Indiana college towns lag in snaring startup activity

March 22, 2014

Universities are factories for startup companies.

Purdue reported five new firms launched using the university’s patented innovations in 2012. Indiana University had 13, according to the Association for University Technology Managers.

Yet their metro areas of Lafayette and Bloomington have low startup rates overall.

The contrast is quite common for college towns and their surrounding areas, IBJ found after reviewing close to 70 metro areas where universities are key to the local economies. In Indiana, that analysis included Lafayette, Bloomington, Muncie and South Bend.

Each metro, despite massive gains in startup activity in the past 20 years, had below-average startup activity as of 2010, according to a report released in August by the Ewing Marion Kauffman Foundation, a Kansas City, Mo., not-for-profit that studies and promotes entrepreneurship.

The report graded close to 400 metros by comparing the number of startups they had in 2010 with their total populations. Then researchers graded those rates against a national average density of 1.0. Anything below 1.0 was below average.

Bloomington fared best among the five Indiana college towns, with a density of 0.6, or 40 percent below average, in 2010.

“I would think the majority of college towns are not that successful,” said Mat Orrego, a Bloomington business owner who is active in entrepreneurship activities in his city. “It’s because the cities don’t scale well in that matter.”

It’s the same nationwide. Of the 70 college towns IBJ examined, about two-thirds had below-average startup activity.

Orrego and other business leaders say Indiana’s cities, despite their access to colleges, lack many of the other vital resources needed to stimulate business creation in their communities.

Cities that excel in startup activity typically do have universities. Boulder, Colo., for example, is home to the University of Colorado and had a massive 6.3 startup rate in the Kauffman report.

But, experts say, the towns have much more besides a college: established high-tech companies, business incubators and access to venture capital.

Lafayette, for one, didn’t start looking seriously at startups as a major economic driver until a few years ago, noted Dennis Carson, the city’s economic development director.

“We saw this as an opportunity in one area that wasn’t being addressed,” he said.

Even college towns that do well sometimes struggle to explain beyond the fact that they have a university.

Iowa State University’s hometown of Ames, for instance, had one of the highest startup rates in the Kauffman report, ranking 25th in the country with a density of 1.6, or 60 percent above average.

The city is somewhat comparable to Lafayette. Ames has a smaller population and is closer to a major city, Des Moines, but both are Midwestern cities with major land-grant universities and comparable median household incomes, among other similarities.

Dan Culhane, the head of economic development in Ames, cited most of the same pros and cons that Carson, Culhane’s equivalent in Lafayette, did when describing the city.

focus-startup-metro.gifDoes Ames see itself doing anything different than Lafayette that would explain its higher startup activity?

“No, we don’t,” Culhane said. “We talk about how we wish we had more startup activity here. We don’t feel like we’re leading any parades in this business.”•

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