Source: Inc. magazine by Leigh Buchanan | December 12, 2019

Innovation districts are the key to bulking up a city’s economic horsepower.

Surge Cities, our second annual ranking of choice metro statistical areas for planting and growing companies, is ostensibly about places. But it’s really about people.

For entrepreneurs, what matters is whom you know–also how many you know, how well you know them, how willing they are to help you, and how far you have to go to meet for coffee.

Startup founders with high local connectedness–defined as quality relationships with about 25 other founders, eight investors, and 10 experts–double the revenue growth of those with low connectedness, says Startup Genome, the research and policy organization that is Inc.‘s Surge Cities partner. The best way to develop those relationships is through “centers of gravity–places people can meet and build mean­ingful connections and continue to create value from them,” says Arnobio Morelix, Startup Genome’s chief innovation officer.

Now, cities vying for entrepreneurial parity with San Francisco, New York, and Boston are engineering their own centers of gravity. Commonly labeled innovation districts, these urban campuses pack in startups and mature companies alongside accelerators and co-working facilities; universities and medical centers; coffee shops, food trucks, outdoor spaces–you get the picture. The operating principle is density. Ideally, smart, creative people bounce off one another in serendipitous “creative collisions” that produce new ideas, relationships, and ventures.

There are roughly 20 substantive innovation districts in the U.S. and more than 100 on the rise worldwide, according to the Brookings Institution. To get an idea how they’re serving entrepreneurs, Inc. interviewed three dozen founders in 10 districts around the country. Although a few cited tax credits as the chief advantage (many innovation districts are in opportunity zones), the vast majority said their locations have helped them attract talent, forge partnerships, find early customers, and learn from peers. More developed districts like the St. Louis Cortex Innovation Community, the Chattanooga Innovation District in Tennessee, and Wake Forest’s Innovation Quarter in Winston-Salem, North Carolina, earned more love than smaller districts, but no founders regretted their locations.

“The momentum and collaboration over the past 10 years have been amazing to see,” says Heidi Jannenga, co-founder and chief clinical officer of WebPT, which develops office-management software for rehab therapists. WebPT was among the first startups in the PHX Core in Phoenix, which today is home to more than 130 companies and six million square feet of research and academic facilities. Like any relatively new district, PHX Core needs to get denser, says Jannenga, and a few more restaurants and other amenities wouldn’t hurt. “But what sets us apart” from places like Silicon Valley, she says, “is the generosity. Everyone here is pulling for one another.”

The denser the district, the more likely that even the most prosaic activities–attending a networking event, or just crossing the street to get to one–will yield a new customer or business partner. “In this building, there are drug-discovery startups, a company looking at genetic engineering in agriculture, and another looking at drug-delivery systems,” says Edward Weinstein, co-founder and CEO of Canopy Biosciences, located in the St. Louis Cortex. Canopy now sells its research tools to a number of district startups “because we talk to them every day,” he says. “My last company was 10 miles away, and for eight years, we never met folks in the startup scene.”

Stephen Culp is the co-founder of four businesses and a nonprofit in an art deco building in Chattanooga’s Innovation District. One day, he was refueling at nearby coffee roaster Mad Priest when he accidentally smacked into Drew Belz, founder and CEO of Fancy Rhino, a nearby branding and video-editing business. Over Belz’s broken mug, conversation ensued. Now Fancy Rhino is working with Delegator, Culp’s digital ad agency, on a proposal for a D.C.-based think tank. “The more people run into each other, the more they realize what they have in common,” Culp says. “The same is true for companies.”

Virtually all entrepreneurs said they’d experienced the kind of informal, peer-to-peer exchanges that provide founders advice and emotional sustenance. That’s the collegiality Gabe Cooper missed while launching his first software company in a Phoenix suburb. “We weren’t near anyone else doing tech,” he says. “So we spent a lot of time flying to Silicon Valley to see other tech entrepreneurs.”

Cooper moved to the area that would become the PHX Core in 2012, and two years later launched a second company: donor-management system Virtuous CRM. “Here you can be part of all these conversations–people in the coffee shop are talking about customer acquisition,” says Cooper. “One of HubSpot’s first employees hangs around here. I can just grab him and say, ‘Hey, Dan, how should we comp our sales development reps?’ ” (That Dan would be HubSpot sales director Dan Tyre.)

This ethos of mutual support is embodied by Venture Café, a nonprofit that hosts five-hour events every Thursday evening in 10 innovation districts around the world, with more on the way. The events, which attract up to 500 people, are designed to tempt founders from their caves with eclectic programming, product demos, and, most important, conversation with people who may change the course of their companies.

Beyond serendipitous interactions, the other universally cited benefit of innovation districts is access to talent. Every firm we interviewed said the amenities and ambiance in these collaborative cores can make recruiting a breeze.

“There are new buildings. A beautiful park. Food trucks. People riding by on bikes and electric scooters,” says Brian Platz, co-founder of Fluree, which makes a blockchain-based data-management platform. The startup, Platz’s seventh, is based in the Wake Forest Innovation Quarter, a district of more than 170 companies, built around the old R.J. Reynolds Tobacco manufacturing site. “There is so much more creative energy here,” he says. “It allows people to imagine themselves hanging out and living here.”

As co-founder of a St. Louis design and management consultancy in 2013, Sean Walsh learned that large companies like Monsanto needed outsourced teams of creative, energetic people for software and A.I. projects. Trouble was, he was located in a nondescript, suburban office park, where creative, energetic people didn’t want to be caught dead. “I said to my co-founders, ‘We’re going to start a new company from scratch in the Cortex, because that’s where innovative people want to be,’ ” Walsh says. In 2016, he launched this new company, 1904Labs, in the innovation district, and now it has 85 employees.

Many innovation districts are developed in conjunction with universities or academic medical centers, which act like a virtuous ozone layer, trapping talent and intellectual property so they can’t escape the neighborhood. That means abundant interns, but also chances to expand the workforce through collaboration and recruitment. In the Wake Forest district, Jennifer Byrne helped develop a master’s program in clinical research at Wake Forest University that she expects to someday supply employees for Javara Research, her platform for improving patient enrollment in clinical trials.

The new Providence Innovation & Design District, in Rhode Island, boasts an unusual variety of academic institutions, including Brown, Johnson & Wales, and the Rhode Island School of Design. “I can hit all of them from here with a baseball,” says Adam Alpert, co-founder and CEO of Pangea.app, a platform for matching companies with college students. “I have a little foldable table, and if I have two hours free, I will walk over there and talk with students and hand out stickers.” Alpert recently landed a new head of design this way.

One premise of innovation districts is that startup clusters–particularly specialized ones, like autonomous vehicles in Pittsburgh and agtech in St. Louis–may lure investors to open offices there, or at least to visit. The University City Science Center, a 55-year-old urban research park at the heart of what is now uCity Square in Philadelphia, nurtures many of the district’s most promising life-science and technology companies. That includes hosting office hours for regional investors to meet with startups. Nyron Burke, founder and CEO of Lithero, which uses A.I. to ensure the legal compliance of life-science-product marketing, raised $100,000 just by walking into a session with Philadelphia-based investor Ben Franklin Technology Partners. “The Science Center is doing the Lord’s work,” says Burke. But it’s not enough, he adds. “Entrepreneurs leave Philadelphia, because it is hard to raise money here.”

The money may come to more innovation districts if they produce large exits.In uCity Square, the big dog leading the pack is Spark Therapeutics, a gene-therapy company that Philly native Jeffrey Marrazzo co-founded in 2013 with support from the Children’s Hospital of Philadelphia. Today, Spark employs more than 440 people and occupies 200,000 square feet across five buildings in the district. Currently, Marrazzo is awaiting government approval of a $4.8 billion acquisition by Swiss pharma­ceuticals giant Roche. It would be the city’s biggest-ever VC-backed exit.

Such exits are “hugely important” for entrepreneurial ecosystems like innovation districts, says Startup Genome’s Morelix. He calls them “triggers,” because they attract resources and also deepen the pockets of early hires, who often go on to invest locally.

In the past, Marrazzo says, startups based on intellectual property from Philadelphia’s academic institutions “inevitably moved outside to the suburbs or, more often, licensed out their IP and re-formed in another city, like Boston or San Francisco.” Marrazzo kept Spark in the innovation district to buck that trend. Lately, he says, more VCs have reached out to him about the area.

“San Francisco funds and Boston funds are coming here on a regular, scheduled basis,” Marrazzo says. “With further success, maybe they’ll want to open offices here, too.”

From the Winter 2019/2020 issue of Inc. Magazine