Update on Funding Available to Kansas City Entrepreneurs and Businesses
We Create KC, our annual report on the state of Kansas City entrepreneurship, will hit the shelves and URLs at the top of April. This is our fifth report and this year we are focusing on the six imperatives the community laid out to reach Kansas City's goal of becoming America's most entrepreneurial city:
- maximizing entrepreneurial support resources
- telling the story of KC entrepreneurship
- creating a strong entrepreneurial pipeline
- building talent
- engaging the corporate community
- increasing available startup and growth capital.
It's that last imperative that we are going to update you on today. Here's a look at Kansas City capital ecosystem today—the highs, lows and where we still have opportunities to grow:
Startup and early-stage companies need capital to fuel the fire of growth. Studies in 2012 suggested that Kansas City lacked the capital needed. Published in June 2015, We Create Capital 2015 provided a clearer picture of the funding landscape for emerging and growth businesses in the Kansas City region and an action plan to address the gaps.
Since then, individuals and organizations across the Kansas City region have rallied to improve access to capital for area entrepreneurs. Those results are illustrated in We Create Capital 2017 (download the full 50+-page report at www.wecreatekc.com/capital) and captured through the KCSourceLink Entrepreneur Dashboard.
Time frames are noted on each chart.
KCSourceLink tracks capital investments in KC-area entrepreneurial firms to determine if we are making progress in terms of capital for early-stage companies. Data is pulled from a combination of public databases and private sources. We look at deals within a 100-mile radius of downtown Kansas City.
KCSourceLink has been tracking the pools of investment capital available to early-stage companies in Kansas City.
Funds include grant programs (e.g., Digital Sandbox KC
); angel groups (e.g., Mid-America Angels
, Women’s Capital Connection
, Northland Angel Investor Network); KC-based funds (e.g., Flyover Capital
, Firebrand Ventures
, KCRise Fund
); and firms based outside Kansas City that have indicated significant interest in investing in KC area companies (Lewis & Clark Venture Capital
, Dundee Venture Capital
, Drive Capital).
Investment in KC-area companies
KCSourceLink tracks equity investments and grant funding
to KC-area companies. We do this In order to determine whether our efforts to build the pool of capital available to early-stage companies actually yields results in terms of investments in entrepreneurial firms.
For 2017 the news is good: The number of equity investments and grants into KC-based companies is the highest it’s been in the past five years.
The overall amount of investments is also up. In 2017, KC-based companies raised almost $541 million in equity investments and grants, the highest total amount since 2013.
2017 saw an increase in investments in the $1 million - $3 million level. This is heartening in that much effort has been focused on increasing investments at that stage
Tracking equity funding can be more of an art form than a science. Data for these charts was pulled from various public sources and private databases, such as CB Insights, Cap IQ and Pitchbook, as well as local media outlets and entrepreneur-reported figures. Numbers reported here are based on all known data as of December 31, 2017.
We’ve chosen to report investments by amount rather than stages (seed, Series A, etc.) because those funding stages are defined differently by different sources. Data includes companies within a 100-mile radius of Kansas City, Missouri, roughly the Kansas City, MO-KS Combined Statistical Area and includes companies either headquartered in or with a significant percentage of operations in the Kansas City region.
Resources are important to companies raising capital
KCSourceLink connects entrepreneurs and small business owners to a network of 250+ resources. Having access to the expertise of those business-building resources matters, especially when seeking funding
Almost 70 percent of the companies who raised funding in 2017 received assistance from local entrepreneurial support organizations. For companies that raised less than $100,000, the percentage that received assistance was even higher: 79 percent.
Fun fact: 32 percent of the companies got assistance from Digital Sandbox KC.
KC investors make bets on local companies
It’s no surprise that most investments of less than $100,000 for KC-area companies come from KC-area investors. What may be a surprise is that more and more later stage investments in KC firms are coming from local investors. For the last three years running, the number of investors from the Kansas City area has outpaced investors from outside Kansas City, where investors are disclosed.
That said, it’s also good news that KC-firms continue to attract funding from outside the region. Importing capital contributes to the overall economy by infusing new funds into the market.
Source: Various public sources and private databases, for investments and grants where investors are disclosed. Some investments feature multiple investors, so the number of investors does not match the number of deals in any given year.
KC moves up in Peer City Ranking for Capital Investments
Compared to other peer cities, Kansas City ranked 12 out of 15 in terms of total equity investments in 2017. That’s good news since we were dead last in 2016.
Upper movement aside, the ranking suggests that Kansas City still has a long way to go in terms of increasing access to capital for early-stage companies. Many investments go unreported.
(Note: this chart compares only investments captured by CBInsights; actual total investments in Kansas City are higher as investments are tracked from various public and private sources.)
SBIR and Federal Grants
We also look at how many KC-area companies secure Small Business Investment Research (SBIR) and other federal grants. The grants provide another key source of funding for early-stage innovations and bridge the gap between idea and market.
SBIR and Small Business Technology Transfer (STTR) programs are two federal mechanisms created to spur research and development within small businesses. Grants are awarded to fund technology development of particular interest to the federal government.
Missouri and Kansas generally do not take full advantage of SBIR/STTR funding. Missouri ranks 28 and Kansas 36 in the number of SBIR grants received since 1982. California ranks first and Massachusetts second. These grants are typically focused around strong research institutions such as Stanford and MIT..
In addition to lagging behind other states, the Kansas City region is not keeping pace with its past record. SBIR/STTR funding levels have declined for the past four years. Efforts to help entrepreneurs apply successfully for these grants has not yet yielded fruit.
Are you looking for funding for your Kansas City business (or looking to invest)?
Our CapitalMatch program can help you find the investors you need in Kansas City to scale and if you're interested in investing we can also connect you with the entrepreneurial team that best fits your passions and expertise.