Des Moines’ tech start-up culture
What the tech start-up environment is like in Greater Des Moines and what experts say could make it better
Silicon Valley, it’s not. Silicon Prairie? Des Moines is getting closer.
The technology start-up culture in Greater Des Moines is improving, according to local experts who either help or have witnessed start-ups get off the ground.
Dwolla is the shining example of how a technology start-up can survive and thrive in the area, but it’s not the only one (see sidebar on page 12). And two recent pieces of legislation have actually added to the potential for more viable tech ideas to take hold.
A bill passed in the Iowa House of Representatives during this year’s session will allow for $2 million more annually in angel investment tax credits to be allocated to Iowa businesses with a net worth of $5 million or less. Another bill set up an innovation fund designed to free up $8 million in tax credits for investors.
The start-up culture in Des Moines is changing, said Christian Renaud, principal at StartupCity Des Moines, and has actually been helped by the recession and inventions born out of necessity.
“Those people are breaking a lot of rules or are not accepting the explicit assumptions about what you can or can’t do. We’re changing it by degrees, but it’s not going to happen overnight,” he said. “It’s going to require the existing power structure (government officials and private sector leaders) to move at a much quicker pace. The start-ups require an immediacy and speed.”
Renaud and two other area experts weighed in on what the technology start-up culture is like in Greater Des Moines and what challenges it faces in getting better.
What is the technology start-up environment like in Greater Des Moines?
CR: Obviously you have areas of the country like Silicon Valley and Austin, Texas, that have very strong start-up cultures that pervade the sources of capital, the educational system, all of the other entities that surround and envelop start-ups. It’s almost like they’re getting on a conveyor belt. That conveyor belt does not exist here. Here if you say you work for a start-up, people say “Oh, you’re unemployed, and you’re an entrepreneur?” Whereas in Silicon Valley, they say “Oh, which one? And can you guys hire me?” It’s going to take awhile for us to make that cultural shift here – because we are an insurance and banking town – to go from being pretty conservative and risk-averse to accepting and encouraging risk-taking entrepreneurs to start the businesses.
MC: I think in general it is very strong. I think there are a lot of people around who honestly want to help. I think what really does define a start-up culture is when the people who are surrounding those start-ups are doing it because it’s the right thing to do, and paying it forward a little bit vs. standing there with their hands out wanting a piece of the company. There’s a lot of good technical people in the area who are very interested in being part of a tech start-up. There are, I think, a lot of good business-type people around that understand the process in a certain area that are looking to find the right technology people. I’d say there are a lot of good partnerships like that.
JS: I think it’s strong and getting stronger. We’ve had some fairly high-profile successes come out. Certainly Dwolla comes to mind, where it’s a unique offering and it’s gotten some national attention. But there are quite a few others that come to mind. Because of their success and the energy around them, it’s creating a whole new start-up culture. It’s a tight-knit group. It’s collaborative. It’s getting stronger. I think people can see that it’s getting a little closer. There’s a lot more people saying “Hey, I want to do that.”
What kind of challenges are start-ups here still facing?
MC: At the best of times, doing a start-up successfully is hard. So I think the reality is most start-ups fail. And they aren’t failing because of things out and around them. They are failing because they had a poor business model, poor execution, bad timing, lots of other reasons. So I think (the environment) is pretty good. What could be better? Speed. When you talk about any program, be it the state, the city, the county, a big corporation – speed. Move fast. Help these entrepreneurs move through. Start supporting these entrepreneurs. Buy their product. Don’t tell them to come back in six months to see if they’re still going to be there. Take what these people do and give it a try. Buy something with them.
JS: Capital. We actually made significant headway this year. But recognizing that within start-ups, Iowa has kind of a dearth of capital available between a certain point. There’s a point where you go from friends and family and everybody you ever knew who you could get to write a check for something you’re passionate about, which probably taps out somewhere between $100,000 and $500,000. About $500,000 up to a couple million, $5 million – it’s really tough to get that. That’s pre-venture capital, an angel investor area. Iowa is doing a good job now of creating angel investing funds. What we did this year is create an angel investing tax credit, which incentivizes people to give to funds that act as angel investor funds. Also, the Iowa innovation fund is providing additional funding to do direct company investments. Those things together, that’s filling a complete vacuum.
CR: The location is difficult because it’s not “down the street from my office” for any of the companies that are going to find you funding or acquire you. That’s an uphill challenge. The overall culture, one thing we struggle with is the population density and the population being what it is in Iowa. There are not as many people. There’s just not enough demand to sustain five competitive incubators or four full-time venture capitalists. The thing we need to do most is encourage seed investors, angels and early-stage venture companies in either setting up an operation here or expanding an operation here to work with those start-ups. It’s going to take time.