It seems to happen with increasing frequency. An ambitious local entrepreneur announces that she’s moving to the West Coast, or a feisty Hawaii-born startup announces that it’s setting up an office in San Francisco. The Facebook post gets dozens of likes and congratulatory comments, but more than a few “sad” emoticons as well.

If greater opportunities on the mainland are drawing some of our most innovative people and companies away, even in the era of apps and SaaS, is this just Brain Drain 2.0?

“I hear that all the time,” said Chenoa Farnsworth, managing partner at the Blue Startups venture accelerator and manager of the Hawaii Angels investment group.

“Are you kidding me? My ears are falling off,” said Robbie Melton, executive director and CEO at the High Technology Development Corporation.

But both agree, as do many of the startup founders who have made the leap, that seeing more movement between the islands and Silicon Valley is ultimately a good thing for Hawaii.

Something In The Way You Move

Given the resources that are invested in fostering new talent and business, it’s not unreasonable for any city or state to want to keep them local.

“One thing we need to educate people on is that it’s not just Hawaii where that happens,” said Melton, who came to the HTDC after a decade as the director of entrepreneurial innovation for the Maryland Technology Development Corp. She noted that some agencies have even put barriers in place to keep startups within their borders.

Each cohort of the Blue Startups accelerator program culminates with a “demo day” in San Francisco, hosted by 500 Startups.

Each cohort of the Blue Startups accelerator program culminates with a “demo day” in San Francisco, hosted by 500 Startups.

Ryan Ozawa

“Many states, including Maryland, would have clauses in funding agreements that said if you move out of Maryland you have to pay the money back,” she said. But since most were moving to be nearer to their investors or their most promising markets, it wasn’t much of a barrier, just an unnecessary extra hurdle when a startup was spreading its wings.

“You can’t hold people down. You want them to succeed,” she said. “We live in a capitalistic democracy, that’s not how the free market works. … Forcing them to stay is unrealistic.”

 

A startup’s ability to succeed outside Hawaii is an important part of the decision to invest in it, Farnsworth said.

“Even in the best of circumstances, you will need to expand beyond the state, and our job is to invest in companies that we think are going to scale in that way,” she said. “When they do, we’re happy.”

And a move by any other name might smell as sweet.

“The terminology we use is sometimes negative,” she said. “Did they leave or did they expand to the mainland? When they open an office in San Francisco, I think, ‘Awesome, they’re thriving.’”

Let Hawaii Happen

Dreaming big is a required skill in the startup world. But when it comes to policy, planning and brass tacks, Melton said it’s not practical to think that Honolulu could be the next Silicon Valley, Silicon Alley or Silicon Prairie.

“Did they leave or did they expand to the mainland? When they open an office in San Francisco, I think, ‘Awesome, they’re thriving.’” — Chenoa Farnsworth, Blue Startups

“We should not be trying to be Silicon Valley,” she said. “We’re not New York or D.C. or San Francisco. We’ve got a 10th of their population so our industry should be a 10th of their size.”

“We have a very small population and people expect so much out of a million people — only so many of them are going to start successful technology companies,” Farnsworth said. “People say ‘we’re not on any of these top 10 lists,’ but proportionally we’re doing quite well.”

In fact, she noted, Honolulu is seeing a lot more entrepreneurial activity than people might expect. She pointed to the many other accelerator and venture programs in the state, including the Energy Excelerator and XLR8UH.

Farnsworth said she sees a lot of parallels between Honolulu and Boulder, Colorado, which started small but now has a lot of startup activity, and a number of early-stage venture capital firms opening offices there.

In recent years, Hawaii has built a strong foundation for its “innovation ecosystem,” especially for new and fledgling startups. Attention has now shifted to strengthening the next few segments of the pipeline, including increasing the availability of later-stage investing and funding for things like manufacturing or market expansion.

Melton said Hawaii is making progress, with more and more legislators and leaders seeing the big picture, but “it’s still a tough fight, year to year.”

 

Paying Different Kinds of Dividends

While a startup is based in Hawaii, it creates jobs, trains skilled workers, pays taxes and helps diversify the economy beyond tourism. And not every successful startup relocates to the mainland.

“Look at Cardax, a publicly traded company and they’re still here, not on the mainland,” Melton said, noting that pharmaceutical company’s co-founder David Watumull grew up in the islands. “Look at Tetris. It makes millions of dollars and they didn’t leave, even reinvesting to help the community” through Blue Startups or the Blue Planet Foundation.

And even when local entrepreneurs and companies move away, Hawaii still benefits in the long run.

“One of the things that makes any startup community successful is the expanded network,” Chenoa said, pointing to a recent Stanford University study on Start-Up Chile that she said found that the network is among the most important factors in creating success.

“We’re seeing that start to happen with all of our startups, a network of people all over the place and they all help each other,” she said. “And they’ll cycle back through, become angels, or start new companies, and there’ll be more and more of that here, and maybe they’ll be more interested in staying.”

“We’re creating legions of successful startups and individuals and entrepreneurs who have a vested interest in the future of Hawaii,” she added.

This is part one of a two-part column on opportunities for Hawaii entrepreneurs and startups outside the islands. Part two will check in with entrepreneurs who have made the move. Ryan was part of the sixth cohort of Blue Startups. He has no plans to leave Hawaii.

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