Startup Communities: Building an Entrepreneurial Ecosystem in Your City

WE NEED MORE LOCAL VENTURE CAPITAL

Another common refrain that we touched on earlier is the notion that we need more local venture capital. Although there is always an imbalance between supply and demand of capital at any time in any market, Paul explains why equating startup communities and venture capital is a fundamental mistake.

I was in Brazil not long ago talking to some politicians about startup communities. Yes, they said, we are working hard on creating a more entrepreneurial city, so we have created a pool of capital to get more venture capital here. That’s nice, I said, but let’s get back to talking about startup communities. We went back and forth this way at least three or four times before it became clear they had made a false and common equivalency: Startup communities and venture capital are the same thing.

They were wrong, but they’re not alone. Almost everywhere I go, people talk about venture capital and startup communities as if they are the same or, worse yet, that the former causes the latter. It is a lazy and convenient way of thinking and is a myth that inhibits a lot of progress, especially in nascent startup communities.

Venture capital is a service function, not materially different from accounting, law, or insurance. It is a type of organization that services existing businesses, not one that causes such companies to exist in the first place. While businesses need capital, it is not the capital that creates the business. Pretending otherwise is ...