The tech industry, once isolated to the wine-soaked California bay, has expanded eastward. Entrepreneurs are disenchanted by rising housing prices, high development costs and competition.

Creating a startup scene worthy of 'Silicon Prairie'

In 2012, Paul and Stephanie Jarrett left the tech mecca of San Francisco to create their e-commerce business, Bulu Box, in an unlikely place: Lincoln, Nebraska. “We could just be another startup on the West Coast, another startup in the Valley,” Paul says. “Or we could be part of this movement in the Midwest.”

The Jarretts are not alone. The tech industry, once seemingly isolated to the wine-soaked California bay, has expanded eastward. Entrepreneurs once enamored by the land that bore giants like Apple and Google are now disenchanted by rising housing prices, high development costs and fierce competition.

Jarrett says much of it comes down to simple math. While the median home in San Francisco sells for $1.1 million, the median price in Lincoln is $150,000. In Des Moines, it’s $116,000 and in Kansas City, it’s $108,000. Capital goes much further in the Midwest, which makes growing a workforce, and getting office space, a lot more doable than on the coasts.

This realization has led to an exodus of tech ideas and investment, creating the “Silicon Prairie,” a coalition of entrepreneurial hubs in Kansas, Missouri, Nebraska and Iowa. To the south, a more loosely defined coalition, “Thunder Plains,” is taking off in Oklahoma City, Tulsa and northern Texas.

Tucked between these two coalitions is Wichita. “And neither claim us,” says Kenton Hansen, who has become a leading promoter for Wichita’s motley community of entrepreneurs. He works at Wichita State’s Ennovar Institute of Emerging Technologies and Market Solutions and founded the Labor Party and Startup Wichita.

I have a day job, but at night, I stir the pot and toot the horn when it comes to entrepreneurship.Kenton Hansen

So why hasn't Wichita been in on this movement?

“Man, if I knew the answer to that question, I would be a lot richer than I am right now,” Hansen says. Still, he has some theories.

For one, workers tend to move to where there’s money to be made, while entrepreneurs and ideas move to where there’s investment to be had. With the established Silicon Prairie taking off to the north in Kansas City, Lincoln, Omaha and Des Moines, and Thunder Plains in Oklahoma City and Tulsa, human capital and investment are being sucked out of Wichita to these nearby cities. And new investors and companies curious about the Midwest think Kansas City before they think Wichita.

“We’re kind of stuck in a vacuum, you know?” Hansen says. “Where everything is pulled away from us.”

Right now, Wichita ranks low on startup density, or the number of startups per 100,000 in population, and the amount of venture capital invested into local startups. Hansen said these two facts probably play into each other, with startups not moving to Wichita because of a lack of investment to be had and investors not moving to Wichita because of a low startup density.

To get out of this cycle, Hansen believes Wichita investors need to make more gutsy calls. The fledgling e2e Accelerator, which will be one of Wichita’s first official business accelerators, will help by investing in and mentoring established startups. But Hansen insists there needs to be opportunities for seed companies, too — companies that are little more than ideas.

If Hansen could “wave the magic wand,” he says he would take a building downtown and renovate the top five floors for living spaces and the bottom five for offices.

That’s what Wichita is missing, Hansen says: investors willing to take risks and not expect any returns for a while. The money put into these seeds provides more bang for the buck and while some may fail, others will far exceed expectations and provide huge returns.

Some of that early investment may begin happening soon. Chris Callen, CEO of Builders Plus Construction, announced he would be offering space he calls "GroundWork" for earlier-stage startups.

For the seed companies, Wichita entrepreneur Jonathan George announced he is setting up an investment club to get more venture capital flowing in the city. His club, called Angels of the Plains, will allow anyone with $100 to invest in Wichita startups.

This type of investment is exactly what led the Jarretts to Lincoln.

The Nebraska Angels is a network of more than 60 local investors who provide funding for early-stage startups. Each year, they dump nearly $2 million of capital into eight companies.

Initially, the Jarretts thought they would need to stay in San Francisco to launch a technology startup. But when they heard about the Angels, they made the trip to Lincoln, where Paul grew up.

“Before we left town, we raised half a million dollars on our idea,” he says.

Hansen said Kansas City is also getting into the early-investment game. LaunchKC, an investment competition set up through the Downtown Council of Kansas City, provides $50,000 grants to 10 tech entrepreneurs each year. The catch? “You have to relocate to Kansas City for two years," Hansen says. "That’s it.”

Apart from investments for green startups, Hansen says Wichita is missing happenstance, which he called “the driver of opportunity.”

"Because we all drive our own cars from work to church to the bar, our friends and our networks of people don't branch out much beyond those," he says. "We don't get a lot of opportunities for happenstance."

Because we all drive our own cars from work to church to the bar, our friends and our networks of people don’t branch out much beyond those. We don’t get a lot of opportunities for happenstance.

Hansen says one of his goals is to create those opportunities, from WSU’s Ennovar to his very own company, The Labor Party, a co-working space in Wichita’s Old Town. “A conversation with one person leads to, ‘Oh, you should talk to this person,’ which leads to a big opportunity.”

Hansen says others are beginning to take up the mantle to create new opportunities for happenstance. Startup Wichita, another Hansen effort, spawned Wichitalks, which features non-soliciting speeches from locals. And 1 Million Cups, a national program created by Kansas City’s Kauffman Foundation, gives a local platform for entrepreneurs to talk about their businesses and the challenges they face.

The high attendance at both events has indicated a hunger for entrepreneurial activity in Wichita. But Hansen says it still comes back to finding direct investors gutsy enough to take risks. And while many organizations are taking those risks by investing in downtown or the city as a whole, few have stepped up to take the risk on Wichita’s entrepreneurs.

Hansen sees Wichita's perception of entrepreneurship in general as a more immediate, and solvable problem. He says instead of thinking of small one-off businesses, Wichitans need to think of businesses that could scale far beyond the borders of this city.

We need a bigger ecosystem, you know? We are Wichita, though. We’re a little bit different.

“They look at it like a bakery, not Little Debbie,” Hansen says. “Or they look at it like a thing for Wichita, not for every city in the United States. I think that’s the biggest change we need to make now.”

So long-term, where will Wichita end up? Will it be an arm of Silicon Prairie or Thunder Plains? Or will it be its own entity entirely? Hansen says that’s hard to predict. But he hopes the city will latch onto something bigger than itself.

"We need a bigger ecosystem, you know?" he says. "We are Wichita though. We're a little bit different." Wichita will never be another Kansas City, and trying to become that is a bad idea. Instead, Hansen says we need to find a worldwide demand that Wichita can meet better than any other city in Kansas, Silicon Prairie or anywhere else.

Hansen admits there’s a lot of work left for Wichita if it wants to become a hub for forward-thinking startups. As it stands now, the city ranks low in all of the top indicators for startup strength. It's in the bottom third in startup density and generates little venture capital for its size.

Silicon Prairie leaders Kansas City, Omaha and Des Moines, generate more than a combined $140 million in venture capital each year. Wichita, which is the 51st largest city and the 80th largest Metropolitan Statistical Area (MSA) in the U.S., doesn't even make the list of top 160 cities in venture capitalism.

Although the facts are sobering, Hansen says there’s also a lot to be excited for.

Wichita does have a strength in low cost of living and labor. With a median home price of $127,000, it should be easy for an entrepreneur to do more with less capital. And Hansen says another advantage Wichita has is passion. And that passion is still gaining traction with city residents and business leaders.

"I'm most excited that other people are excited," Hansen says. "There's a lot that's happening and ... we're still growing."


NEXT STEPS:


For a simple look at the perception challenge, check out this short video


Dig deeper into the findings and explore James Chung's report


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