For the past nine years, the cash-rich startup incubator 43North has been pushing early-stage companies to relocate to Buffalo, New York. Something appears to be functioning properly.
Long a downtrodden community best known for its industrial heritage and closeness to the Erie Canal, Buffalo, New York, has recently undergone a transformation into a paradise for businesspeople.
An organisation called 43North, a company accelerator, is largely responsible for this transformation. The Buffalo Billion, a $1 billion investment plan by former New York governor Andrew Cuomo to revitalise Buffalo’s economy, and Empire State Development funded the accelerator’s launch in 2014. Since then, the accelerator has helped to create a thriving startup community that, in 2022, attracted 700 applicants from around the world.
For other struggling cities hoping to revitalise or expand their innovation districts, the 43North approach, which entails spending $5 million annually on enterprises as long as they remain in the area for at least a year, has proven to be a successful test case.
The ultimate objective of the accelerator, according to Colleen Heidinger, its president, is to persuade businesses to remain in Buffalo and generate jobs once the 12-month programme is over. George Chamoun, a serial entrepreneur who established his first business, Chek.com, in Buffalo in 1998, claims that the effect on the neighbourhood has been “night and day.”
He was appointed CEO of the wholesale vehicle marketplace ACV Auctions in 2016, a year after the company had secured funding from 43North and had gone on to become Buffalo’s first tech unicorn.
43North holds an annual three-part startup competition consisting of an online application, a live video pitch, and lastly, an in-person pitch event hosted at Shea’s Performing Arts Centre in Buffalo to choose startups for its annual accelerator programme. Even fewer businesses receive funding; however, not all make it to the final round of competition. Five firms receive $1 million each year from the accelerator in exchange for 5% equity today.
Out of eight competitions with 20 finalists each, 43North has invested in 64 businesses, with Buffalo continuing to be the home of 59 percent of them. According to the program’s president, the companies have generated more than 3,000 jobs overall, 1,100 of which were created in Buffalo alone. York IE, a development and investment company based in Manchester, New Hampshire, named Buffalo one of the five fastest-growing startup cities in 2022, citing a 234 percent gain in venture capital in Q4 of 2021.
Here are some examples of how the 43North model works:
Take the long view.
Time is critical in the development of a startup ecosystem. According to Ian Hathaway, a former senior vice president of Techstars and founder and partner of venture capital company Far Out Ventures, if cities, legislators, or pitch contests want to make a difference, they must make a long-term commitment. They must also make a long-term stay worthwhile for the founders.
“Innovation is not efficient-you have to be willing to tolerate a high degree of waste and failure,” he argues. “You must have a long-term commitment and be willing to accept the complexities of these things.”
In addition to the money, the winning firms at 43North receive office space, one-on-one mentorship, access to peer groups, and the ability to network with investors. Founders are also encouraged to participate in civic events and become members of the community. The goal is to show them everything Buffalo has to offer, so they’ll want to stay longer.
According to Heidinger, throwing out cash and pushing companies to stay did not immediately turn Buffalo into a tech hotspot. In reality, in the early days of the accelerator, companies were not staying past the program’s term.
According to Heidinger, the enterprises that first participated in 43North were often in their early stages, with several of them barely surviving. Over time, 43North strived to expand its network of investors and outstanding mentors, attracting a more mature pool of entrepreneurs and increasing its retention rate year after year.
Invest in quality rather than quantity.
ACV, according to Hathaway, who co-authored a book on the evolution of an entrepreneurial ecosystem, is the spark for entrepreneurial success in Buffalo. ACV went public four years after receiving $1 million in capital from 43North, which Chamoun claims transformed the course of the company. The company is valued at $2 billion and employs over 2,000 individuals, at least 700 of whom are from the Buffalo area.
Dan Magnuszewski, a co-founder of ACV, is currently directing Foundry, a financing and consultancy business that specialises in mining and staking digital assets, to expand to Buffalo.
According to Hathaway, just one achievement has completely changed the game for 43North. A “flywheel effect” of opportunities can be produced by one smart investment, he continues. It really is about one company breaking the mould, and the people who made that success happen actually care about the following generation, according to him.
According to Heidinger, 43North is now actively seeking out businesses that exhibit ACV’s promise before investing.
The 43North application, which at one time had just 10 questions and frequently attracted more than 10,000 applicants, has been simplified to a more involved form that particularly screens for businesses that are already demonstrating success.
“If you have 100 companies, only two or three are responsible for the value; the rest are irrelevant. People react negatively to that because they like to believe that “we want everyone to succeed,” says Hathaway. You actually don’t want that in this world. Actually, it’s wasteful. You want the best businesses to succeed, while you want the competition to crumble.
Prepare yourself to pay up.
When creating a startup ecosystem, how much money to invest in enterprises will depend on the types of businesses you hope to attract. According to Hathaway, the cost “has to be meaningful.” For 43North, having $5 million to invest each year initially meant writing smaller checks and investing in more businesses because only one could win the $1 million grand prize. Five companies are currently receiving $1 million from it. What caused the change? According to Heidinger, exclusivity and competition. The applicant pool for the programme last year had some of the highest-quality enterprises yet, she continues.
“You had some other funds doing $500,000 checks into seed-stage companies, and that’s exactly what we were doing,” the president of 43North explains. “However, we’re asking businesses to relocate to Buffalo.” We’re not just handing over money.”
In 2016, 43North handed Jonathan Strimling, founder of CleanFiber, $500,000 in funding, which enabled him to grow his company to $60 million in total funding. He received an additional $500,000 from 43North last year when his company demonstrated progress. He claims he’s settled down in Buffalo for good because of the assistance he’s received from 43North.
Similarly, since receiving $1 million from 43North in 2019 and an additional $300,000 in 2022, Strayos founder Ravi Sahu claims he has permanently shifted his operations to Buffalo. Strayos is a SaaS startup that brings safety and sustainability to the mining and drilling industries. He initially had a team of two, but it has since grown to 13. More than 1,500 mining and drilling locations across the world use his program.
In Buffalo, “We have been able to hire and retain the right talent, which has had a huge impact on our business,” adds Sahu.”[43North is] doing an amazing job creating this support ecosystem—and from the economic development side, it’s almost like a network effect that is created where it helps in talent acquisition.”
Share your victories with the rest of the world.
Plenty of enterprises had thrived in Buffalo long before 43North arrived, but Chamoun claims that they were largely overlooked. “You need a big loudhailer,” he says, “and 43North was the loudhailer.”
He believes that several forces must come together to recreate what Buffalo has done for itself. Business leaders, charities, and the state government must all work together to make entrepreneurship a major priority in Buffalo. Chamoun adds that without one or the other, the trajectory would be different.
For instance, invest in Buffalo. According to president and CEO Tom Kucharski, Niagara, Buffalo’s local economic development organisation, has helped multiple 43North portfolio companies “expand their operations and workforce within Western New York to continue to grow after their initial commitment to the region” through investments. 43North does the hard work of attracting businesses to the city, but it is up to the community to encourage them to stay.
Of course, even if you have all of the right ingredients in place, your endeavour could still fail for a variety of different reasons, according to Hathaway. Aside from a long-term commitment, it’s a lot of trial and error, experimenting, and, occasionally, pure chance.
“Buffalo and 43North are huge success stories.” Will it be repeated? I have no idea. Can someone else try the same procedure and get the same result? “Probably not,” Hathaway adds. “However, they might. And that is the takeaway from all of this. These are incredibly intricate behavioural systems, and you simply have to try things, be adventurous, and be humble about it.”
