If you read startup media you may be left with the impression that most of the fastest-growing companies are based in Silicon Valley, and that they can only get any traction because they raised massive amounts of venture capital. Yet, the data shows a very different picture. Our research with 479+ companies among the Inc. 500|5000 list of fastest growing companies in America tells another story: the vast majority of them are not based in Silicon Valley, and less than 6.5% of them raised any venture capital. Join us to learn from the research with these companies how to build great startups outside the stereotypical startup hubs.

1. © 2013 Ewing Marion Kauffman Foundation
www.kauffman.org
© 2013 Ewing Marion Kauffman Foundation
Insights from the Fastest-Growing
Companies in America
Arnobio Morelix
Kauffman Foundation
SXSW Interactive @ Startup Oasis
March, 2015
Austin, TX

2. © 2013 Ewing Marion Kauffman Foundation
Entrepreneurial Myths
about high-growth companies
Debunking and Bunking

3. © 2013 Ewing Marion Kauffman Foundation
Myths: the Debunking
1. The Location Myth
o Legendary areas like Silicon Valley or Boston
2. The Funding Myth
o Startups need to raise venture capital
3. The Industry Myth
o High-growth = high-tech

4. © 2013 Ewing Marion Kauffman Foundation
Kauffman Foundation
• Multi-billion dollar endowed foundation
focused on entrepreneurship and
education.
• Entrepreneurship Research
• Founded by late entrepreneur Ewing
Marion Kauffman
• Based in Kansas City
“the dominant player in the entrepreneurship space”
- Steve Blank, serial-entrepreneur, Lean Startup Movement

5. © 2013 Ewing Marion Kauffman Foundation
Research with the Fastest Growing
Companies in America: Inc. 500|5000
• Revenue:
o At least $2 million, up to billions as of 2014
• Growth:
o As much as 158,957% over 3 years. In our qualitative research,
average 39% growth/year
• Sources:
o Quantitative data
o Surveys (n=479)
o Qualitative data (interviews)

6. © 2013 Ewing Marion Kauffman Foundation
Myths: High-Growth Archetype
1. Location: Based in Silicon Valley or Boston
2. Industry : Mostly High-tech
3. Funding: Need venture capital
=> “sexy” stories get more airtime in the media,
but they are not representative of the real world

7. © 2013 Ewing Marion Kauffman Foundation
The ‘Color’ Case
• Based in Palo Alto
• High-tech
• Raised $41 million in venture capital
• Founded: August, 2010
• Closed: June, 2013
o Source: Crunchbase

8. © 2013 Ewing Marion Kauffman Foundation
The Location Myth
Inc. 500 Clusters
Source: www.kauffman.org/inc500

9. © 2013 Ewing Marion Kauffman Foundation
The Industry Myth
Source: www.kauffman.org/inc500

10. © 2013 Ewing Marion Kauffman Foundation
The Funding Myth: startups
• Most startups do not use venture capital
• Kauffman Firm Survey: largest and longest longitudinal
research with entrepreneurs
Major Categories Amount Share
Bank and Other Loans 38,059 34.90%
Personal Savings 32,658 30.00%
Friends and Family 6,910 6.30%
Credit Cards 6,756 6.20%
Angel Investors 6,350 5.80%
Venture Capital 4,804 4.40%
Government Related 2,129 2.00%
Total 109,016 100.00%
Source: Modified from Robb and Robinson (2012)

11. © 2013 Ewing Marion Kauffman Foundation
The Funding Myth: high-growth companies
• $1 Million Bootstraps http://37signals.com/bootstrapped
• Alternative methods of finance
o Bootstrapping (Motoyama et al. 2013)
o Inc. companies (n=479)

12. © 2013 Ewing Marion Kauffman Foundation
The Funding Myth: venture capital industry
• Kauffman $2B endowment experience with 100+ venture
capital funds
• Failure rates of private venture funds
o 80% of VCs unable to beat public market by more than 3% / year (Bradley et al.
2012)
o 62% did not even match public market (Bradley et al. 2012)
• Half of the funds that delivered +3% over public market
started prior to 1995

13. © 2013 Ewing Marion Kauffman Foundation
Insights – the Bunking
1. Venture capital is not a pre-requisite for growth
2. Local tangible and intangible strengths
3. Go big and go home
4. The Mentor Next-Door

14. © 2013 Ewing Marion Kauffman Foundation
Insight: Venture capital is not a pre-requisite
for growth
• 59.1% funded with entrepreneurs own funds
• 27.2% with funds from family and friends
• 7.4% received venture capital

15. © 2013 Ewing Marion Kauffman Foundation
Insight: Local tangible and intangible
strengths
• Kansas City case:
o Large established companies:
• Sprint
• Cerner
• BATS Exchange (3rd largest stock exchange in U.S.)
o Low cost of living
• Longer runway
o “Midwestern work ethics”

16. © 2013 Ewing Marion Kauffman Foundation
Insight: Go big and go home
• 14% operated exclusively in Kansas City
• 23% operated in regional scale (e.g. Denver, CO | Dallas, TX)
• Some advantages:
o Close to clients
o High-touch customer service
o Underserved markets

17. © 2013 Ewing Marion Kauffman Foundation
Insight: The Mentor Next-Door
• 75% of high-growth entrepreneurs had mentors
• Smaller communities have fewer degrees of separation
between entrepreneur and mentor

18. © 2013 Ewing Marion Kauffman Foundation
Concluding: Debunked Myths
Myths
1. The Location Myth
o Legendary areas like Silicon Valley or Boston
2. The Funding Myth
o Startups need to raise venture capital
3. The Industry Myth
o High-growth companies are mostly high-tech

19. © 2013 Ewing Marion Kauffman Foundation
Thank you
amorelix@kauffman.org
www.growthology.org
1. The Location Myth
o Legendary areas like Silicon Valley or Boston
2. The Funding Myth
o Startups need to raise venture capital
3. The Industry Myth
o High-growth companies are mostly high-tech