The country’s biggest startup contest takes place in Rust Belt Buffalo—and its winners are earning Silicon Valley-like returns
Every year, the Buffalo, N.Y. startup accelerator 43North holds a Shark Tank-inspired business plan competition. But at times, this year’s finals looked less like a wonky startup contest and more like a giant pep rally for the home city.
At the climactic event this fall, one startup founder took the stage wearing a pencil skirt, high heels, and a Buffalo Bills tee-shirt. Not to be outdone, a local doctor promoting his sleep apnea app illustrated his pitch deck with chicken wings. When Buffalo Mayor Byron Brown announced the winner, the stage exploded with laser lights, an LED-fireworks display, and a massive balloon drop. The sellout crowd of 3,000 packing Shea’s Performing Arts Center—the city’s grand old theater—roared with approval.
Buffalo has a lot to celebrate these days. This year, the Census reported that after seven decades of steep population loss, the city’s headcount had grown 6.5% since 2010, to 278,000. LendingTree put Buffalo among the top five cities for popularity among millennial homebuyers. Many of the city’s historic buildings are finally being restored and put to new use. And in March, the town’s first unicorn, ACV Auctions—a previous 43North contest winner—had a big IPO, raising $414 million and making some local angel investors very happy.
“There’s more funding, more companies, more risk takers, more jobs and more promise for our future,” 43North president Colleen Heidinger told the audience at Shea’s, kicking off the proceedings.
Competition emcee and 43North Foundation chairman Bill Maggio was more succinct: “We’re saying goodbye to scarcity tonight!”
Seven years ago, Buffalo launched an unusual experiment: the nation’s largest startup competition by dollar amount, awarding a total of $5 million in prizes every year to eight winners to help them grow their business.
Businesses around the world are invited to apply, but on one condition: If a company wins one of the $500,000 or $1 million prizes, it has to spend the next year in Buffalo, a Rust Belt city better known for its snow, underdog football team and ailing economy than its startup scene.
43North, the nonprofit launched to oversee the effort, operates like any tech accelerator. It offers funding, office space, and industry-specific mentorship and programming in exchange for a 5% equity stake in each winner. The twist? The whole shebang is funded by New York State, in an effort to spur the region’s economy.
And it looks like this unusual public-private experiment is starting to pay off.
If you had money to invest, you might want to make 43North your financial advisor. Of the 51 startups it has funded since 2014, just six have gone belly-up—an enviable track record in the venture capital world.
The $30 million it has invested since 2014, meanwhile, is now worth more than $100 million—a performance far outpacing the S&P 500 over the same period and on par with the 18% annual return enjoyed by the typical venture capital fund over the past decade, according to Cambridge Associates, a global investment firm. If the government funding stopped tomorrow, 43North could easily sustain itself.
43North’s primary function, of course, is economic development, and results here are positive as well. The organization, which has so far received $30 million from the state, says its portfolio companies are directly responsible for creating nearly 1,000 jobs in the Buffalo area ranging from management and engineering roles to marketing and customer service jobs.
It’s an impressive achievement compared to other recent efforts by the state to spur job creation in the Buffalo area. An audit by the state comptroller found, for example, that a $1.4 billion investment in a Tesla battery plant—an amount 40 times the funding directed to 43North—has created roughly the same number of jobs. The $500 million invested in an IBM IT hub, meanwhile, created just 200 jobs.
More importantly, the effort appears to be helping Buffalo catch up with other U.S. cities like Boulder, Austin, and Pittsburgh in the race to create a thriving local startup scene.
“43North added a big, positive jolt to the system,” says Thomas Murdock, a professor of entrepreneurship at the University at Buffalo School of Management and long-time participant in the city’s startup community. “There’s been explosive growth for us.”
Yes, tech is booming in just about every town. Since 2014, the year 43North launched, total venture capital funding for U.S. startups grew 125%—to $166 billion awarded in 2020, according to PitchBook Data. But Buffalo’s trajectory over the same period blows that away. Total funding grew from $11 million in 2014 to $206 million last year—a 1,750% increase.
It’s not just the cash injected into the startup economy that matters, it’s the change in mindset, says Murdock: “43North provided a positive example of what can be done, which we were sorely lacking before their arrival.”
The influence is widespread. Busloads of high school students from all over Western New York attend the 43North finals every year, says Murdock. University students intern with the portfolio companies, use them as case studies and land jobs with the startups upon graduation.
“I can point to huge number of students now identifying this as a career path—to start a company or work at a startup,” says Murdock.
‘We’re going to be the next Austin’
The person widely credited for 43North’s existence is Jordy Levy. This year’s finals featured a video tribute to the man, with local entrepreneurs referring to him as the “Godfather of Buffalo Startups” and his wife exclaiming, “I think he’s quite remarkable and I’m very proud!”
It started in 2013, when New York State announced the Buffalo Billion, a plan to spend $1 billion on infrastructure, workforce development and other measures to boost the economy of one of the nation’s poorest cities.
The state convened a regional council to decide how to spend the money. Levy, a Buffalo native and venture capital veteran who had a top role with venture giant SoftBank, was invited to participate. He recalls attending a brainstorming session in the downtown hotel ballroom where area leaders discussed a plan to grant $5,000 awards to small businesses. “You’re kidding!” he said. “Let’s make it the biggest business plan competition on earth. Let’s put Buffalo on the map!”
He was surprised to get a call several weeks later from then-Gov. Andrew Cuomo. The state wanted to go ahead with the plan, but only if Levy agreed to spearhead the effort.
He agreed on two conditions. First, he wanted a five-year funding commitment from the state. Second, the prize money would be an investment in the winning startups rather than a grant.
If the aim was to raise Buffalo’s profile, mission accomplished. In its first year, 43North (the name stems from the city’s position on the 43rd parallel north circle of latitude) received applications from more than 6,800 companies in 100 countries.
Perhaps more important, it got the whole city, known for its defeatist attitude, thinking about startups. “It was like Silicon Valley was coming to Buffalo,” Levy recalls. “Everybody in Western New York said ‘Oh my god, we’re a real city in the startup world. We’re going to be the next Austin.’”
The pros and cons of the Buffalo factor
But while the effort made it possible to lure small startups to Buffalo, a big challenge remains—convincing them to stay.
Of the 45 portfolio companies that have won 43North funding since 2014 and are still in business, 30 still maintain a presence in Buffalo—but not necessarily their main operations. According to Crunchbase, just 13 of the 43North winners are headquartered in the Buffalo area. After completing the required year in town, many have located their main office in nearby cities with more established startup scenes, including Boston, New York City, and Toronto.
43North officials say that if a portfolio company leaves, it’s still a win. The nonprofit, after all, maintains its equity stake. Still, it is trying everything possible to keep its portfolio companies in town, starting with its recruiting efforts. Several years ago, it began screening applicants for a demonstrated interest in the Buffalo startup community, asking why the company would make a good fit with the area’s tech ecosystem, for instance.
At in-person interviews during the semi-finals, the focus on the Buffalo factor intensifies. Has the founder considered which neighborhood she might live in? What does her spouse think of Buffalo?
“We want to see the level of diligence they’ve done, and their commitment level to the city,” says Heidinger.
Once the winners are announced, the push is really on. For the next twelve months, 43North woos the founders with a “Quality of Life” campaign exposing them to the best the Buffalo area has to offer. That means dinners with business leaders, ski and golf excursions, an inside tour of the Albright-Knox with the art museum’s director—even a trip to the Buffalo Zoo, where everyone gets a chance to feed the hippos.
This year, 43North launched the 43North Foundation. Funded with 43North’s massive equity stake, the Foundation plans to create workforce development programs producing a pipeline of tech talent for startups to draw on.
The idea, says 43North board chairman Eric Reich, is to make sure the winners hire enough talent during their year in Buffalo that it becomes difficult to leave without fatally disrupting their fledgling business.
But big challenges remain. There is no fixing the weather, for one. Then there’s the fact that Buffalo is perhaps decades behind its rivals when it comes to creating the sort of lively, walkable 24/7 downtown hub that startup types tend to favor these days. The push is on to fix that.
The biggest building in town
The Seneca One Tower is by far biggest building in Buffalo. Described on its own website as a “monstrosity,” the 40-story, 1.2 million square-foot tower, built in 1972, looms over downtown, straddling Main Street and providing spectacular views of Lake Erie and the area’s grain elevators. Not too long ago, it was vacant and in foreclosure, and there was talk of knocking it down. Then, out of the blue, Washington, D.C. developer Douglas Jemal snapped it up for $12.5 million and spent another $125 million on a transformative renovation. In February 2020, 43North became the building’s first new tenant, occupying the entire 24th floor.
Now, a collection of 43North startups occupy sunny, glass-walled office spaces. There’s Circuit Clinical, a digital platform that pairs patients with clinical trials, and Whose Your Landlord, which provides tenant reviews of apartments. LegWorks is manufacturing prosthetic limbs. SomaDetect makes sensors that test cow milk for everything from protein content to pregnancy status.
Jemal, founder and president of Douglas Development, is happy to have 43North as an occupant, spinning off companies that will soon be occupying additional space in his building. Choosing tenants for his tower, which is now 80% occupied, he turned down some PR and law firms, holding out for the entrepreneurs. “I was looking for a certain vibe,” he said.
To that end, he refurbished the lobby to include universally recognized startup world signals—a food hall with a ping-pong table (in Buffalo, startup employees actually play ping-pong), a swanky old-school bar and a lounge. Not to mention a pair of caged parakeets trained to squawk “Go Bills!”
But outside the buzzing tower, which also includes a 2,000-person Tech Hub for locally headquartered M&T Bank, downtown looks as desolate as ever. There are few of the local shops and restaurants you’d expect to find in a regenerating city; you can walk for blocks at rush hour without passing another soul.
Boosters, however, say Buffalo offers a unique opportunity for the ambitious outsider: the chance to get in at the start of a fledgling movement and have a big, positive impact. You can be a big fish in a small but growing pond. Jemal, for one, has doubled down on Buffalo after falling in love with the city.
“I come from an area where people are not nice,” he says of Washington, where he spent many decades. Buffalo, by contrast, feels friendly and appreciative. He bought a big mansion in the city and also went on a bit of a commercial real estate shopping spree, snapping up the old police station, a mall and two hotels. He has expressed an interest in the once grand but now crumbling Buffalo Central Terminal train station.
“I feel as if this is my legacy,” says Jemal, who is 78.
In other cities, the tech scene can feel competitive. Here, there is a sense that everyone in town is in this together. And that spirit hasn’t gone unnoticed.
Rohit Gupta, managing director of Future Communities Capital, a Berkeley, Calif., venture capital fund, first got interested in the Buffalo scene when Heidinger, who spends a lot of time networking to raise her organization’s profile, flew to California to meet for coffee.
Gupta agreed to be a 43North finals judge and was surprised by what he saw. Some towns have startup competitions nearly every day of the week, he says, but they don’t draw thousands of excited fans.
“I was shocked they sold the place out. And it was a very diverse crowd, by any metric you can come up with,” he says.
This year, his fund invested in two Buffalo startups. Part of the attraction, he said, was the support he knew these companies would get in Buffalo, and he credits 43North. Many cities are trying to build a tech hub, he said, but few have a concerted game plan. “New York State and Buffalo have really made it attractive to move operations there,” he says. “I don’t see a lot of other programs pulling it off.”
‘I’ve got to make this million dollars work’
Buffalo will likely have an easier time retaining startups that are homegrown, of course. And in recent years, the 43North winners have included a larger percentage of startups already based in town, because the local pool is growing stronger.
43North can do a lot for a local startup, says George Chamoun, CEO of ACV Auctions, a digital platform, founded by three locals, that helps used-car dealerships buy and sell cars at auctions online.
When ACV won 43North’s $1 million prize in 2015, for example, it brought the company credibility and caught the attention of investors, the auto industry, and potential employees. “It was one of the reasons I joined,” says Chamoun, who left Synacor, the publicly traded technology service provider company he founded in the late 1990s, to take a leadership role with ACV when it had fewer than 75 employees.
The company, which went public in March, now employs more than 400 in the Buffalo area, ranging from engineers to hourly workers who spend their days scanning car titles. If your startup is not successful in this town, says Chamoun, “It wouldn’t be because of Buffalo.”
This year’s $1 million winner at the 43North finals—and an obvious crowd favorite—was artisanal cracker company Top Seedz. Founder Rebecca Brady says that after launching the company in 2017, she got a lot of support from the city’s growing startup community, including Ignite Buffalo, a small business incubator launched by 43North that awarded Top Seedz a $50,000 grant in 2018. The cash allowed Brady to rent and build out a production space behind the airport.
By the time she entered the 43North competition this year, Brady had 20 employees producing 50,000 boxes of crackers a month sold in 300 stores, and the business was expecting a $300,000 annual profit.
But the crackers are still made by hand by her factory crew—largely refugees from countries such as Afghanistan and Somalia—who scoop the arrowroot and seed dough onto sheets and flatten it with rolling pins. With the $1 million prize, Brady will invest in an automated line and 40-foot oven, increasing production capacity to 1.5 million boxes a month.
“I’ve got this opportunity, and I can’t let all these people down,” she says. “I’ve got to make this million dollars work.”
Will she stick around if Top Seedz goes big? “I just need to focus on the present and not think too far ahead,” she says.
But she loves Buffalo, and it would be hard to give up the support, she adds. When she was walking around town recently in her company logo sweatshirt, a woman driving by started honking her horn and yelling “Yay! Top Seedz!”
43North will continue to get state funding through 2024, and leaders aim to make the most of that runway. “There’s tons of room for improvement,” says Levy. “Anyone who thinks there isn’t is an idiot.”
The organization needs to cultivate deeper relationships with VCs and accelerators around the country, he says, and do a better job at promotion. Many startups still have no idea there’s a million-dollar opportunity available every year in Buffalo.
“We will have succeeded,” he says, “when the world says that 43North is the most important business plan competition to win.”
And of course, the Buffalo startup scene still needs a name.
Jemal suggests “Real Valley.”
“Silicon Valley is fake valley,” he says. “I would name us Real Valley, Buffalo. Because the people here are real. And your life here is real. It’s not a fake life here. Am I wrong?”
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