Kauffman @ SXSW: 4 Insights from the Fastest Growing Companies in America

© 2013 Ewing Marion Kauffman Foundation

www.kauffman.org© 2013 Ewing Marion Kauffman Foundation

Insights from the Fastest-Growing Companies in America

Arnobio Morelix

Kauffman Foundation

SXSW Interactive @ Startup Oasis

March, 2015

Austin, TX


Entrepreneurial Myths

about high-growth companies

Debunking and Bunking


Myths: the Debunking

1. The Location Mytho Legendary areas like Silicon Valley or Boston

2. The Funding Mytho Startups need to raise venture capital

3. The Industry Mytho High-growth = high-tech


Kauffman Foundation

• Multi-billion dollar endowed foundation focused on entrepreneurship and education.

• Entrepreneurship Research

• Founded by late entrepreneur Ewing Marion Kauffman

• Based in Kansas City

“the dominant player in the entrepreneurship space”

- Steve Blank, serial-entrepreneur, Lean Startup Movement


Research with the Fastest Growing Companies in America: Inc. 500|5000

• Revenue:o At least $2 million, up to billions as of 2014

• Growth:o As much as 158,957% over 3 years. In our qualitative research,

average 39% growth/year

• Sources:o Quantitative data

o Surveys (n=479)

o Qualitative data (interviews)


Myths: High-Growth Archetype

1. Location: Based in Silicon Valley or Boston

2. Industry : Mostly High-tech

3. Funding: Need venture capital

=> “sexy” stories get more airtime in the media, but they are not representative of the real world


The ‘Color’ Case

• Based in Palo Alto

• High-tech

• Raised $41 million in venture capital

• Founded: August, 2010

• Closed: June, 2013

o Source: Crunchbase


The Location MythInc. 500 Clusters

Source: www.kauffman.org/inc500


The Industry Myth

Source: www.kauffman.org/inc500


The Funding Myth: startups

• Most startups do not use venture capital

• Kauffman Firm Survey: largest and longest longitudinal

research with entrepreneurs

Major Categories Amount Share

Bank and Other Loans 38,059 34.90%

Personal Savings 32,658 30.00%

Friends and Family 6,910 6.30%

Credit Cards 6,756 6.20%

Angel Investors 6,350 5.80%

Venture Capital 4,804 4.40%

Government Related 2,129 2.00%

Total 109,016 100.00%Source: Modified from Robb and Robinson (2012)


The Funding Myth: high-growth companies

• $1 Million Bootstraps http://37signals.com/bootstrapped

• Alternative methods of financeo Bootstrapping (Motoyama et al. 2013)

o Inc. companies (n=479)

http://37signals.com/bootstrapped


The Funding Myth: venture capital industry

• Kauffman $2B endowment experience with 100+ venture

capital funds

• Failure rates of private venture fundso 80% of VCs unable to beat public market by more than 3% / year (Bradley et al.

2012)

o 62% did not even match public market (Bradley et al. 2012)

• Half of the funds that delivered +3% over public market

started prior to 1995


Insights – the Bunking

1. Venture capital is not a pre-requisite for growth

2. Local tangible and intangible strengths

3. Go big and go home

4. The Mentor Next-Door


Insight: Venture capital is not a pre-requisite for growth

• 59.1% funded with entrepreneurs own funds

• 27.2% with funds from family and friends

• 7.4% received venture capital


Insight: Local tangible and intangible strengths

• Kansas City case:o Large established companies:

• Sprint

• Cerner

• BATS Exchange (3rd largest stock exchange in U.S.)

o Low cost of living

• Longer runway

o “Midwestern work ethics”


Insight: Go big and go home

• 14% operated exclusively in Kansas City

• 23% operated in regional scale (e.g. Denver, CO | Dallas, TX)

• Some advantages:o Close to clients

o High-touch customer service

o Underserved markets


Insight: The Mentor Next-Door

• 75% of high-growth entrepreneurs had mentors

• Smaller communities have fewer degrees of separation

between entrepreneur and mentor


Concluding: Debunked Myths

Myths



3. The Industry Mytho High-growth companies are mostly high-tech


Thank [email protected]

www.growthology.org



3. The Industry Mytho High-growth companies are mostly high-tech

mailto:[email protected]

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Kauffman @ SXSW: 4 Insights from the Fastest Growing Companies in America