Survey: KC is sticky for startups with equity funding

A majority of Kansas City startups choose to maintain their hometown roots after they raise capital — even when the funds come from outside investors, a recent survey found.

Of the companies that raised money in 2013 and 2014, 74 percent of them are still active and headquartered in the City of Fountains, according to a KCSourceLink survey.

KCSourceLink executive director Maria Meyers said Kansas City’s economical assets make it an appealing locale that retains businesses.

“I think most companies stay in Kansas City because they like being here, it’s affordable and they can get access to help they need,” Meyers said. “Companies are finding that they can build organizations here and enjoy the quality of life.”

The entrepreneurial resource hub looked at 135 area businesses that disclosed receiving equity funding or grants over the two-year span. 100 of those businesses are currently still in Kansas City, 26 have shut down, five have left the area and four moved headquarters after being acquired.

Of the 135 companies, 19 had investors outside Kansas City, including the five that left the area. Three of the companies moved to the region from which they landed funds.

Funders are frequently undisclosed, KCSourceLink said, and thus it’s impossible to say with any certainty the total number of companies that received funding from sources outside Kansas City.

Meyers said, however, that the survey conclusively shows Kansas City startups don’t have to relocate their businesses to be successful with equity funding.

“While we are trying to raise Kansas City-based funds and making a lot of progress, we’ll never have all the equity we need here,” Meyers said. “What our review of the data shows is not every company that goes outside of Kansas City to get funding has to move out to be close to those funders. And that’s very good news for Kansas City.” 

KCSourceLink has spent years researching Kansas City’s funding landscape. KCSourceLink recently touted Kansas City’s improvements in access to capital during the last year. 20 companies snagged venture capital rounds of $1 million to $10 million — compared to only 17 such deals in 2012. Angel investments in the last year have doubled in Kansas City from $1.4 million to $2.8 million.

Although the investment climate may be looking up, KCSourceLink still points to several areas for improvement. Key gaps include:

• Poor leveraging of federal microloan funding
• Limited use of federal grant programs like Small Business Innovation Research and Small Business Technology Transfer
• A lack of equity funding for businesses in seed stage
• Poor access to local, late-stage investment dollars, as most funding comes from outside the region
• Inadequate connections between the Kansas City investor community

The organization has served as a leader in an area effort to improve early-stage firms’ access to capital. In addition to researching capital challenges, opportunities and prospective improvements, KCSourceLink is more directly serving as a connector between investors and startups that need funding. The organization offers a “Capital Match” tool for both investors and entrepreneurs to submit information on what they want and need in regard to investments.