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Startup appalachia overview


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Startup appalachia overview

  1. 1. Startup Appalachia Accelerating the Entrepreneurial Economies in Appalachia What is Startup Appalachia?The Appalachia Funders Network Steering Committee is exploring Startup Appalachia, a framework foraligning the efforts of grantmakers, businesses, government, and nonprofits around the common purpose ofaccelerating the startup and growth of new enterprises in our region. This partnership between theAppalachianRegional Commission, the Appalachian Funders Network, and USDA Rural Development offers theopportunity to deepen the alignment of current efforts while leveraging additional federal resources toaccelerate Appalachia‟s entrepreneurial-based economy. The following offers an overview of Startup Appalachiaand the potential influence of this initiative within Appalachia‟s economic transition. Why an Entrepreneurial Economy?It has become well accepted that small firms account for the majority of job growth in the U.S. economy.However, recent research reveals that net job growthis driven not just by small firms, butprimarily by startupfirms.Data show that firms in their first year of operation add an average of 3 million jobs each year, and ten-year-old firms generate about 300,000 jobs annually.1Because startups are the drivers of job growth, public policy and programs that support the launch andexpansion of new firms are essential to developing vibrant economies.In his 2010 State of the Union messagePresident Obama launched a „Startup America‟ initiative, designed to accelerate high-growth entrepreneurshipthroughout the nation. This coordinated public/private effort brings together an alliance of innovativeentrepreneurs, corporations, universities, foundations, and other leaders, working in concert with a widerange of federal agencies to dramatically increase the prevalence and success of America‟s entrepreneurs. Thegoals ofStartup America are to increase the number and scale of new high-growth firms that are creatingeconomic growth, innovation, and quality jobs.21Kane, Tim, The Importance of Startups in Job Creation and Destruction, E. M. Kauffman Foundation, 1
  2. 2. Startup Appalachia Accelerating the Entrepreneurial Economies in Appalachia Startup Appalachia BackgroundThe partners of Startup Appalachia all view entrepreneurship as a critical element in the establishment of self-sustaining communities that create jobs, build local wealth, and contribute broadly to economic andcommunity development. While Appalachia has many outstanding examples of entrepreneurial organizations,and possesses many entrepreneurial assets, including the self-reliance of its people, it also faces manychallenges. These shortcomings stem from the region‟s longstanding dependence on extractive industries andbranch plant manufacturing, and the presence of many absentee landowners who have exported wealth fromthe region. Furthermore, the culture of entrepreneurship is neither broad nor deep throughout the region,and evidence suggests that there are many gaps in the infrastructure for supporting entrepreneurship, rangingfrom technical assistance to development finance. Appalachia has the opportunity to cultivate resourcefulentrepreneurs who not only create value by recognizing and meeting new market opportunities, but who alsoattract national attention and resources to the region. A Beginning FrameworkTo continue efforts to build entrepreneurial ecosystems in Appalachia, the Appalachian RegionalCommission, the Appalachian Funders Network, and USDA-Rural Development are engaged in strategicdiscussions to develop Startup Appalachia, an effort to link public and private partners for the purpose ofaccelerating the startup and growth of new enterprises in the Region. Startup Appalachia isn‟t a new project,but a framework for stimulating new investment and aligning our collective, yet independent, efforts around acommon set of promising sectors and critical entrepreneurial supports.The Startup framework focusesaround the following areas:(1.) Food Systems and Entrepreneurship: Appalachia‟s agricultural and food-related assets provide afoundation on which local communities can build sustainable economic development efforts. Reflectingregional and national trends, sustainable food system development links many of the Region‟s strengths to thegrowing demand for local, healthy, safe food that supports the economies of those who produce it.Investments will support the expansion of the local Food Systems infrastructure and the provision oftechnical assistance to farmers, processors and packagers, marketing efforts, and non-profits throughout theRegion.(2.) Energy and Entrepreneurship: Appalachia and energy have been closely linked throughout the historyof the nation, from the first discovery and production of oil, to the mining of coal to fuel our industrialgrowth, to the development of hydropower to bring prosperity and progress to remote rural communities. Byusing its full range of energy resources and staying at the forefront of emerging energy technologies andpractices, the Region has the potential to increase the supply of locallyproduced clean energy, and create andretain jobs. Support for renewable energy and energy efficiency projects will be provided.(3.) Health Care: Health Care is a significant industry in Appalachia with opportunities for growingenterprises and jobs ranging from primary care and hospital services, to the provision of elder care and childcare, mental health and substance abuse treatment, physical and occupational therapies, and dental practices.These areas of practice are underrepresented throughout Central Appalachia while demand for these servicesremains high. 2
  3. 3. Startup Appalachia Accelerating the Entrepreneurial Economies in Appalachia Examples of SuccessThe implementation of Startup Appalachia could be modeled after the following successful initiatives.Appalachian Sustainable Development (ASD), VAOverview: Between 1999 and 2000 ASD started the Appalachian Harvest social enterprise with the purposeof aggregating certified organic produce from small Appalachian farmers and selling and distributing it toregional grocery chains. The initial goal of the enterprise was to provide tobacco farmers with a replacementcrop once subsidies were no longer an option. Now in its 13th season, the enterprise has expanded to includeconventional as well as organic farmers, reaching $1.1M in sales in 2011.Though the level of subsidies this enterprise requires has dropped dramatically over the last 3 years, it stillrequires financial support. Some aspects of the business, such as training new farmers, helping to convertconventional farmers to organic practices, and helping all farmers to obtain Good Agricultural Practices(GAP) certification are unlikely to ever be profitable and will have to be treated as nonprofit (not business)activities, requiring long term financial subsidies.Funding Partnerships: ASD was able to obtain funding from a wide variety of sources to supportAppalachian Harvest. Funding in excess of $2 million was used for a combination of capital/infrastructureand operational support. Funders included: Appalachian Regional Commission, blue moon fund, State ofVirginia, Ford Foundation, Mary Reynolds Babcock Foundation, USDA, and private firms.Impact of Partnerships: Without funding from all of these sources, the Appalachian Harvest enterprisewould not have been possible, as private investment would most likely not have been available (or beenprohibitively expensive). The combination of funding has served to keep the organization and theAppalachian Harvest enterprise operational. However there have been times when obtaining operatingsupport was extremely difficult. ASD has also experienced “funder fatigue” due to the length of time it hastaken the Appalachian Harvest enterprise to become self-sufficient. Unfortunately, rural projects such asAppalachian Harvest often take a long time to reach maturity and, in the case of a social enterprise, self-sufficiency.ASD believes that funders and grantees can collaborate to build strategic plans for long term fundingpartnerships. Longer term funding helps NGO‟s to focus on making strides in their work, and not onfundraising.Mountain Association for Community Economic Development (MACED), KYOverview: MACED‟s Energy Efficient Enterprises (E3) program promotes commercial energy efficiencyretrofits in rural Appalachian businesses and enterprises, particularly in eastern Kentucky, that result inmeaningful cash flow savings to the business and create employment opportunities. MACED has a multi-strategy clean energy value-chain effort that includes commercial energy retrofits (E3), a residential energyefficiency pilot program, in partnership with four rural electric cooperatives (How$mart KY), and theadvancement of a state-based energy policy. MACED provides energy technical assistance, audit support andaccess to financing, and over the last two years has been directly involved in 53 commercial or publicretrofits.Funding Partnerships: The E3 program has received financial support from: The Appalachian RegionalCommission, Ford Foundation, Mary Reynolds Babcock Foundation, Mertz Gilmore Foundation, SurdnaFoundation, and the U.S. Small Business Administration. Direct grants for the E3 program have been aslarge as $75,000, with parts of other large multi-strategy grants going to support this work as well. Generally,these funding sources share the desire to see meaningful economic impact as a result of their efforts. 3
  4. 4. Startup Appalachia Accelerating the Entrepreneurial Economies in AppalachiaImpact of Partnerships: Partnership for the delivery of EE services is critical, particularly in ruralcommunities. To help business owners and individuals make good decisions, a series of pieces need to be inplace—audit expertise, affordable capital, easy repayment methods, link to contractors and installers and datatracking. In particular, partnering with utilities allows access to bills, both before retrofits and after retrofits,to track the results of these efforts.Even more important than partnerships is when utilities recognize that EE is the least expensive kilowatt-hour possible. Good regulatory policy is key to ensure that utilities can look at EE as a form of meeting theirbasic purpose—providing or ensuring adequate utility service. MACED, the State, and the communities theyserve - have to figure out the best form of partnerships able to make EE easy and scalable, and promoteregulatory reform that allows utilities to be key partners in the expansion of EE efforts.Natural Capital Investment Fund (NCIF), WVOverview: The Natural Capital Investment Fund‟s Small Business Energy Loan Program provides technicalassistance and capital to help small businesses implement energy efficiency related best management practicesand green building technologies. Free energy audits are available to help companies identify and quantifypotential energy efficiency savings. To date, NCIF has facilitated energy audits for 24 small businesses andprovided technical assistance and financing for the installation of solar PV systems, energy efficiency retrofitsfor grocery stores, a dental office, a green office building, and a solar thermal and PV system design andinstallers; as well as local food and meat producers.Funding Partnerships: The program was launched with the support of the Appalachian RegionalCommission, Claude Worthington Benedum Foundation and U.S. Department of Agriculture. NCIF hasrecently received funding from the JP Morgan Chase Foundation and the State of West Virginia.Impact of Partnerships: One example of an enterprise supported by the partnership is the Salem IGAgrocery. The owner of the Salem IGA was referred to NCIF in late 2010 as a potential energy audit candidate.NCIF arranged for an energy audit by the West Virginia Manufacturing Extension Partnership (WVMEP).The cost of the energy audit was covered by a USDA REAP grant. Following the audit, NCIF met with theowner to review the audit recommendations and discuss next steps (including a review of applicable costshare and rebate programs). The Salem IGA was eligible for the USDA‟s 25% cost share program. NCIFstaff prepared and submitted a REAP application on behalf of the business to the WV office of the USDA.Once the application was approved, the business submitted a loan request for $32,000 to upgrade alloverhead lighting fixtures. The loan was approved and closed in 2011. The USDA verified the project wascompleted as proposed in October 2011 and disbursed the 25% cost share grant in early 2012.Program challenges include:  Limited marketing and outreach support from project partners. All requests to date for energy audits have been generated by NCIF staff or bank partners. None of the primary project partners actively promote the program to small businesses.  Limited capacity of program partners to scale up energy audit services. NCIF currently has over 15 pending energy audit requests but partners can only handle 1 audit per month. NCIF is currently looking for additional qualified audit providers to meet the growing demand.Scaling Opportunities: To take this project to the next level, development and implementation of astatewide campaign raising the awareness of savings from energy efficiency related investment is needed.Some of the needed features of a statewide program include: additional energy audit service providers withsector experience; additional resources for marketing and development of targeted educational materials; andadditional resources to provide one-on-one technical assistance to help businesses. 4