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Pennsylvania’s government-backed VC firm should serve as a model for other states

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The Cleveland-Pittsburgh-Buffalo region was known for more than a century for steel production, and steel was the reason cities in this part of America were home for generations to some of the country’s most upwardly mobile working- and middle-class communities.

That was the story of northeastern Ohio, northwestern Pennsylvania, and western New York — right up until it wasn’t. In the mid-1970s, steel companies began leaving, often with little or no notice. Between 1979 and 1984, employment in the industry contracted by 75 percent. After the steel collapse, the region became a caricature of American industrial decline.

Ben Franklin Technology Partners (BFTP), a venture capital and economic development firm formed in response to the deep recession of the early 1980s, has been trying to change that by funding Pennsylvania startups for more than three decades.

In 2016, BFTP assisted more than 1,412 existing companies through direct investment and technical training, helping to form 168 new companies. Nearly 10,000 jobs were retained or created because of BFTP funding or assistance, and client companies secured nearly $500 million in additional funding.

While the rest of the country chronicles the Rust Belt’s decline through endless analysis, entrepreneurs throughout Pennsylvania are founding some of the country’s fastest growing startups, some of which build on the area’s historical ties to the steel industry. One BFTP-backed company, Spin-Works International, is creating technology using 3D printing that makes the blast furnaces used in steel production more efficient.

I realize that blast furnace efficiency is not the world’s sexiest innovation-related topic. It’s not Snapchat’s IPO or Amazon’s quest to take over the world.

But while it isn’t glamorous, the steel that came from the region’s blast furnaces literally built much of the country’s infrastructure. Pennsylvania and Ohio steel also helped make the United States the world’s dominant military power, a fact memorably pointed out in the opening verse of Bruce Springsteen’s song “Youngstown.”

And it isn’t just steel-related technology driving the growth of entrepreneurship in this part of the Rust Belt. Startups that you’d think would be found in New York or Los Angeles are choosing to remain in Pennsylvania, in large part because of the support they’ve received from BFTP. ApexDrop Influence Marketing, a fashion-focused influencer marketing agency, is a BFTP-funded company based in Erie that works with multiple national and international clothing brands.

Ben Franklin Technology Partners isn’t a new organization. It’s been around for several decades, founded after state leaders realized that technology and innovation would fuel Pennsylvania’s next wave of growth. While typically thought of as lagging hopelessly behind, in many ways steel country was far ahead of the curve.

While policymakers know a divide between major cities and the rest of the country exists, few realistic solutions could help keep talented entrepreneurs in small cities and rural communities. That said, one of the best solutions is to do exactly what they are doing in Pennsylvania: Realize that economies don’t change overnight, and commit to bringing significant capital, knowledge, and networks to talented entrepreneurs and startups in smaller cities and rural areas over an extended period. While other cities and states have only recently recognized the potential of innovation and startups as an economic development and talent-retention strategy, Pennsylvania has been funding technology-focused entrepreneurs since Ronald Reagan’s first term.

Connecting capital and talent in small cities and rural communities doesn’t just pay off during a booming economy. Between 2007 and 2011, BFTP clients created 20,200 additional jobs and brought $6.6 billion into the Pennsylvania economy. Those results have led to recognition from the White House, Congress, and the Department of Commerce.

Investing in startups doesn’t cure every problem for a region transitioning from a traditional economy to a more technology-focused business base. However, homegrown innovation is what made steel country such a source of American economic strength for most of the 20th century.

If the same thing happens in the 21st century, it will likely be because innovators who could have gone elsewhere had the chance to stay in their hometown and build the region’s next great industry.

Dustin McKissen is the CEO of McKissen + Company, a marketing and management consultancy located in St. Charles, Missouri.

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