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    Memphis's Startup Niche: Bio-Engineering and Logistics

    GUEST MENTOR Jan Bouten, partner at InnovaMemphis, Memphis, Tenn.:

    We wrapped up a great year here in Memphis when it comes to accelerated startups. Specifically, we ran ZeroTo510, the first dedicated medical-device accelerator. We only ran it once so far, but we appear to be on to something: Out of the six startups, one has raised a $2.5 million Series A round and four others got $100K each of additional seed funding. So when asked to write this essay, I tried to figure out why this accelerator was successful here in Memphis.

    See what our mentors have to say about whether startups can succeed anywhere in the U.S.

    I moved to Memphis about four years ago from what is considered one of the top startup places: Research Triangle Park, N.C. Comparing the two regions allows me to see the differences and resulting opportunities for my new home state of Tennessee. My friends back in North Carolina tell me RTP is in transition between the “old way” of doing startups and the “new way,” but is somewhat held back by a “This is how we’ve always done it” attitude. In contrast, here in Tennessee, an emerging ecosystem, combined with Tennessee’s “Can Do” attitude is creating unique opportunities during a period when entrepreneurship is turned on its head. These opportunities stem from three key areas: Late mover advantage, smart public-private partnerships, and capitalizing on our strengths.

    We can all agree that the startup scene has significantly changed over the past five years, with the lean startup and accelerator models at the core of many of these changes. While these changes first happened in the mobile, web, and social media sectors, they are now being adopted by, and adapted to, startups in the healthcare, biosciences and B2B industries. These new models require a very different mindset from entrepreneurs, investors and other supporting organizations. Since change is inherently hard, having an “old school” entrepreneurial ecosystem can actually work against you. However, starting with an open mind and little baggage, combined with the ability to learn from best practices, can put a region at a big advantage.

    When it comes to public-private partnerships, both the Tennessee Legislature and Memphis’s City and County leadership realized that most new jobs will come from high-growth startups and that creating a supportive environment is a top priority. Not having internal expertise in venture investing, in 2010 the State developed the TNInvestco program, putting $200 million toward a 10-year initiative, partnering with private investment firms to identify, fund and grow startup companies in the state.

    During the first three years of the program, around 100 startups were funded to the tune of $100 million with state money, and around $130 million of additional capital from other sources. Tennessee’s program took best (and avoided worst) practices from other states and crafted a program that minimizes government involvement, yet captures financial upside for the state on the back-end. Similarly, the state has put in place public-private partnerships through Launch Tennessee to guide and financially support local economic development organizations to ensure the startups have a good support infrastructure. Putting all these pieces together, our ZeroTo510 medical device accelerator was developed by Innova Memphis (one of the TNInvestso firms) and the Memphis Bioworks Foundation (a non-profit focusing on economic development and entrepreneurship in the biosciences) with support of the State’s INCITE program, as well as many others.

    So, with late mover advantage and a pool of focused capital and infrastructure, what startups should a region encourage and help build? As is so often the case, you should focus on leveraging your existing strengths. For Memphis, this implies a focus on bioscience and specifically medical devices (Medtronic, Smith+Nephew, Wright Medical etc.), as well as logistics (FedEx, five major railroads, the Mississippi and cross-country interstates), as well as ag-bio (industrial agriculture).

    The reason why focusing on an existing strength is so important is threefold. First, you have a pool of potential entrepreneurs that understand the untapped opportunities in their industry. Second, Angel investors prefer startups they understand and can contribute to, so focusing on innovation in existing regional sectors creates a highly-skilled and receptive mentor and angel investor pool. Third, and often overlooked, you have an already-developed educational system that can supply a skilled workforce specific to your industry to support long-term growth and viability.

    In summary, yes, you can build a startup anywhere, but to massively increase your odds for success, make sure to start in, or move to, a city or region that has the right ingredients for success for your specific company. If this is medical device, logistics or ag-bio, give me a call.