When do direct flights boost economic output (and venture capital deals)?
Though the US already has more liquid capital than any other country, regions short on institutional money still chase outside investors with tactics like subsidizing direct flights and flying in VCs for 1:1 meetings.
Research does show startups gain measurable innovation advantages (more patents and citations) when direct flights link them to VC centers — with effects far stronger on international routes than domestic ones.
So yes, ecosystem leaders should invite investors and host meet-and-greets, but not universally fixate on capital, because entrepreneurs need many resources, including quality of life.
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Pressed to choose between being a home for investors and entrepreneurs, choose the entrepreneurs every time. Venture capitalists are bankers with better branding.
So forgive me for raising my eyebrows whenever I hear an economic development leader tell me they're working on attracting more capital to their region — or that an entrepreneur thinks her hometown just 'needs more capital.' Everybody says this everywhere. The United States has more liquid capital markets than any other country on the planet. We also have more airports than anywhere else. Stop complaining.
Still, I admit research shows there are cases where that is sound economic development strategy. So when is it smart for regional economic development groups to chase venture capitalists? And what does it have to do with direct flights?
'Venture capitalists monitor their investments closely,' said Brian Brackeen, the Lightship Capital general partner whose Black Tech Week event series in Cincinnati matches startups directly with VC investors and corporate clients. 'Founders think constantly about capital. They prefer not to, but they have to.'
Brackeen was my foil on this topic in the last Technical.ly Builders Live podcast alongside our cohosts Victor Hwang of Right to Start and Maria Underwood, an ecosystem builder turned startup COO from Birmingham, Alabama.
Our conversation veered into the role of local events to bring in outside investors — the topic of a separate future Technical.ly story — but our original debate centered on when local ecosystems chasing outside capital made sense.
Brackeen assured me that no 'sensible' local economic leader is expecting to attract a top-tier investment firm to open an office in their city or state on a whim.
Most US regions are without much institutional capital. Local rich grandees might be angel investors, but can often be unsavvy, or at least limited in their checkbooks. Many economic leaders want to create ties to bigger pools of money to accelerate homegrown inventors — and limit departures for bigger investment hubs.
Air travel is often regarded as an economic salve for such far-flung places.
One signature initiative from Jobs Ohio, the liquor-tax funded, state economic development powerhouse, is its ' air service restoration program,' in which it effectively subsidizes direct flights from its airports to major financial centers at up to $10 million annually. Northwest Arkansas's entrepreneur support organization is organizing a VC immersion program, in which it flies in investors for 1:1 meetings with inventors. Ecosystem organizer Serafina Lalany posted a video of her team happily distributing posters of the campaign.
'Bringing investors to your city works,' said Underwood, who led efforts to integrate investor pitches into Birmingham's upcoming Sloss Tech event. 'We bring VCs who've never been to Birmingham to meet our founders. It's economical and effective.'
Research backs her up, to a point. Startups gain measurable innovation advantages when connected by direct flights to venture capitalists, according to a 2016 MIT paper, with a 3.1% increase in patent filings and a 5.8% increase in patent citations.
Interestingly, US communities don't benefit from new direct flights anywhere near as much as international cities do, at least according to a 2018 paper. Foreign cities with new direct flights to Silicon Valley saw an additional $23 million in VC funding over the next year.
Any connection between big enough domestic and foreign hubs did the trick. With each newly introduced direct route between a U.S. and Chinese city increased annual M&A transaction volumes by approximately $50 million, according to a 2021 paper. Domestic cities didn't see the same boost.
'For companies farther away, particularly internationally, direct flights matter immensely,' wrote Waters. This advantage is magnified by geographical distance and cultural barriers.
Selling bits of an early-stage private company for infusions of cash is always tricky, especially for first-time founders and in untested markets. Network effect is real, and local organizers can change that. Invite investors to your annual events and organize meet-and-greets, but ecosystem leaders ought not universally fixate on venture capital. Entrepreneurs need many resources.
As Hwang put it: 'Making connections for entrepreneurs will make good things happen in lots of unexpected ways.'
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