DURHAM – Dr. Doom is not calling on the startup ecosystem in Durham despite the onset of the COVID-19 pandemic and some of the state’s most restrictive “stay at home requirements” as imposed by the Bull City.
“Entrepreneurs in the Triangle have been dramatically impacted by the public health and economic impacts of the virus,” said Adam Klein, chief strategist of American Underground. “That said, the startup economy here has also demonstrated its fundamental strength and resiliency over the past few months.”
That tracks with Durham’s reputation as a scrappy, resilient, and resourceful entrepreneurial community, said Klein, so while there may be media reports hailing from organizations that largely cover Silicon Valley, Boston, or New York sounding a death knell for startups, “we don’t see it that way.”
“We had a record April,” said Eric Linsley, co-founder of Durham-based BioLabs North Carolina and managing partner of BioInnovation Capital. “We have a pretty resilient business model.” The biotech coworking facility, equipped with research equipment for early and growing life science companies, has remained operational through the pandemic and is providing a suite of resources for companies.
According to Klein, Durham startups are scrappier and more revenue-focused while facing lower fixed costs and expansion costs. “60 percent of American Underground companies are revenue positive,” said Klein. “We’re bullish on the recovery of this startup scene.”
That’s not to say entrepreneurs aren’t struggling, said Klein. “Overall, founders and their teams are busier than ever,” he said, including the added stressors of juggling working from home, supporting their teams, and supporting their families. The organization, which has already moved to expand or relaunch programs like their virtual membership and Landing Spot and will launch a “HelpFest” program for members this week focused on mental health.
In addition to establishing clear COVID-19 protocols, American Underground is allowing member teams to access unoccupied office space at no cost through the end of July.
How history unfolds
“Durham has been a place of entrepreneurship for a long time,” said Peter Cvelich, co-founder of Provident1898, a coworking community whose name draws upon the history of the North Carolina Mutual Provident Association, founded in 1898, launching an emerging entrepreneurial economy in the city that would come to be known as Black Wall Street. “It’s not just with the recent emergence of technology startups, it’s the entirety of our city’s history of entrepreneurship that is Durham.”
Provident1898, which opened just after a gas leak explosion rocked downtown Durham in 2019, celebrated its one-year anniversary as a community in the midst of Governor Roy Cooper’s Executive Order 121. “We opened in a time of local crisis, and we’re celebrating our anniversary in a time of global crisis,” said Cvelich. “This year was going to be a year of strategic programming around our Triangle Coworking Alliance, for our ecosystem to build bridges between Raleigh and Cary and Durham, and now we’re having to pivot to see what we can do virtually.”
Provident1898 is home to a diverse set of businesses, said Cvelich and co-founder Carl Webb. “What we want to do with Provident1898 is to build on the history in the region, and put diversity and inclusion at the front and center,” said Webb. “While we have a lot of technology startups and entrepreneurial activity in the tech space, we also have a lot of Main Street type entrepreneurs in Durham, and always have.”
Both Webb and Cvelich are bullish on the prospects of coworking, noting that companies of all types may no longer be interested in long-term leases, instead preferring to opt for more flexible terms in a changing, uncertain environment. But they’re also quick to note that while Durham may recover quickly compared to other cities and regions, the economic impact of the shutdown and subsequent recovery won’t be evenly felt for all businesses.
“Some of the more Main Street style businesses, like restaurants, or people in the hospitality space, and those in professional services like barbers and stylists,” said Webb, “are taking in on their chin right now.”
Side-hustlers will be able to bounce back, said Webb, and technology companies will likely survive. Coworking spaces will still see demand in the future, said Webb. “Being a barber or a stylist is one of the access points to business ownership, as a relatively low-cost personal services company,” said Webb, “But a number of those people I’ve spoken to are very concerned about their ability to come back.”
Supporting Durham’s entrepreneurs in a time of economic uncertainty
“COVID isn’t creating disparities,” said Rob Shields, executive director of ReCity Network. “But it is revealing them in dramatic fashion.”
The nonprofit sector mirrors society, said Shields, and like communities of color, organizations led by people of color, whether for-profit or non-profit, often receive significantly less financial investment. “When a pandemic hits, that means less financial margin to weather the storm,” said Shields.
Take, for instance, research from the Center for Responsible Lending, which found that roughly 95 percent of black-owned businesses, 91 percent of Latino-owned businesses, and 75 percent of Asian-owned businesses stand “close to no chance” of receiving a Payroll Protection Program loan through a mainstream bank or credit union.
ReCity is currently open, with strict protocols in place, said Shields, though he noted a majority of members are continuing to work remotely and are accessing the organization’s online portal for resources and connection. The organization also launched ReCity Connects, a virtual mentorship program, which, according to Shields, is designed to help tap into the wealth of knowledge by virtually “smart-matching” nonprofits with mentors.
“Expanding your network is really difficult right now,” said Shields, “which is why we created ReCity Connects.”
“Right now, our entrepreneurs need money and resources,” said Krista Anne Nordgren, co-founder of The Mothership in Durham.
“What happens next, or in the future, is still being determined, but right now, businesses have a lot of fixed costs and very little income.” If individuals are in a position to spend money, said Nordgren, “Spend it carefully, because where you share your dollars now will determine the future of Durham and the future we all live in.”
The Mothership, like Nido Coworking + Childcare and the Bullpen at Duke University’s Innovation & Entrepreneurship Initiative, temporarily closed their facility in mid-March due to the spread of COVID-19 and ceased most business activity.
“Since most of our business model relies on in-person interaction,” said Nordgren, “we turned our focus to ways we could support our community emotionally and financially.”
One method of support, suggested by Shields, is supporting businesses owned and operated by people of color through investing in the Thriving Communities Fund.
“In times of such frightening and unprecedented uncertainty, it is easy to think only of ourselves,” reads a blog post published by the ReCity team on March 19. “Don’t let that distancing turn into complete withdrawal.” The post goes on to recommend more than two dozen local organizations that can provide critical resources for traditionally underserved communities or families experiencing economic distress due to the impacts of the spread of the novel coronavirus.
“When we go through an economic recession,” said Webb, “this really highlights the disproportionate impact on small and minority-owned businesses.”
“We also have folks, members of ours, who are a part of the gig economy,” said Webb. “And those are the folks who are falling through the cracks right now, but they’re essential to what makes Durham Durham.” Through Provident1989, Webb and Cvelich make a point to work with locally-owned businesses as vendors and partners.
According to Cvelich, many of these businesses have seen a significant drop, including cancellation, postponement, or the transition to virtual structures for programming at Provident1898 and other companies and organizations across the region. As they restructure their virtual programming and plan for the future of the coworking community in the Tower at Mutual Plaza, the former NC Mutual Life Insurance Company building, they’re considering how they’ll continue to support local businesses and keep money flowing locally.
“This is an opportunity for us to assess what and who we truly value as a community,” said Shields in an interview. “Are we willing to do what is necessary to come together and co-author a new story where everyone has the chance to flourish?”
The future of Durham
“This pandemic is certainly causing havoc on small brick-and-mortar businesses,” said David Jones of Bull City Venture Partners, “but will continue to accelerate the transitions to remote workers, online video communication, eCommerce, and so many more technology-powered solutions.”
The pandemic has brought a “feast or famine state in startups,” said Jones. “Some are continuing normally and others are getting hurt and having to make drastic headcount cuts.”
What worries Jones most is the uncertainty of the length of an economic downturn. Despite the uncertainty, he’s betting that the Triangle will rebound better than many places, referencing conversations he’s had with three experienced industry-leaders and many other senior-level managers who’ve relocated to the Triangle in the past six months, some who temporarily relocated here from New York City, and have decided not to return.
As a result, said Jones, “the Triangle stands to gain from this talent movement in our direction.”
It’s not just senior-level managers and their companies that may benefit. Durham notched the 11th spot on LinkedIn’s recent list of “best cities to land your first job” with an expected median salary of $63,300. That doesn’t mean it’s all rosy for all people, though.
“The current state of the startup community is uneven,” said Jan Davis, founder of Davis Growth Partners and a member of the Triangle Angel Partners and Carolina Angel Network. “Some companies are finding new opportunities and others are seeing sales of existing products skyrocket—others are basically on “pause,” waiting for prospects and customers to be willing to re-engage.”
So while entrepreneurs have pivoted business models, like Spoonflower pivoting to printing custom face masks designed from the safety of your home, Scot Wingo’s Spiffy adding disinfest & protect services, and Durham’s distilleries turning their manufacturing lines from producing alcohol to making hand sanitizer, it’s also been incredibly painful for entrepreneurs to access critical funding through programs like the Payroll Protection Program, said Davis.
“Some had to make hard decisions in March to furlough employees,” Davis added. “They want to bring the employees back but are uncertain about the prospects.”
And, even for companies that did receive funding through the PPP, the future is still uncertain.
“PPP worked well to get companies to summer but it’s unclear what may sustain beyond that,” said Klein. “Entrepreneurs need some sense of a plan in order to plan.” That requires coordination and it likely also requires localized loan programs that are nimble and provide favorable terms to small businesses and non-venture backed startups in a cash flow crunch, said Klein.
“We believe that physical space for collaboration and connection is going to be important,” Cvelich noted. “The premium may change, where time in the space is more focused on community-building and interaction, whereas working from home will be more focused on tasks that can be done individually.”
The economics of coworking, in the long-run after the coronavirus pandemic, is going to reset how companies grow, said Webb, and he and Cvelich are taking that bet in how they’re resetting the strategic vision for Provident1898.
“We’re sensitive to being super-flexible, due to the socio-economics of the marketplace we concentrate on and in which we’re having an impact, so if you look at creating opportunities for black and brown people, that’s going to mean starting a business,” said Webb. “You’re going to need to be in community, access to training and tools to help you grow your business, but it has to be sized to a place you can afford it and manage it, and coworking spaces offer those benefits to new and emerging entrepreneurs and corporations that know they need to have opportunities to bring people together.”
Amidst a plethora of coworking that’s entered the market in the Triangle, said Webb, “when you look at the millions of people nationwide and state-wide who are going to need to be much more innovative in how they take care of themselves because they’re not necessarily going to have jobs to go back to, that’s who we’re trying to open up our programming for.”
People will choose to come back to physical spaces, believe Webb and Cvelich, who say that it’s just a matter of time. But what happens in that timespan will matter a great deal about who is able to come back, and the economic conditions that exist at that time. “Durham, where is the strategy for reopening our businesses?” asks Webb. “We have an opportunity for far greater diversity in our businesses, but we don’t necessarily come as entrepreneurs to the table with access to the same resources.”