leadership and potential investors have been educated about the need and value of investing in Kansas City’s early stage companies. Establishing that there is an issue and that something needs to be done is a goal that has been met.
Because of the greater dollar amounts needed and the regulations in this space, venture capital investments and funds will take longer to develop.
For the past five months we have concentrated on getting people started on creating mechanisms for capital pools. And we are seeing that develop from a number of areas.
There has been education for potential investors on why it is important for them to invest in these pools.
Of course, this is not a philanthropic effort. Investors should expect a return on their investment. Making sure the right due diligence is in place will be important.
We need to further develop mechanisms to understand who the investors are and to get entrepreneurs to those investors. And, we have heard loud and clear from the entrepreneurs that just getting mechanisms in place won’t be enough. We have work to do on:
- Terms and valuation
- Speed to decision making on the part of investors
- Simplification of paperwork, especially on state investments
- Understanding technologies and taking a look at biotech funding in the region
So we aren’t done yet.
My hope for 2016 is that many of the groups that are working hard to increase capital pools will solidify. Investors will gain the confidence that they need to invest in Kansas City’s companies. We see better knowledge of and coordination of Kansas City’s investors. We are able to more efficiently connect Kansas City’s entrepreneurs with the investors or organizations that are the best match. And we see a lot more local investment by the end of 2016.
In June, we challenged the community to take a step so that our tomorrow was different than today. If we can keep up the momentum, we can achieve a different tomorrow. But it is going to take all of us working together to make that happen.