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Rural Startups, Often Overlooked, Are The Focus Of New Investment Programs

STEVE INSKEEP, HOST:

President Obama's administration is hosting a conference today designed to convince more investors to back startups and entrepreneurs in rural America. The White House is also unveiling a new, $10 billion private investment fund aimed at financing infrastructure projects in small towns. As North Country Public Radio's Brian Mann reports, some experts say these efforts are needed to ease a lending drought that is stifling rural communities.

BRIAN MANN, BYLINE: Mara Smith is standing with me on Main Street in Lake Placid, New York, holding in her hand what she hopes will be a brand-new business.

MARA SMITH: Did you concentrate, or was your mind somewhere else? Were you distracted or dialed in? Did you practice...

MANN: She's reading from an iPhone app she developed. She says it will help athletes manage the mental side of fitness training, things like focus and discipline. With money from friends and family, she made this working prototype. But now she needs an investor and half a million dollars to keep going. The problem is that she works and lives in a small, mountain town, a day's drive from the nearest tech clusters in Boston and New York City. She says that made every step of the process harder.

SMITH: It did matter that I was from Lake Placid. It did matter that I wasn't kind of a funky, city, groovy hipster. I did feel irrelevant a lot.

MANN: Smith's project is very small-scale, but her experience reflects a huge problem. Small-town startups struggle to be taken seriously, especially by investors. Reports by the Federal Reserve, the U.S. Agriculture Department and other groups have found for years that the vast majority of venture capital and business loans go to cities and suburbs. Lee Keet is CEO of a venture capital group called Vanguard Atlantic.

LEE KEET: Well, I think it's generally not true that venture capitalists or the private equity firms will flock to rural America - unless they sense a real success. I mean, if you're Ben & Jerry's, people will come to you.

MANN: So to help people who aren't yet Ben and Jerry connect with potential investors, Keet started a new venture capital project. It aims to fund startups here in rural, northern New York.

KEET: We're definitely filling a void. But I keep saying to my colleagues that we want to do well.

MANN: In other words, this isn't small-town philanthropy. Keet wants to find projects that will make money. That's the idea the Obama administration is pushing today in Washington, that investors can make a great return on investment if they learn how to spot opportunities outside the urban beltway. Agriculture Secretary Tom Vilsack says the challenge is educating bankers and capital fund managers, mostly in big cities, who make the decisions about where the money flows.

TOM VILSACK: They just need to know where the deals are. And we need to be creative about how we structure and bundle these deals so that they attract the attention of large-scale investment.

MANN: Vilsack says that last part is important for big banks and investment funds. They want opportunities that have the potential to scale up fast. So lots of small towns and rural industries may have to figure out how to pull projects in a way that gets Wall Street's attention. That approach won't be much help to smaller startups, or to the mom-and-pop car dealership, or a restaurant that wants to expand. So people like Mara Smith, who developed that fitness training app, will have to keep hustling and keep knocking on doors and probably making more trips to the big city, searching for investors.

SMITH: You just have to be OK being told no a lot of times and learn from that.

MANN: For NPR News, I'm Brian Mann in Northern New York. Transcript provided by NPR, Copyright NPR.

Brian Mann is NPR's first national addiction correspondent. He also covers breaking news in the U.S. and around the world.