Stan Gove, a vice-president of FirstBank Minneapolis, is widely considered the dean of small-business lenders in Minneapolis. And he always finds a way to offer encouragement and advice to those who seek his counsel. But rarely money.
"They throw themselves at my mercy," Gove says. "We talk to 100 people, and if we can get one or 2 customers out of that, we've done a good job."
Gove states the banker's first principle of new-business lending: "Sure, there are banks that will lend money for a start-up, but only if the customer doesn't need it." It has been true since the start of start-ups, and no doubt it will be true throughout the ages.
Let's face it: the goal of the banker these days is to collect a respectable service fee for processing a loan and transfer the risks to somebody else. In Minnesota, bankers support the recommendation of the Governor's Council on Entrepreneurship and Innovation for a joint public-private loan-loss reserve fund, like one already in place in California, that would partially cover a bank's loss when a start-up goes under. But no matter what mechanisms they may develop to pass the risk, bankers will never become venture capitalists.
However, until just recently, even venture capitalists have not been venture capitalists, at least as far as start-up companies were concerned. From 1984 to 1986, a quarter of the country's $20 billion in venture capital was tied up in troubled technology companies hit by an industry shakeout. Now that those investments have begun to pay off, or have been written off, venture money is loosening up for everybody else.
Minneapolis has always been something of a venture capital center, and CityBusiness recently reported that of the Minneapolis/St. Paul area's 25 venture firms, 80% will now at least consider first-stage deals again, if only for a small part of their portfolios. A few new firms have even been started to concentrate exclusively on start-ups.
One of them is Minnesota Seed Capital Inc. (MSC), founded in 1981 by a group of local business leaders as a for-profit venture fund. MSC was conceived of "in idealistic and philanthropic terms, to create jobs and build the tax base," says vice-president Tom Neitge. But before long, Neitge and his colleagues realized that "you can't be philanthropic as a venture capitalist." Even with a more hard-nosed attitude, however, Neitge says he is still very much bullish on new ventures. The original $5 million of seed capital was planted in 16 local companies in the medical, electronics, and communications industries. And all but one has survived.
At Pathfinder Venture Capital Funds, a six-year-old firm with $73 million to manage, Gary Stoltz and Andy Greenshields say they started looking more actively at start-ups again in July of last year. And like Neitge, they, too, are bullish on Minnesota companies in growing industries that have claim to proprietary products. But for would-be entrepreneurs, they warn, the news is not all good. For just as there are more venture capitalists willing to consider start-ups, there are even more start-ups competing for the attention of the venture capitalists.
"Before, we saw principally late first-or second-stage companies," says Greenshields. "Now, there are more start-ups out there looking for money: 250 of the last 286 deals across my desk were at very early stages." Adds partner Stoltz: "There is lots of money out there. It's the time of the venture capitalists that the entrepreneur is competing for today."
So, has America gone soft on start-ups? Is it easier now than ever before?
From one perspective, the kinds of support available in Minneapolis -- and, to some degree, in every metropolitan area -- have made it easier for some companies to get off the ground. Some of the new companies that have availed themselves of the networks, the venture funds, the incubators, the consulting services, and the community and academic support probably would have made it anyway. But other new ventures would not have succeeded, and they represent the tangible benefits of a more congenial start-up environment.
From another perspective, however, it looks to be larger societal forces that account for the ease with which so many companies are started. The dramatic downsizing of the nation's large corporations, the rise of the two-income family, even the allure that now surrounds the entrepreneur -- these, perhaps, have more profound effects even if they are harder to quantify.
Perhaps the question itself is flawed. The dramatic increase in the number of start-ups is probably all the circumstantial evidence needed to make the case that starting up is easier, for whatever reason. But is easier better? More new businesses, after all, means more competition -- more entrepreneurs chasing capital, customers, and employees. And for all the ways people have come up with for making it easier to start a company, statistics show that we haven't yet come up with any formula for making it easier to succeed. As WEDCO's Kathryn Keeley told me, "Nowadays, it's simply easier to fail."
In the end, one presumes that the marketplace will settle the question once and for all. In an economy that eventually winnows out the weak and lets only the strongest survive, the difficult start-up has served as an effective test of courage, endurance, and ingenuity. Only good things will come from opening that start-up process to large numbers of would-be entrepreneurs who might otherwise have been excluded. But making the start-up dramatically "easier" could, in the long run, only serve to raise false hopes and deny the economy the strength it needs in an ever more competitive world marketplace.
