While Lexington's Exstream Software captured headlines in January with its purchase by Hewlett Packard Co., it is not the only fast-growing local start-up that has been getting noticed.
Less than five years ago, early-stage start-ups in the Bluegrass area were virtually shut out of the larger venture capital market, with zero dollars of venture capital investment reported in the Lexington Venture Club's 2003 annual survey of local companies. In 2007, however, 55 early-stage companies reported an overall growth in funding of 82 percent over the previous year, to a record $64.5 million, with more than half - roughly $37 million - attributed to venture capital.
"It took us about five years to really turn the corner," said Commerce Lexington President Bob Quick of the Venture Club's efforts to increase funding opportunities for local start-up businesses. "Our entrepreneurial community is making significant inroads to getting the respect that they deserve, and we can measure that by the amount of venture capital and (overall) investment they are getting."
It wasn't long ago when companies similar to those in this year's survey were being lost, relocating to the East and West coasts and larger cities where they were drawing more venture capital money, Quick said.
"And now we're keeping a lot of those companies here," Quick said.
And while the recent sale of Exstream Software stands as the most recent example of the realized potential of Bluegrass start-up initiatives, it follows a long line of homegrown businesses that have culminated in lucrative buyout deals from larger companies in recent years, as shown in the attached chart.
Last year's restructuring of Lexington's economic development efforts into the Bluegrass Business Development Partnership, which brought together resources from the city, the University of Kentucky and Commerce Lexington, has also helped to greatly simplify the process for connecting with and supporting local businesses, including start-up ventures, Quick said.
This collaboration, and the 2007 numbers reported by the Venture Club, reflect the changing focus of economic development to concentrate more on high-tech start-ups and entrepreneurial businesses, said Gina Greathouse, senior vice president, economic development for Commerce Lexington.
"Economic development has really changed over the past 10 years, not just in Lexington but everywhere," Greathouse said. "The bulk of our time as the Bluegrass Business Development Partnership now is spent with start-ups."
The state economic development cabinet's efforts in the last few years to invigorate start-up ventures by creating funding opportunities through SBIR matching funds and Innovation and Commercialization Center (ICC) grants has helped substantially, Greathouse said.
Quick also attributed the significant gains made in part to efforts by the University of Kentucky in working with entrepreneurs to bring its research and technology off the campus and into the business community.
"I think we are finally starting to hit on all cylinders," Quick said.
"This is a case where the numbers speak for themselves," commented UK President Lee Todd. "Being able to invest $64.5 million in early-stage companies right here in the Bluegrass is amazing - and it shows how much this community is starting to understand the value of the knowledge economy. It also shows how much value a research university adds to its community. Thirty-two of the 55 companies that received funding are based on UK research or are associated with UK through a collaborative agreement."
Aside from the venture capital investment, local entrepreneurial ventures reported having received funding from a host of additional sources, including angel investors, federal grants, Kentucky state funds (including the state's matching funds program) and strategic partnerships, in addition to investments made by the entrepreneurs themselves. Local entrepreneurial enterprises also reported the creation of a record 162 new jobs in the area, an increase of 35 percent over last year, bringing their total employment to 422 people. Of those jobs, 341 are full-time positions with an average salary of $61,300.
While 40 percent of the surveyed early-stage businesses were involved in biotechnology and health care fields, the full list of companies represented a diverse range of industries, including information technology, food and consumer products, advanced manufacturing, business services, and education and media. And Quick expects there are additional start-ups in the community that have not been identified yet, and therefore are not included in the reported numbers.
"These are the ones we've been able to find," Quick said. "We know there are others out there, but we are starting to capture more of the market."