Investment in entrepreneurial economy key to changing image of upstate cities

Investment in entrepreneurial economy key to changing image of upstate cities

Investment in entrepreneurial economy key to changing image of upstate cities
October 30, 2015

Beneath a massive video screen a leather jacket-clad entrepreneur stood and sold his vision of a world in which global crop yields are drastically increased, slowly walking backward and forward making punctuated gesticulations while a panel of tech investors and a crowd of a few hundred watched.

After his presentation was finished Brennan Duty and his partner at the start-up company Uma Bioseed, Stephane Corgiere, were grilled by the panel of judges, all of whom have been part of successful investments in New York City and Silicon Valley.

In some ways the event, which culminated with 11 teams receiving prizes ranging from $250,000 to $1 million in start-up capital, felt like it could have been taking place in Palo Alto, California. But this was the final day of 43 North, New York’s state sponsored business competition designed to jumpstart a growing entrepreneurial community in Buffalo, taking place in a historic theatre on a windy, rainy, 45 degree day.

Backstage the competition’s executive director, John Gavigan, said that the entrepreneurial community in the Nickel City has been growing for some time, but has not been nurtured or cultivated by the business and political class of Western New York, until now. Gavigan said the efforts of his agency and backing of Gov. Andrew Cuomo’s administration are starting to make an impact.

“Our two primary missions have been, really, solely focused on economic development in Western New York and really building on a culture of entrepreneurism here,” Gavigan said, adding that the state sees an opportunity to turn around the decades of decline in Buffalo’s industrial sector through promoting entrepreneurship.

While comparisons to Silicon Valley may be farfetched, Gavigan says he is excited to be creating any buzz in the start-up universe. 

“Is there a feel of it?” Gavigan said. “Absolutely, and that’s what makes it so energizing. We haven’t seen that here in a long, long time. We were the Silicon Valley at the turn of the twentieth century. It’s nice to get a piece of it back.”

The competition, now in its second year, is part of a growing trend from the Cuomo administration. The state is making sizable investments into new technologies in order to change New York’s image, particularly upstate. In addition to the 43 North competition, which is funded by Buffalo Billion money and the New York Power Authority, Cuomo has put significant funds into a variety of emerging industries – solar power, photonics, biomedical research, nanoscience – across the state. He has also invested in educational programs to prepare high school students for careers in the emerging fields and offered businesses opening on or near college campuses the opportunity to operate tax free for a decade through the Start-Up NY program.

But all of this investment comes with significant risks not posed in the traditional forms of state investment, such as offering tax incentives to business through industrial development agencies or investing in industries that have long been part of New York’s economic fabric.

Speaking to City & State, Christopher Schoepflin, Empire State Development’s regional director at the Western New York office, described Cuomo’s investment in the competition as representative of a “broad and bold” plan to change the course of Buffalo’s economy, which has for far too long gone in the wrong direction.

“This region, historically, was an amazingly innovative community,” Schoepflin said. “We’ve gotten away from it. Innovation drives economies. It drives economic development. It creates jobs. And part of the vision around entrepreneurship is to get back to our roots.”

For its investment in each company the state takes a five percent ownership claim and the company is required to headquarter their operations in Buffalo. The company also receives free office space in a downtown incubator where last year’s winners are already working. In addition, winners get the full support of the 43 North executive staff.

Still, the state’s chances of cashing in on any of this investment through their ownership stakes are slim. When it comes to start up companies, there is an extremely high rate of failure. Only one in ten companies will ever achieve long-term success.

This is all part of the cost of doing business if the state wants to move the upstate economy forward, Schoepflin said.

“To have meaningful, purposeful growth you are doing things as a community that you have not been doing for some period of time,” Schoepflin said. “I think economic development can be articulated and realized in many different ways.”

Some of the Cuomo administration’s investments and programs have drawn scrutiny. SolarCity, the company set to start operating out of a state-owned, $900 million factory in South Buffalo next year, has caught the attention of The New York Times and Investigative Post, with both news outlets writing about the risky nature of the company and the solar industry.

The company’s stock price tumbled, falling more than 20 percent this week after its quarterly financial report showed a loss that was 10 percent higher than expected and company executives said they were looking to slow growth and focus on profitability. 

Start-Up NY, the program that offers businesses that locate on or near college campuses and work with the schools to develop their products, has also drawn criticism, after it was reported that it only created 76 jobs in its first year of existence. 

Leslie Whatley, the program’s executive vice president, has been touring upstate cities defending the push to attract businesses, saying that it would take time to build momentum. Whatley added that the program should soon take off now that they have taken steps to put the building blocks in place and educate the many people involved in administering the program.

Fred Floss, a professor of Economics at Buffalo State College and the former executive director of Albany’s Fiscal Policy Institute, said that while some of Cuomo’s investments are risky, it is necessary to take a different approach. 

“If you’re going to jump start a region, you’re going to have to take some risks,” Floss said.

Floss pointed to the nanoscience hub in Albany as an example of delayed success. It started with a great deal of risk when the groundwork was first being laid nearly 20 years ago and has grown into a model of smart development over the last few decades.

In some ways, Cuomo’s efforts mimic the techniques used by venture capitalists, like those judging the 43 North competition, Floss said. By investing in a number of different technologies the state has positioned itself to have the wins outgain the losses.

“They’re trying to pick a number of high tech programs with the idea that some of these are inevitably going to fail or not come to fruition,” Floss said. “The trick is to do enough of them so that some of them succeed and you can keep on going.”

The Buffalo State College professor also points out that upstate cities are able to change their image by investing in high-tech industries, helping to attract young, educated people to the area

“I think there is a big part about trying to make Buffalo a place where younger people, hopefully younger people, will then come move to Buffalo, and then have children, who will help to redevelop the area,” Floss said.

Back at Shea’s Performing Arts Center, the 90-year-old theatre with ornate, wood carved ceilings where the 43 North event was held, the 11 teams of mostly 20 and 30 somethings gathered on the stage to learn the amount of their prize money, the culmination of a week of tours, workshops and preparation.

The awards event featured light displays, highly produced videos and a series of speeches from state officials, including NYPA board chair John Koelmel and Lt. Gov. Kathy Hochul, each praising Cuomo for his vision in setting up the competition and pushing the narrative of a Buffalo renaissance.

Tension built as the awards were announced, with ACV, a Buffalo company that has developed an application to automate used car auctions, taking the $1 million grand prize.

Afterward the stage became the site of a cocktail and hors d’oeuvres hour where state officials joined prize winners and their family and friends to celebrate.

Ace Callwood, a member of the team finishing second and winning $500,000 for their painless 1099 software, a program that simplifies the tax process for independent contractors, said he had watched the competition last year and he and his partners decided to enter after one of them saw a Facebook campaign promoting this year’s round of funding.

Callwood, who, along with his partners, will be moving to Buffalo soon from Richmond, Virginia, said he had never really though about the Queen City as a destination for tech companies before hearing about 43 North.

“I knew nothing about Buffalo,” Callwood said. “Absolutely nothing. This is my first time here.”

But after a week of tours and meeting other contestants – most of whom are from Western New York or Southern Ontario – he feels like Buffalo has a chance at becoming the tech hub in which the state is placing so much confidence and money.

“Culture comes down to community,” Callwood said. “And I think what we’ve seen in the crowd is a testament to that.”

Justin Sondel
is a freelance reporter in Buffalo.