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Investigative Post: 43North competition brings companies to Buffalo, but struggles to keep them here

Lauren Washington pitches the 43North judges on her company, KeepUp.

Cory Rosenfield knew the deal: in exchange for up to a $1 million state investment in his fledgling company, he would have to move the business to Buffalo for at least a year – and hopefully much longer.

So, when he made his pitch to the judges of the 43North competition two years ago, he assured them this wouldn’t be a problem.

“We are so excited to be making our new home in Buffalo,” he said. “We are here to stay no matter what.”

Just over a year later, the company had gone back to Toronto – despite winning $250,000. Being in Buffalo, Rosenfield said, was not helping them grow.

For almost any other economic development program, giving so much money to a company that leaves the state a year later would be a glitch. For 43North, it’s an accepted part of the plan.

Rosenfield wasn’t alone in his decision. Most of the companies that have come to Buffalo after winning in the first two years of the competition have since left: of the 14 out-of-town winners, 11 no longer have any employees in Western New York.

The founders of six of those companies said they liked Buffalo, valued the camaraderie they shared with the other winners, and appreciated how 43North had helped them. But it wasn’t enough to make them stay. Many struggled to find investors or hire people in Buffalo; others simply wanted to go home.

The one-year relocation requirement is a “gamble that, unfortunately, hasn’t paid off,” said James Allen, who for years lured companies to Amherst as executive director of the town’s industrial development agency. “If we can get them to stay for three to five years, we can keep them. But if it’s only a year commitment, then, chances are, we’re going to lose them,” he said.

Billed as the largest competition of its kind in the world, 43North was meant to fix a weak link in the local economy – the lack of startup companies. As well as the money, the program offers the winners mentoring, support services and rent-free office space.

Aside from the $750 million factory for SolarCity, 43North has attracted more hype than any other project funded by Gov. Cuomo’s Buffalo Billion initiative. Since its launch in 2014, officials have lavished the competition with praise, calling it evidence of Buffalo’s renaissance and its winners, “entrepreneurial champions.”

Where many state-funded competitions concentrate on local companies and offer more modest prizes, 43North has attracted applications from startups in all 50 states and dozens of countries, drawn by the most generous prizes offered by any competition of its kind in North America.

But with bigger prizes come bigger risks. Of the $9.55 million paid out as prize money in the first two years, $4 million has gone to companies that no longer have any employees in the region. Most of the 10 winning companies that currently employ people in Western New York were already here before the won. (Another eight, last year’s winners, haven’t yet finished their mandatory year in Buffalo).

“Of course we want them to stay, of course we want to increase the likelihood that they would want to retain a presence in this community,” said John Gavigan, 43North’s executive director.

But as well as bringing companies to the region, the competition is a “marketing juggernaut,” promoting Buffalo’s image as an entrepreneurial hub, Gavigan said.

“In North America and around the globe, people are beginning to believe that Buffalo is a place that you can start and grow a business and have a successful life,” he said. “How do you put a pricetag on that?”

For state taxpayers, it’s $17 million and counting. Most of the competition’s funding comes from the state, with additional contributions from private sponsors.

This story is based on interviews with 30 people, including 43North winners, 43North officials, managers of similar programs in other states and academics and other experts who study entrepreneurship. Many experts said it was inevitable that companies from outside the region would leave after a year. In the long term, they argued, it’s better to focus on growing local startups than trying to attract them from elsewhere.

“I’m not surprised you’re finding entrepreneurs who come for the money and then leave – I would be surprised if that wasn’t the case,” said Craig Rogers, an associate professor of economics at Canisius College.

Charlotte Keith joined Investigative Post in September 2014, after graduating from Columbia University’s Graduate School of Journalism, where she was a fellow at the Toni Stabile Center for Investigative Journalism.
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