Editor’s note: This op-ed is by Cairn G. Cross, co-founder and managing director of FreshTracks Capital I and II.
I read the recent Creative Corner piece by Professor Allison Kingsley, published in the Burlington Free Press on Sept. 27, comparing the Vermont economic environment to an emerging market and I feel compelled to respond.
Professor Kingsley recycles a number of well-worn anecdotes and tired theories that deserve rebuttal. She mentions that Vermont businesses talk about many things that make investing in Vermont unattractive (and lists things such as taxes and energy costs as some of the chief complaints) and she notes that “capital flows to the most attractive destination.” The implication seems to be that taxes and energy costs must make Vermont an unattractive destination for capital.
I will focus my rebuttal only on the capital flow assertions in her Creative Corner piece and I will focus primarily on the venture capital investing and new business formation activity in Vermont.
First, though, let me provide a bit of background. I have spent most of the past 25 years financing small growing companies in Vermont, first as a commercial banker, then for a period of time in the 1990s as an employee of Green Mountain Capital and since 2000 as the co-founder and one of the managing partners of FreshTracks Capital, a seed and early stage venture capital fund focused on investing in Vermont’s growth entrepreneurial ventures.
The Kaufmann report notes that there are 390 entrepreneurial startups per 100,000 Vermont residents annually (compared to the U.S. median of 320 per 100,000). For comparison “low tax” New Hampshire has 270 entrepreneurial start-ups per capita.
Here are a few facts with sources provided from which I will draw a conclusion. The recent Kaufmann Foundation Index of Entrepreneurial Activity used in a CNN Money story reveals that Vermont makes the top 10 “most entrepreneurial states” coming in at eighth. The Kaufmann report notes that there are 390 entrepreneurial startups per 100,000 Vermont residents annually (compared to the U.S. median of 320 per 100,000). For comparison “low tax” New Hampshire has 270 entrepreneurial start-ups per capita. I believe that Vermont’s high rate of entrepreneurial activity makes it a more attractive destination for seed and early stage venture capital.
For proof I turn to the PWC Money Tree Report, which is the best source in the United States to measure Venture Capital investing activity. In 2010 Vermont was 13th in the nation in terms of the number of individual venture capital investments made per capita. You can see the state comparison chart here. I note that “low tax” New Hampshire was 17th by this measurement. I am proud of the fact that my firm FreshTracks Capital has led or participated in half of all the venture capital investments made in Vermont during the past 10 years as measured by the PWC Money Tree Report.
What about venture capital dollars per capita? In 2010 according to the PWC Money Tree Report, Vermont was 10th in the nation with an average of $52.45 per capita of venture capital invested. You can see the state comparison chart here. In 2010 New Hampshire was 17th, with approximately $43 of investment per capita. Clearly there is plenty of entrepreneurial activity in Vermont and a level of capital investment which vastly exceeds the national median average. Vermont is a great place to start and grow a business and entrepreneurs are accessing venture capital here at rates that exceed the national average.
Investors such as FreshTracks Capital are attracted to this Vermont entrepreneurial activity and are investing in Vermont entrepreneurs at a rate that exceeds national median averages. Clearly Vermont is an attractive destination for this type of capital.
