Sioux Falls and Fargo: Two Approaches to Building Startup Ecosystems

Last week, Andy Jorgensen from Firebrothers Fireworks and I had the privilege of spending a day with some key stakeholders of the startup ecosystem in Fargo, North Dakota. I had dinner with local startup founders, met with some NDSU entrepreneurship students, spoke at their local chapter of 1 Million Cups, and met with the team of their ecosystem organization (Emerging Prairie). I’ve also interacted with Fargo startup founders and ecosystem builders at the Emerging Prairie founder’s retreat over the last couple of years.

These experiences perhaps give me a unique perspective into the structure, strengths and weaknesses of both the Fargo startup ecosystem and the Sioux Falls startup ecosystem. This commentary is not intended to argue that “Sioux Falls is way better than Fargo” or “Sioux Falls has a lot of catchup work to do to be Fargo.” Rather, I’m hoping to identify what both ecosystems are “good at” so that each community can learn from one another.

Two Approaches to Event Organization

In Fargo, all the major startup events are organized by Emerging Prairie. Their team facilitates 1 Million Cups, TedX and a variety of home-grown events such as the Cultivate Conference, the Drone Focus Conference and the Prairie Capital Summit. In Sioux Falls, a variety of different startup community leaders have developed teams to run our annual events, such as TedX, Startup Weekend, Innovation Expo and Hey Sioux Falls. Some of Sioux Falls’ events are organized by the Zeal Center for Entrepreneurship or the Sioux Falls Area Chamber of Commerce, but others are run by independent teams of community leaders.

There are strengths and weaknesses to each approach. Emerging Prairie has the advantage of being able to use the revenue from its profitable events to underwrite less profitable activities, such as running its coworking space, The Prairie Den. On the other hand, Sioux Falls’ approach is probably more resilient. If one key organization or leader steps away, other events are largely unaffected. Startup community leaders in Sioux Falls have also been very willing to step up when other leaders have needed to take a step back from their startup activities. For example, Thad Giedd from Zeal recently became Sioux Falls’ TedX organizer after the previous organized bowed out from running the event.

Overall, both approaches appear to work well for their respective communities. I wouldn’t say that either community necessarily has more or better events than eachother, but there is a different focus. North Dakota’s startup community has placed a big focus on drone technology and agricultural technology. You see this play out in their big annual events, such as the Drone Focus Conference and the Cultivate Conference. Sioux Falls’ startup community hasn’t yet coalesced around any single industry, which makes our events a bit more general, but also more approachable to founders in a wider variety of industries.

Funding Models

Emerging Prairie is a 501c3 organization and operates on a $1.36 million annual budget (according to its annual report), with funding coming from private donors, corporate sponsors, operating events and a new grant from the Bush foundation. I haven’t seen Emerging Prairie’s Budget, but I suspect staffing is one of their largest expense areas given that they have 11 team members. I would also guess their other major expense areas are running the numerous events they put on. Emerging Prairie operates premium price-point events and a significant portion of their budget is the income and expenses related to their annual events.

The closest analogue to Emerging Prairie in Sioux Falls, is the Zeal Center for Entrepreneurship. Zeal is a 501c4 and operates on an approximately $1 million budget, with most of its funding coming from tenant rent and funding from Forward Sioux Falls. Zeal also receives supplemental funding for programming from corporate sponsors and event revenue. Zeal has historically not sought-after grant money or looked to private donors to fund its mission. Zeal’s big expense areas include operating its 30,000 square foot incubator facility, staffing and running its regular events.

Beyond Zeal, the standalone events in Sioux Falls, such as TedX, 1 Million Cups and Innovation Expo are primarily funded by a group of local businesses that have committed to being involved in growing the  Sioux Falls Startup Ecosystem, including First National Bank, Midco, MarketBeat, EideBailly, First Bank and Trust, First Premier Bank, Woods Fuller and others.

Venture Capital Availability

It’s generally acknowledged by startup leaders in both communities that South Dakota has an edge over North Dakota when it comes to the availability of early-stage venture capital resources. South Dakota has a network of five angel funds that are managed by the Enterprise Institute. These funds have each raised between $1 million and $2.5 million and they write checks to startups between $50,000 and $200,000 in size. One Fargo startup leader told me that they don’t have any true risk capital available for seed-stage startups. This has led some Fargo startups, including Bushel and Walk Wise,  to approach South Dakota’s angel fund network for their initial fundraising needs.

Both North Dakota and South Dakota have a variety of different state-run loan and equity programs that are available to business owners. South Dakota recently launched its own equity fund  and North Dakota similarly launched a venture capital loan program through the North Dakota Development foundation. I’m not especially familiar with the details of North Dakota’s loan programs, but my sense is that their programs are more accessible to scalable startup companies based on some anecdotal conversations I’ve had with Fargo startup founders.

North Dakota also offers an angel investment tax credit of 45% of the amount of an investment against an angel investor’s state income taxes, up to a maximum credit of $45,000 per year. South Dakota does not levy a state income tax on its residents, which means it generally cannot use tax credits as a means of encouraging angel investments in early-stage companies.

Both Sioux Falls and Fargo have a variety of private venture capital firms. Fargo is home to Arthur Ventures. Sioux Falls is home to Bluestem Capital, Bird Dog Equity Partners, Crescent Capital and other firms.

Coworking Spaces

Emerging Prairie’s Prairie Den is a 4,000 to 5,000 foot coworking space that occupies the second floor of a building in downtown Fargo. College students can buy a membership for as little as $5.00 per month and general members can use the space for as little as $75.00 per month. The Praire Den has a handful of dedicated offices, but most of the space is a common work area with a few attached meeting rooms and a shared kitchen. The Prairie Den’s downtown location makes it convenient for members to eat at downtown restaurants and hold meetings at downtown coffee shops.

The Zeal Center for Entrepreneurship in Sioux Falls, established by the Sioux Falls Chamber and Development Foundation, dwarfs the Prairie Den at more than 30,000 square feet. While the Prairie Den caters exclusively to startup founders, the Zeal Center also hosts offices for startup ecosystem organizations, such as SBA, SBDC, GOED, SDMTS and the Enterprise Institute. Zeal is a mix of coworking space, dedicated offices and wet research labs. The major downside to the Zeal Center for Entrepreneurship is its location, which is at the edge of town away from restaurants, coffee shops and other services.

Other Strengths

There are a handful of other strengths each community has that are worth mentioning:

• Fargo is home to NDSU, which has a strong entrepreneurship program and more than 12,000 students. The total number of undergraduate students in Sioux Falls at Augustana, the University of Sioux Falls and University Center add up to less half of the student population of NDSU.
• Sioux Falls has a strong online community on Facebook, called Startup Sioux Falls. Fargo does not have a similar online community.
• Sioux Falls has elements that will make for a strong biotechnology startup community with medical giants Sanford Health and Avera based out of Sioux Falls. Additionally biotech startups like Alumend and SAB Biotherapeutics  are starting to take off into more growth stages in Sioux Falls.
• Both Sioux Falls and Fargo have research parks. Sioux Falls has the USD Discovery District and Fargo has the NDSU Research and Technology Park.
• Plug and Play, an accelerator program platform organization, has recently agreed to come to Fargo as part of its Grand Farm initiative.

Wrap-up

I understand it’s impossible to fully capture the essences of two communities’ startup ecosystems in a 1,500-word article, but my sincere hope is that startup community leaders from both Sioux Falls and Fargo find value in this brief comparison. Both Sioux Falls and Fargo have made great strides in developing their ecosystems in the last several years and the future looks bright for both city’s startup communities.