Investing in startup companies and new technologies is risky businesses.
There is a lot of randomness in creating new things, and creating new products and services is what entrepreneurs and startups are all about.
Entrepreneurs come up with new ideas that no one else has tried before. They utilize new technologies. They form new companies and new partnerships. They launch new solutions to big problems. This is inherently risky.
On average, more than half of all startups fail before five years.
In Oklahoma, we've taken initiatives to reduce that risk.
For example, at i2E Inc., we bring a portfolio of venture services and best practices to the table so that today's Oklahoma entrepreneurs don't have to relearn the hard lessons of entrepreneurs who went before. More than two-thirds of i2E's client companies make it past the four-year mark.
We are overcoming the lack of venture capital in our state by building our own sources of capital.
Oklahoma entrepreneurs have a clear path to access investment capital through a series of i2E-managed investment funds. Co-investment with SeedStep Angels, the largest angel network in the state, and other entities extends the power and reach of our investment funds.
Still, the risk of investing in startups is real. But where there is greater risk, there is also greater opportunity for return.
According to a recent report from the U.S. Treasury Department, the “investment activity” in a state in “private small businesses with the potential to grow substantially” is a leading indicator of future job creation. Investment activity means dollars and deals.
Nearly all of the net new jobs in our economy over the last 20-plus years have come from new companies. Those new companies came from the 50 percent of startups that survived five years or more.
In this group of surviving startups are the “gazelles” — companies that, according to MIT economist Dr. David Birch, make up only about 4 percent of the companies created, yet produce 70 percent of the nation's new jobs.
We need to remember these statistics when, despite all our efforts and initiatives, some of Oklahoma's new ventures do not survive past the four-year mark. A state needs enough risk capital to invest in the failures to find its gazelles.
In the well-executed, sound model of entrepreneurship that we are building in Oklahoma, more investment will lead to greater overall success.
Scott Meacham is president and CEO of i2E Inc., a nonprofit corporation that mentors many of the state's technology-based startup companies. i2E receives state appropriations from the Oklahoma Center for the Advancement of Science and Technology. Contact Meacham at i2E_Comments@i2E.org.
DID YOU KNOW?
Eleven Oklahoma companies receiving $4.5 million in i2E Seed Funding have had a direct and indirect economic impact of $37.3 and $11.8 million, respectively.