Stop Investing in Startup Communities Like They're Stocks

A few years back, I talked to a medium-sized economic development professional who told me, with total confidence, exactly how entrepreneurial ecosystem funding should work. Put in a dollar. Get back three. Simple math. He'd built his whole career on that math, having recruited a data center and a couple of brand-name distribution centers in his region.

I want to scream as loud as I can that entrepreneurial ecosystems don't do math like that.

Entrepreneurial ecosystems aren't a vending machine. You don't put a dollar in and watch a return drop out the slot six months later. They're messy, made up of overlapping webs of relationships, trust, and timing that take years to mature — think closer to a forest than a factory. And most government funders still show up wanting a factory.

They are operating under a label I call impatient capital. It wants winners, and it wants them fast. So it picks a few founders who look promising today, pours money into them, and calls the rest of the community a rounding error. Or they select one ESO (Entrepreneurial Service Organization), pour money into it, and hope its selling proposition and the new money will move the needle. That approach may work fine if you're investing in a single company. It falls apart when you're trying to build a system, because you have no idea who the winners actually are yet. Nobody does. The founder who looks unremarkable this year might be the one still building five years from now, long after the "promising" ones have folded or moved to LA. For ecosystems, the “let’s put all our eggs in one basket” approach will influence the system, but in ways you cannot control. That is the nature of systems.

Patient capital starts from a different premise. It says: I can't pick the winners, so I'm not going to try. I'm going to leave room for everyone, because everyone's on a different clock. Some founders are three months in. Some are three years in. Some haven't started yet and don't know it. A patient funder treats them all as part of the same long bet instead of sorting them into contenders and also-rans on day one.

Think about how we fund infrastructure. Nobody builds a commuter rail line expecting to recoup the cost in year two. You build it because in fifteen or twenty years, the region around it looks completely different — new housing, new businesses, people commuting who never could before. The return isn't a number on a spreadsheet next quarter. It's a changed system. Ecosystem building works the same way, and it deserves the same time horizon.

This doesn't mean funders should stop measuring anything. It means they should measure the right things. Instead of asking "how many dollars in, how many dollars out," ask how many new activities and connections got made this year. Measure how many founders who felt invisible last year are showing up now. Whether the community's culture of introductions — who gets pulled into the room, who gets left out — is actually shifting. Those are leading indicators. The financial return follows, usually much later than anyone wants to admit.

The economic developer I mentioned earlier still calls me sometimes, looking for the next sure thing. I keep telling him the same thing: there is no sure thing here, only a system worth being patient with. He hasn't fully bought it yet. But the ecosystems that do end up thriving are usually the ones somebody funded like a highway, not a hot stock tip.