At the end of March in 2013, entrepreneur and venture capitalist David Rose taught the class “Launching with the Stars” at an event co-hosted by the startup communities of Yale University and New Haven. The decision to collaborate was logistical — Yale had the facilities available — but also emblematic of a budding relationship between entrepreneurism on campus and that in the New Haven community.
According to Jim Boyle, Director of the Yale Entrepreneurial Institute (YEI), “We see ourselves not just as part of Yale, but also New Haven and an even bigger group of ventures that the state of Connecticut is interested in.” Their attitude is part of a transformation in the way that startups do business, even as they transform the way Americans work in the changing economy. A 2011 report by the McKinsey Global Institute claimed that the United States needs to create 20 million new jobs by 2020 to employ its growing workforce, even as Fortune 1000 companies downsize and cut fixed costs. The gap can only be filled by new companies – from the bottom up. McKinsey’s report belies the fact that there are two very different faces of entrepreneurism, however, and the relationship between the two will determine what those jobs look like in the next decade.
The story of startups at Yale and in New Haven is illustrative of this trend, and the two young communities have to learn to navigate their differences even as they take the first steps into a more self-aware partnership.
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Any New Haven entrepreneur will eventually find his or her way to the Grove, a self-described collaborative and co-working space in the middle of the now-thriving Ninth Square. Infused with the aroma of the coffee and tea offered to its members, the physical facilities – featuring an open-office floor plan, free meeting rooms, and kitchenette – are not what characterize the Grove; it’s the unique ability to, as a member, sit down at any given table and find onself talking to a graphic designer on the left and an investor on the right. Flexible groups form and disintegrate as the ideas flow – the atmosphere is charged with the optimistic sense that anything can happen. At the same time, the Grove’s mood is intimate, designed to nurture ideas and relationships and dissipate the idea of cutthroat competition à la The Social Network .The Grove is just a piece of Connecticut’s Innovation Ecosystem, a state program intended to foster the growth of startups.
Newcomers to the Grove will almost certainly be introduced to Derek Koch, one of the founders of a company called Independent Software and a man for whom both business and personal goals involve helping other entrepreneurs succeed. Koch has worked extensively with the state to help establish a sort of community-based accelerator, in which the Grove is a space designed not only to administer state resources like mentorship and incubator grants, but to create a vibrant community around local entrepreneurship.
As Koch explains, “We have to get people to tell the story. That’s almost half the battle of creating a startup scene.”
For New Haven, a small city still plagued by the effects of the recession, it’s difficult to raise capital in New Haven. The difficulty of finding the right sort of employees has also chased many business away. “We lost a venture last year to Boston,” says Boyle, “because they had to hire a whole bunch of database engineers, and they could get them a lot faster in Boston than they can here.”
Despite this, doing business locally has its advantages. New Haven is just a quick train-ride away from Boston and New York; it is at the geographic center of the East Coast’s large concentration of university talent. Its startup scene also has a nurturing small-town quality lacking in the larger business ecosystems that are more established.
“Our community is highly accessible. You can walk into the Grove and see angel investors here working with people,” says Koch. “The big successes of New Haven are people who come to events, who support the community, and who really are invested in seeing people succeed. It’s different from some of the bigger environments. We’re kind of the underdog in certain ways, but it’s really important to be around people who have done it before and are committed to helping and coaching you.”
The corporate-style constraint on time and place found in larger cities have led many businesses to choose entrepreneurship in New Haven, which is more focused on community and social impact. Some combination of values and economic reality has precluded the possibility of the classic startup scenario, in which huge amounts of capital are invested very quickly to build a project that can deliver a quick return.
According to Ballard, “What we are seeing [here in New Haven] is a lot of companies working to create a sustainable income and hire people. They’re looking to make a lasting business, not necessarily an investible or fundable one.” The result is a network of new companies that can have a long-lasting impact on the local community.
The state of Connecticut has been eager to jump on this trend, and they have started investing money in places like the Grove and Governor Dan Malloy’s Innovation Ecosystem, in an attempt to revitalize an economy still flagging from the loss of manufacturing jobs like those at the Winchester Arms Factory.
Social enterprise, in which startup business models are appropriated to treat societal ills, nicely complements the state’s investment. Of the Grove’s 64 members, 27 work in the fields of community development, education, health, environment, or youth empowerment.
Koch believes this interest in social enterprise is a natural step in the progression of startups. “Entrepreneurship has always kind of been about achieving human potential,” he says. “These are the sort of people who see low probability scenarios and say, ‘I can make that happen.’ It’s about more than money, because if you look at the average salary of an investment banker over ten years, there’s no way you come out ahead; it’s gotta be about rooting for the underdog or achieving some sort of vision. In some ways, social entrepreneurship was almost inevitable, given the way our society has changed.”
Conscious of the barriers that prevent people from participating in the startup community, The Grove seeks to open the door to traditionally underrepresented communities. “I’ve talked to a lot of different people in ethnic communities here who have interest in seeing African-American and Latino entrepreneurship get moving,” says Ballard. “I think there’s potential for that here. Whether it’s actually going to happen, and how cohesive and collaborative the movement is, we’ve yet to see.”
Koch, on the other hand, emphasizes the need to educate workers, so they are able to participate in the new economy. “There are people who aren’t in school, or maybe are at risk of dropping out, who just aren’t interested in academics. But the work we do in startups with technology is extremely exciting, and it is something they can do. We’re even opening up a device lab for people to learn how to program, and we really want to include people in this new economy.”
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The Yale Entrepreneurial Institute, on the other hand, has radically different goals than other New Haven groups and has been slower to shift towards a social enterprise model. YEI was founded in 2007, after the Wall Street Journal reported on several student ventures that had encountered roadblocks in New Haven and moved to the West Coast.
According to Boyle, YEI’s director, “Yale asked itself the question, ‘What should we do about this?’ And the answer was to try an experiment, to see if there were students who wanted to start ventures and what kind of an experience we could design for them to make them as successful as they could be.” That experiment has blossomed into a network that touches more than 300 students every year, mobilizing faculty and alumni to provide mentorship, grants, business and technology consulting, and access to investors. However, there are still about 11,000 students totally cut off from the entrepreneurial experience, which YEI considers a vital cog in President-Elect Salovey’s professed goal of making Yale more innovative.
In a meeting with Boyle and Yale alumni, Salovey posed the question: “Several years ago, we made the decision that we were going to offer undergraduates international travel as part of their educational experience. Should we be thinking about entrepreneurship the same way?” If the answer is yes, Boyle envisions more Yale students tapping into their entrepreneurial sides through an expansion of the fellowship program and new skills workshops. “We want the student body to be more technically competent,” says Boyle. “We want all of you to be able to read and write code. Well, most of you.” In the end, they may be more likely to pursue careers in startups instead of just competing for the decreasing number of jobs offered by large companies like Fortune 1000.
Even as entrepreneurship becomes more accessible at Yale, however, it remains categorically different from the movement happening down the street at the Grove. Although the two have grown up together both temporally and spatially, Yale’s access to alumni resources and capital has allowed it to retain the old startup model of building and selling highly fundable companies while New Haven ventures have adapted to become part of the growing social innovation movement. Furthermore, according to Koch, “Yale operates in cycles that the New Haven community doesn’t. Some of the people who are active in our hub are residents, so they’re here indefinitely.” In contrast, YEI ventures typically operate on a much tighter business cycle and two thirds of them eventually leave the city.
As Boyle is quick to point out, it’s not that the desire to create social impact is lacking. “The Yale psyche wants to save the world,” he says. The barrier is the lack of an established rubric for evaluating ventures with non-financial outcomes. How does one compare a project for building wind turbines in East Africa with a healthcare initiative to help the US urban poor, other than return on investment? These are the sorts of questions that YEI is only just starting to explore – they remain several years behind the organic growth of the local startup community.
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The effects of startup culture on New Haven and the country at large remain to be seen. Entrepreneurism certainly isn’t going anywhere. Factors ranging from the globalized means of production to a corporate structure that outsources innovation to smaller ventures have positioned startups to dominate the new economy. These structural changes, combined with the increased access to tools for creating and communicating, have already secured for startup culture a prime place in the next decade.
San Francisco is the poster child for entrepreneurial growth, and it serves as both an example and a warning for a city cautiously wading into this new space. Tech startups made the region wealthy beyond anyone’s wildest dreams, but the associated gentrification and loss of middle-class neighborhoods has led to an explosion of homelessness and poverty; the new economy has driven a massive wedge into the gap between rich and poor.
New Haven has a ways to go before it becomes as prosperous as San Francisco. Even as the retail base expands and the region becomes increasingly attractive to young innovators, unemployment in the Elm City hovers around 11 percent. Moreover, the jobs created by startup ventures are often out of the reach of the citizens who need them most. Both YEI and the Grove have emphasized education to expand technical knowledge, and Grove members are actively seeking more minority business ventures. Even so, it’s still unclear how exactly the benefits of the startup boom are going to trickle down.
As social enterprise is embraced by the state, the question arises of whether startups are just another way of entrusting the fight against poverty to market forces rather than responsible social policy. The fear is the creation of a world where the care of the poor is outsourced to small, for-profit companies, which the local and state governments support in place of social services.
Entrepreneurship employs the rhetoric of individual potential and belief in the underdog, but the worry is that in reality, entrepreneurship may mean the marginalization of the disadvantaged. Given how many ventures are genuinely dedicated to helping people, though, it’s too early to predict the sociological effect of startups. Until then, we can count on an explosion of startups to drive our economy forward.