Q&A . . . With Jeff Shackelford

Q: You wear a pair of hats in angel investing and with the Enterprise Center of Johnson County; what’s your overall sense of how the regional start-up ecosystem
has progressed recently?

A: The last five years have been interesting, as we all know, particularly in entrepreneurial space. COVID threw a wrench in a lot of things, particularly with early-stage investment. A lot of folks hunkered down, whether angel investors or institutions, to get through that period. We’ve come out of it somewhat, though we’re certainly not back to pre-COVID levels

Q: Any particular factors that contributed to that hesitancy?

A: I think with the instability from the federal level and typical funding sources, it created another ripple in there. Especially for some organizations that depend on federal funding when you look at the SBA, small-business development centers, the Women’s Business Center here. They really depend on that funding. That dampens the ability to continue what they’ve been doing. That said, over the past five years regionally, look at some of the organizations that launched to support early-stage entrepreneurs and under-served entrepreneurs: Things like Poorhouse KC in the urban core, GIFT, Toolbox on the Wyandotte County, KU’s Catalyst program launched to drive more entrepreneurial activity out of the university. And the Women’s Business Center continues to support women and traditionally underserved entrepreneurs.   So it’s been a bit of a teeter-totter” COVID tilted it down, but with those organizations and the likes of the Kauffman Foundation, thing evened back out a bit.

Q: How do we develop more entrepreneurial support programs as a region?

A: That’s interesting, because to truly build a sustainable entrepreneurial ecosystem, there is no end game, no finish line. It has to continue to evolve and shift with market conditions and opportunities. From an angel investing standpoint, we’re part of a number of organizations across the country, and we and hear the same thing, that early-stage, pre-seed funding, before a business is launched, has kind of slowed down. Again, uncertainty in the climate tends to do that.

Q: Any sense of how this region is faring compared to peer cities or metro areas?

A: It would depend on what rankings you want to use. In 2024, Kansas City was ranked  No. 16 by USA Today among best places to start a business. We were the only one in that list from Missouri or Kansas. We’re considered an entrepreneurial region, but sustaining that is the ongoing challenge

Q: In terms of business-sector strength here, what are the key support elements?

A: We were recently designated as a federal tech hub, focusing on biomanufacturing. That’s a great certification; it could mean several million additional dollars in federal funding. We do have the animal-health corridor from Manhattan to KU and MU in Columbia, and UMKC, so I do see lot of activity. There’s still a gap here in proof-of-concept funding. You have an idea at a very early stage and need some small amount of capital to even prove the concept or disprove it. That gap continues to be there and really limits the volume of new ideas and concepts needed to develop scalable, investable companies.  Other states and cities have filled that gap with state-funded Proof-of-Concept programs.  Kansas and Missouri need to develop a sustainable model to drive more innovative concepts.

Q: Are there equivalents here?

A: We have Digital Sandbox here, but that doesn’t stretch statewide in Missouri. On the Kansas side, there’s not really an effective proof-of-concept program. There’s been some effort on how to make that happen, but you have to feed the funnel by helping really early stage, pre-product companies. If you feed the funnel with those early-stage concepts, will find those that can hit the market, get developed and move on to become sustainable companies.  A successful proof-of-concept program brings out anyone and everyone with innovate concepts and that drives the kind of volume needed to sustain a long-term, vibrant entrepreneurial ecosystems.

Q: Do the real pillars we have for start-ups, animal health and life sciences, for example, provide any advantages?

A: The challenge with animal health and life sciences is always the same: There’s a lengthy path to get the product to the point to where it’s approved by the FDA, the USDA or other agencies. It takes significant capital to go through those phases, then to clinical trials, and it takes a lot of time. But we have the components here to help those companies develop. Clearly, K-state is a huge asset in the animal health space and KU is a huge asset in life sciences.

Q: What about the policy side, through state and local governments?

A: I’ve preached this for several years: The most successful proof-of-concept funding I’ve seen in surrounding states is state-provided, at the early stage where somebody at a university has an idea or a researcher working on a Ph.D is trying to take something commercial, or a student with concept that has viability. You need some amount of early stage capital to push things forward or it will hit the Valley of Death and not go anywhere. Proof-of-concept funding can prove there’s a market and you can build a prototype. Then you move on to angel investing and pre-seed funding. But if you can’t get out of the proof-of-concept stage, the idea won’t move anywhere. Here, both sides of the state line have to move. Look at Oklahoma. They have a state  fund, Colorado has several, Nebraska has one also.  The best analogy I have is, you have to light the fuse, because if  you don’t you’re never going to get to the point where it explodes into something big.

Q: And the best tools we have here?

A: The angel credit on the Kansas side, which is really important to angel investors. If they can get that credit, it’s very appealing. Missouri has wavered back and forth, but never got it done with one. It would be very beneficial for this area if both states were to introduce them, because here’s a big appeal.

Q: What about private-sector funding (this plays to your other hat with Mid-America Angels)? 

A: It’s pretty industry-agnostic in terms of investor interests. Show me a good team with a good concept, and some ability to have traction to hit a few milestones—angels are interested in investing. I see a lot of tech and AI-related asks, and there is some appeal that tech-based companies can grow more rapidly than a manufacturing or product company. Tech-based, I can’t think of a biz that’s not tech-based today. From an angel perspective, can they grow rapidly and is there an exit strategy. That’s the one to hone in on. Again, the challenge with animal and life sciences is the time to get product or service to market so can set that exist strategy and that’s not always of interest to angel investors.

Q: Who’s driving the funding bus?

A: Over the last five years, there have been more, I call it institutional capital entities looking to Kansas City. Flyover Capital just launched its First Flight fund which will look at pre-seed, which is great. We’ve got KC Rising, Nuterra, Fulcum Capital and several others.  Kansas has a state-run fund, GrowKS, that came out about two years ago, investing in companies already in the market that have revenue. Missouri Technology Corp.’s challenge is, they depend on state funding, and last I heard, the state was not going to fund them. It has resources to move on, but the problem with some of these entities is if they rely on public funding, they are at the mercy of the ebb and flow in the statehouses and that really makes it hard to successfully run a sustainable program.

Q: Are you seeing any changes in investment strategies or sector focus by angels and other early-stage investors?

A: AI,but it’s one of those terms where  you don’t see a pitch today where it doesn’t include AI. Some may throw it in just because it’s the term of the day. But what are the specific applications or uses for it? The ability to gauge your market faster and more efficiently is a plus, as is taking a function that is manual today and making it automated to be faster and more economical. Look at what can be done with robotics; we’ve seen use of drones to automate monitor progress or security at a construction project instead of doing that manually. I don’t think we’ve scratched the surface yet in how AI can be used in medical and animal-science fields.

Q: Any geographic aspect here that provides a regional advantage—such as being close to the protein and grain food chain sources?

A: We’ve seen a number of startups in ag-based tech, whether it’s the drone flying ahead of the combine to read for moisture or soil composition, all the way to robotics that can weed the field  and do less damage to the soil with less loss of crop production. There’s a lot of work going on in that space. The challenge there is proving something will work in a market that isn’t the quickest to adapt. The flip side is, you’ve got large employers, like the John Deeres, in that space, but from an entrepreneur’s standpoint, there are opportunities to continue to figure out how to get more production from the same amount of land.

Q: Before they consider a successful exit, what do early-stage investors look for?

A: From an angel perspective, it’s looking for ‘what’s the problem  you’re trying to solve? How does this product generate more production or lower costs? Then, ‘Do I think this solution will gain traction and solve the problem?’ Then, if it does, what’s the potential return, because if a company doesn’t have that exit, you don’t want to be with them next decade. You want to be able to move on to the next one. Investors here will listen to ag tech because we know it, we know it’s a market growing faster than anyone can keep up with. But they also want to know if that owner can raise additional funding, because it will take bigger dollars to eventually get to market. Does this team have the support needed to scale rapidly?

Q: Once funded, what do aspiring entrepreneurs need to understand about how the very act of bringing in partners will change how they operate as leaders? 

A: This is so unique to entrepreneurs. New entrepreneurs sometimes don’t always understand what taking on equity investments really means, which is why we run programs here to help educate them on that.  This is what you have to understand: You formed the company, you’re going to take in money, but you’re eventually going to need more. As soon as you get that first dollar, act like you don’t have any. You have to have a mind-set to stretch every dollar as far as possible, because you never know if you’re going to secure the next round of funding. They have to learn quickly that raising money takes more time than they think; I tell them twice as long, and that they’ll need twice as much. When you do take money, work with people who have experience. Be reluctant to hire until you absolutely have to have somebody. Those that haven’t been through that are the ones that need the education and hand-holding, and those that have been have learned not to repeat their mistakes.mistakes.