Connecting the Dots in the Startup Ecosystem
Coming off of an incredibly successful year for regional startups, our roundtable addressed what we need to do to foster this momentum in our startup ecosystem. Participants discussed how to create an environment where investors and founders work together to make Southeast Louisiana a destination for emerging industries. The discussion covered how:
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- The region saw more than $2.5 billion in exits last year, which created investment opportunities, but saw many experienced founders leave. We now have many new founders but less seasoned operators. Big companies can help by partnering with accelerator programs and lending their expertise to new founders.
- There’s a big focus on tech startups in New Orleans, but there are other markets full of startup potential that need mentoring. Don’t just scale on tech, but everything that is scalable and repeatable.
- We need to create systems of support for entrepreneurs, including places like “town squares” where they can naturally network with investors, engineers and other founders.
- We should celebrate how far we have come in 17 years and focus on operating as a system in a resource-rich environment.
- We also need to foster our culture of resiliency to support the importance of ESG, promoting impact investing and speaking to Generation C, who is the next wave of purchasing power.
- New Orleans is uniquely suited for markets that are quickly gaining national importance, including climate, housing, sustainability and health care.
- Private and public sectors need to work together to develop a regional identity. With a united front New Orleans, Baton Rouge and the Northshore will help attract talent and companies from other parts of the country looking to move.
Read on for a transcript of the conversation.
PARTICIPANTS:
Jon Atkinson, CEO of The Idea Village
Christa Cotton, CEO of El Guapo
Peter Liu, Managing Partner of Revelry Venture Partners
Katy Reynolds, Co-founder, President and CEO of Shibusa Systems
Tara Hernandez, President of JCH Properties+
Evie Poitevant, Director of Entrepreneurship & Innovation at GNO, Inc.
Tony Zanders, Founder and CEO of Skilltype
Grady Fitzpatrick, Managing Director of Maxis Advisors
MODERATOR:
Note: The comments in this article were made on April 21, 2022. This transcript has been edited and condensed for clarity and brevity.
Will Bishop: My first question, which I’m sure you get asked a lot, is what advice would you give to other companies who want to play their part in the startup ecosystem here?
Christa Cotton: I come from a very entrepreneurial family. I worked in advertising before acquiring the El Guapo trademark and starting my own company. When COVID-19 hit, we were growing at about 30% per year. Then we tripled revenue during the pandemic. It was whiplash. And I didn’t reach out for help soon enough. I knew that I needed it, but I didn’t know where the resources were. When I applied for the Idea Village VILLAGEX program, I had so much to learn. I didn’t know there was a formula to this. One of the things I took away from the whole experience is the need for mentoring and connecting with people. I wish I had done that sooner.
The best thing I got out of the Idea Village program was a strong relationship with another entrepreneur. We’re really close, he’s one of our largest investors, and he helped me completely change my company. I am now scaling my company 12x instead of doubling or tripling it. That never would have happened without him.
One piece of advice for New Orleans is to work on scaling outside of just tech. There are other industries that make up our economy. It can feel exclusionary. Our company is doing really well, but there are many others doing cool things and not getting that spotlight because they’re not tech.
Will: I know some of our startup community’s focuses are on clean tech and these other very specific silos that, like Christa said, can feel exclusionary. How can investors balance the importance of these verticals with wanting to have a welcoming community for entrepreneurs that have other types of businesses?
Jon Atkinson: That really hits on the heart of the problem. It’s worth reflecting on how far New Orleans has come in a very short period of time. This community has moved the needle in entrepreneurship more quickly than almost anywhere in the country. There are two things we need to focus on next.
First, we have to cultivate this as more of a system and less of an individual-driven thing. Christa’s comment made me think about that, because when she came to the Idea Village program, I would have no way to know that the thing she would take away was a great mentorship. I can’t prescribe that. But what I can do is set up a system around her that creates those types of opportunities. We all have to start thinking more that way. If you focus on getting the system right and creating a resource-rich environment, focus on enabling founders to do what they're going to do and interact in that system, it allows us to grow exponentially in a way that we haven’t been able to.
Second, we've had an incredible string of outcomes in the last year. We had $2.5 billion in exits from locally based startups. That's an incredible milestone, and it proves that the substance on the ground is much greater than what people perceive it to be. One thing I've learned in the last year in talking to a wide variety of stakeholders is that folks have to be able to point to something. To an industry cluster that we are better at here than anywhere else. To something specific that defines us. In my first couple years at Idea Village, I was trying to convince everybody that that was wrong and that we needed to embrace the wide range of things going on here. I've come to believe that you can do both. We need to set our sights on being world-class, not just better than we have been. And that's how we're ultimately going to get to where we want to go.
That leads to the second question about culture and climate. We have four areas where those conditions exist — culture tech, climate tech, resource tech and research technology. And potentially health. Some of those four are going to emerge over the next couple of years and be the thing that you come to New Orleans for.
Will: It’s interesting that you bring that up. Katy, I would say that there’s a lot of ESG components to what you're doing. What are your thoughts on the importance of ESG and the growth of the ecosystem here?
Katy Reynolds: My co-founder and COO, Mike Gwynn, and I are both from California, where we met at UC Berkeley in the 1980s. After college, Mike spent 30 years in Silicon Valley, and I spent 25 years on Wall Street before pursuing sustainable real estate development 10 years ago back in California. Mike and I discussed creating a more purposeful solution to the global housing crisis, and thus, we founded Shibusa Systems. We started in California, but our third co-founder, Steven Bingler, said we should start in New Orleans, where the climate and the socioeconomics are the most challenging in the country. If we can make housing and our system work in New Orleans, we can make it work anywhere. You've seen all the lawsuits against home builders for poorly built housing causing major mold and mildew issues. When we started in 2019, one of the first things we did was hire climate consultants to work on how to build strong, airtight homes that have healthy air quality and circulation inside, so we wouldn’t have the issues that other builders have had.
We wanted to create a system that empowered more people to build better, more sustainable housing for less cost with less waste. We're 100% electric, and we designed Shibusa houses around materials in standard lengths so that we’re not wasting time and materials customizing parts. We really have tried to create a company that would be impactful, not just in New Orleans but nationwide. And actually, the system can work globally.
Given that Mike, Steven and I are older and in the twilight of our careers, we did not connect with Idea Village or other incubators here because we felt that they were more geared toward young entrepreneurs who were relatively new to running a business. The three of us already had this experience. Since its inception, Shibusa Systems has raised about $3 million in outside capital, but unfortunately very little from investors in New Orleans. Trying to sell the ESG story and impact investing went flat here.
With respect to our business, Shibusa Systems first started by focusing on high-quality, sustainable, durable materials, and then created a design that was easy and simple to put together based on the materials. Then we focused on the assembly process in order to build a 1,000-square-foot home from foundation to move-in ready in eight weeks. And now we're upstream, creating the tech platform to manage clients, manage licensing our designs, manage projects, and procure materials so that complete kits of parts are delivered to development sites. Our goal is to be repeatable and scalable. Now that we've developed the system, we can engage general contractors around the U.S. to plug into our platform and use our designs, materials procurement system and assembly process to build more sustainable, attainable healthy housing.
Will Bishop: Peter, from an investment standpoint, how are you guys looking at ESG and these types of issues?
Peter Liu: First and foremost, we're driven by financial returns. We believe that creating alignment with ESG in certain industries and certain use cases can create incredible financial returns. On the consumer side, we believe that the next generation will vote with their dollars, with what they’re purchasing and the companies they’re investing in. On the flip side, the brands themselves need to appeal to that type of consumer. The biggest shift in consumer purchasing power is going to be to Gen C and the generation after them in the next decade, so brands have to pay attention to ESG. Not just because it's better for the planet, but because they need to stay in business, generate profits and sell their products to this large group of purchasing power.
Tara Hernandez: This also depends on whether VCs have requirements around ESG. Some institutions have that as part of their requirements, because their boards bring it to them. For some VCs, that's one perspective. It's coming through their LTEs.
Some VCs focus on those verticals. We have a couple, and it’s a priority, but like Peter said, you have to balance what can scale and what people are ready to buy. In certain parts of the country, they haven't had that “Aha” moment. But it’s coming. I’m seeing it in real estate, too. Some of the real estate decks, in equity in some instances, are requiring it.
Jon Atkinson: It feels like we're looking at the crystal ball of what's coming down the pipe. Climate is going from a “nice to have” to a “need to have,” so there's going to be huge investment going into that space. The amount of investment going into climate tech greatly exceeds the number of companies doing climate tech projects right now. There's an opportunity to get in front of that, and New Orleans has potential to have a real seat at the table. If you think about the definition of climate tech, we have the components. It's about resiliency, which is an industry New Orleans has really focused on creating. But it’s also about moving from resiliency to exporting solutions to climate change and getting to the root of the problem.
When we break down solutions to climate change, there’s two pieces to it. One is demand-driven solutions, which is ESG behavior and consumer buy-in. But there's also supply-driven solutions, which are about how we make power, how we can clean up industrial properties, and how we adopt better ways of making things. We’re already a leader in many of those processes. If we can build tech companies that help those companies adopt more climate-friendly operations, that can become a huge export industry. We have the customers, capital sources that understand how to invest in that space, and existing talent pools. What we don’t have today are those tech companies, but if we figure out how to do that, it opens up a whole new set of opportunities.
Tara Hernandez: Also, I recently learned we have 112 major conferences this year in New Orleans. We could also capitalize on climate initiatives with the Convention Center. Why not serve as best in class and the go-to for this? We have the companies, the hospitality side of attracting conferences, and there's alignment within the full New Orleans business and regional ecosystem.
Katy Reynolds: We also were talking about creating a resiliency center in Poydras Row near the Superdome. We could get 3D printing companies in there, people who have really great ideas, including for housing. New Orleans really wants to focus on technology, but we have to solve the housing problem.
Peter Liu: When it comes to verticals, the founders that come out of these successful markets have certain superpowers. For example, they have a unique customer base they’ve been selling to for the last decade, or they know how to build a go-to-market team. We can bring talent and operators around and invest capital in these founders and build a company that could target anyone. The thing that we lack the most are seasoned operators. Most founders here are doing it for the first time, and that's great, and we'll back those founders all day, every day. But it's just a different ballgame in other markets where folks have done it and scaled it, seen what greatness looks like, have the playbooks, and are now doing it a second time, a third time, a fourth time.
What I'm most excited about, and this goes hand in hand with the recent exits, is that this is the first turn of the flywheel. We made one big giant turn where we created a huge amount of liquidity. There's investors, there's angels, there's LPs – a bunch of the capital sources have now been unlocked. More importantly, we have a bunch of middle- and senior-management folks who have led and recruited teams. When they leave to start a company, there's going to be two or three or four people following them to join that company right out of the gate. That's the next turn to the flywheel that’s going to accelerate things for us.
Jon Atkinson: I also think about unlocking the superpowers, to use Peter’s words. If we can connect the entrepreneurial movement here to the established business community, start building startups connected to bigger companies that can be partners and corporate VCs and can pull in bigger talent pools of more experienced management teams, that makes the flywheel spin faster. I don’t know that we’ve found a way to build that connective tissue just yet.
Tony Zanders: Who takes the leadership role to do this? How do we look back in two years and say, “thank goodness person A, B and C stepped in to do that”?
Jon Atkinson: From the Idea Village perspective, the way that you do that is to get big companies committed to things like accelerator programs. By doing that, they’re now working with 10, 15, 20 companies in a particular space, and they're building real relationships that are long lasting. And once they've done that 20 times, they start to build the DNA and the muscle memory around how to do it and they start to see more value in it. That's our strategy for bringing those companies to the table, and it's something I'm working on all the time. For instance, Ochsner and Entergy, how do I bring them into the startup community? We’ve been trying to do that in a unilateral way for the past four years. We had a light bulb go off recently that maybe the long-term strategy isn’t to try and do it for one company, it’s to try to do it around an industry with a consortium of companies. And we seem to be getting traction on that.
Switching to an external perspective, it’s important to cover why that's both in the civic and direct business interests. Somebody needs to carry that banner and help convince them that it's going to make money. Folks like GNO Inc. are already doing that, and the more we can create functional ties at the lower levels and then the alignment ties at the upper levels, the more successful the underlying goal is going to be.
Tara Hernandez: I agree, and they actually have some models where those corporations aren’t just a sponsor for the accelerator, but their top brass volunteer to assist certain cohorts. Then those founders build those relationships. In the case of real estate, the top real estate companies in different verticals came together and owned Fifth Wall. They had their own VC funds and got to beta test everything within those verticals and had some ownership in it, and then all of the other things would flow through. It's just about determining what might work best for our community.
The second part of it is, because, like Christa said, so many people have businesses that aren't pure technology based but align with all kinds of other stuff in our community, we could build that in conjunction with what Jon's doing with tech-based companies. I call it creative collisions. You're in the same neighboring hallway, you go get coffee, you go to the watercooler and start having a conversation you wouldn't have had otherwise. That's how it works in other communities that are more focused on the whole ecosystem.
Jon Atkinson: That’s such an important point. We don’t have a town hall. We don't have a place where those collisions happen. Whatever we tried hasn’t really worked, especially for folks coming to town from other places. There’s not really a place where you can go and hang out and run into founders and investors. We have to manufacturer those collisions.
Will Bishop: Who does that well in other places like the Bay Area, Chicago or New York?
Peter Liu: The best example I have is 1871 in Chicago. All the tech activity and corporate headquarters were up there. Then the city came together with the private sector and took 100,000 square feet in the Merchandise Mart, right there on the river in downtown Chicago. It's now 400,000 square feet, and in it is subsidized co-working space for founders to get started, accelerator programs, law firms offices, VC firm offices, coding boot camps, the whole ecosystem. When you go hang out there and grab a coffee, you run into everyone, even engineers that you can talk to you about problems.
Will Bishop: It sounds like an exponential expansion of The Shop at the CAC.
Peter Liu: It's like a combination of The Shop and the Taylor Education Center, but you’re right. That’s all in a one-block radius and feels like it’s one place.
Tony Zanders: Before I forget, I just want to shift gears to the broader talent conversation. We’re still losing a lot of talent. Miami and Dallas beat us a lot during the pandemic. And I don't know if New Orleans is going to be able to compete with these larger regions if we continue to think colloquially. For instance, we haven’t mentioned Baton Rouge or Lafayette. Markets that we’re losing talent to aren’t just one set of ZIP codes, it’s more of a cluster, like the Dallas Metroplex, Bay Area, Raleigh-Durham Triangle. These places take Tulane and LSU grads, because if our grads don’t have options here in New Orleans, they go to other regions. There’s an opportunity for us to coordinate a bit tighter and think a bit broader.
Grady Fitzpatrick: We have to think of New Orleans, the Northshore and Baton Rouge as a triangle. Lafayette is a little bit far in my opinion, but those three are really connected. And you have Hammond in here with another university that has really great programs and some interesting stuff going on.
Will: As we move toward that, where do see your company and the startup ecosystem in 12 to 18 months?
Christa Cotton: I think our brewery will be operational. I think our team will be more than double the size, which is exciting. And we're working on our largest national deal ever.
In the startup community, I think there will be a lot more exits. The thing that's the most disappointing is the number of less experienced entrepreneurs who come to me and have a great idea but don't have enough of it done to qualify for these accelerator programs. I just judged the Junior League pitch competition, and some of those entrepreneurs didn't know there was a junior program in Idea Village that wasn't quite IdeaX, so explaining available resources and then getting people into those resources at the start is really important. That connectivity and building at the beginning of the pipeline is where I see a lot of opportunity.
Evie Sanders: We built StartupNOLA for that exact reason – to map the ecosystem and have it all in one spot, so if someone's new to the market or has that crazy idea on the back of the napkin they want to pursue, they can find everything they need on this website.
Grady Fitzpatrick: When we did it, we included Baton Rouge and pulled in some of the larger organizations across that corridor. Because you make a great point. We can’t think it’s only in New Orleans. Those other markets have great talent. Lafayette is producing some of the best tech talent in the state right now.
Evie Sanders: We hear that all the time from employers and recruiters. There’s been more effort made between Baton Rouge and New Orleans and, obviously, the passenger rail will help that greatly.
Grady Fitzpatrick: And everything in between those cities, too. The more we connect, it’s going to build up Sorrento, Gonzales, LaPlace and all these places.
Peter Liu: In the next 12 to 18 months, hopefully we've got a few companies under Series A or Series B, where they're getting close to 50-100 employees, really building an organization out and have been able to attract capital from the coasts to New Orleans. Then we’ll start to fill that middle layer of companies within our ecosystem. Because right now, those companies that were at the top have exited, so there's a lot of younger companies less than three years old brewing.
Tony Zanders: And in the next 12 to 18 months, I hope to be one of those companies. I hope to grow from about 10 employees to 40 or 50, creating some of those jobs here in New Orleans and some in Baton Rouge.
Evie Sanders: In 12 to 18 months, it would be great to have some early stage plan or momentum around a physical innovation center, a hub for people to connect. I also think the messaging won’t just be centered around short-term tourism and “come have a great weekend here.” It needs to be “come for a great weekend but stay for life.”
Katy Reynolds: It’s one thing to create a physical place, but another to attract talent and other people. I did talk to different people who were offered jobs to move here from California and other places down here and they ultimately turned it down because the schools and violence were so bad.
Jon Atkinson: Thinking about my own 18-month goals, I’ll double-click on the idea of regionalism. It frustrates me that Idea Village is perceived as being so tied to New Orleans. We have to break out of that branding association to really start putting the region together. I talk a lot about Houston to Pensacola and Atlanta. I view that as our competition, if a company in Tuscaloosa is going to Atlanta rather than coming to New Orleans. I actually think there's a lot of synergy between New Orleans and Houston. We’re working on the same types of industry problems that they are. They’re trying to figure out innovation, they are a great corporate town, and they have a lot of R&D.
But they're not that good at creativity and they haven't quite figured out the startup thing yet, so I would argue we have a stronger startup culture than Houston does. If we can combine those two things, that starts to give you a Bay Area-type platform. That's both a goal for us and a bigger picture goal. I would love to see the region where we're putting out 25 new million-dollar funded companies every year. That's when it really starts to build momentum. We're not that far from that, and that could happen in the next two to three years.
The entry point for Idea Village is IDEAinstitute. We're putting 100 founders a year through that program, and we're building that program to be part of that regional strategy.
Tony Zanders: Everyone should set a personal goal to pass along some of the big city thinking and knowledge, as well. There’s a lot of first-time founders in the region, and we can help.
Peter Liu: And push people on their ambition. Push them to think big. People can think about what it’s like to double something, but once you start to think about how to 10x something, whether it’s the market they’re going to go after, the size of their company or whatever, all of the sudden they start thinking outside of the box. Like I say to a lot of the founders here, “If you had unlimited resources, what is the company that you would build?” Of course that’s not the reality, but if you think that way, if you believe that you're going to be able to raise all the capital in the world to build your vision, what is that vision? It changes the scale of how ideas work.
Will Bishop: Thank you everyone for coming and making these connections to push the ball forward. This is an area where I always say there’s two degrees of separation. This community is so much smaller and so much closer than it seems, so we should be able to put these things in place to facilitate those creative collisions.
