Downtown Charlotte | image: shutterstock
Last fall, Melissa Bodford decided to leave her corporate job and launch, along with a friend, her own startup company. The company they founded, uBack, makes it easier for people to donate money to charities and for companies to process those donations. Bodford, a Charlotte native, was named one of the Charlotte Business Journal’s “40 Under 40” winners this year, and nearly 200 charities have already signed on to the uBack app. “We started this as more of a personal passion project,” Bodford told the Charlotte Business Journal. “The demand started growing and we said, ‘Wait a minute - we actually have a startup on our hands.’”
But Bodford’s story of small-scale innovation is the exception in a city where venture-capital investment, according to a new survey, is “shockingly low.” The “Charlotte Entrepreneur Growth Report,”1 the first study to examine new-business growth in Charlotte, North Carolina, shows that it lags well behind comparable cities in innovation, entrepreneurship, and investment. The city also falls behind other metropolitan areas in investment for research and development. With only $40 million in academic R&D funding in 2013, Charlotte was by far the lowest among the benchmark cities.
In other ways, Charlotte is among the best places for business, a city that is headquarters for seven of the Fortune 500 companies and an outpost of 300 others. With 51 colleges and universities in the area, it has a solid base for R&D as well a large educated workforce. According to a new Allstate Renewal Project poll of the metro area, almost two-thirds of respondents (65%) said they are living the American Dream, while an overwhelming majority called it safe (82%), kid-friendly (82%), welcoming to newcomers (77%)—and great for new businesses (85%).
Three years ago, recognizing the need to boost innovation and attract investment, the city founded the Charlotte Regional Fund for Entrepreneurship (CRFE) to improve citywide strategies to attract and foster innovative enterprises and to bring in more venture capital. According to the latest annual Kauffman Index of Entrepreneurship, which measures the rate of small-business growth and the number of startups per capita, Charlotte ranked 25th out of 40 top cities, a ranking that CRFE and its sponsors are hoping to improve.
Austin, Texas, ranked No. 1 on that list. “If we started companies at the same rate as Austin, we'd have 700 more startups in metro Charlotte each year,” Paul Wetenhall, president of Ventureprise at UNC Charlotte, said in an interview.2 “You'd expect a high-growth city to be at the top of the list.” And yet, Wetenhall added, business creation “is not here to the degree it is in other cities, and we can't sugarcoat that. We've got great entrepreneurs and there's a lot of activity, but there's a lot less than you find in other cities we benchmarked.”
One problem is that Charlotte, like many other metro areas, has traditionally relied on its large corporations, such as Bank of America and Duke Energy, to keep the local economy vibrant. Over the years, its corporate sector could always be depended on to provide steady growth. “In a city sometimes called ‘Bank Town,’ small, nimble tech companies and other innovators aren't what come to mind when people think of the business community,” the Charlotte Observer noted in an article examining the state of the city as a center of innovation. But the example of once-bustling cities like Cleveland and Detroit that have since slipped into economic decay offers a dire warning about over-dependence on big business.
In fact, though, Charlotte has a great foundation for a lively tech sector and for small-business innovation in general. Taken together, the 248 innovative companies included in the CFRE survey showed an estimated $1.3 billion in revenues last year alone, on par with such publicly traded companies as Coca-Cola. Employees working in businesses supported by venture capital have unusually high pay—an average of $71,707 in 2015—and at 7.5%, Charlotte’s employment growth in venture-backed businesses is more than twice the job growth in the innovation and entrepreneurship sector of many other cities. So-called “gazelles,” or young companies—those formed in the past fifteen years—report strong revenue growth as well. But, as Terry Cox, president and CEO of the Business Innovation and Growth Council, lamented in an interview3, "We've never had a way to really congeal, connect all this and make it more visible.”
What’s holding Charlotte back from even more robust growth is not only its traditional orientation toward large corporations but also a distrust of entrepreneurship, says Louis Foreman, CEO of the Charlotte-based small-business incubator Edison Nation. “If you look at what industries helped put Charlotte on the map, they’re relatively low-risk industries, like banking and health care and energy,” he says. “So Charlotte was somewhat risk-averse and that kind of flies in the face of entrepreneurship. It’s a great place to live and it’s a great place to raise a family, but I’ve got to be honest, when I moved here, being an entrepreneur was looked at strangely. People would look at you and wonder, ‘Why aren’t you working for a bank?’ Charlotte didn’t necessarily understand or embrace entrepreneurship.”
That is beginning to change, thanks to targeted citywide projects aimed at encouraging innovation and fostering Charlotte’s entrepreneurial spirit. Last year, the city hosted the largest Southeast Venture Conference ever, showcasing fifty high-growth companies and bringing in Steve Wozniak, co-founder of Apple, as keynoter. “The City of Charlotte is committed to putting forward unique public-private partnerships to drive entrepreneurship and innovation in our region,” then-Mayor Dan Clodfelter said in a statement. “Our collaborative sponsorship of the Southeast Venture Conference demonstrates the kind of creative, supportive business environment Charlotte has to offer.” Meanwhile, a new Charlotte-based center founded to help boost women entrepreneurs recently received a grant of $150,000 from the U.S. Small Business Administration. The Women’s Business Center is scheduled to open this month, focusing on business diversity while offering training and counseling for women entrepreneurs.
Initiatives like these, progress over the past three years, and the CEGR’s clear-eyed assessment of what remains to be done suggest that Charlotte is on course to achieve exactly what Richard Florida prescribed in his 2002 book The Rise of the Creative Class. “The big myth is that creativity is the province of great individual geniuses,” Florida wrote. “In fact creativity is a social process. Our biggest creative breakthroughs come when people learn from, compete with, and collaborate with other people.”