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Here’s How Mayor Mark Kleinschimdt Is Turning Chapel Hill into a Startup Hub

Garrett Johnson

Senior Integration Manager, 1776

Mark Kleinschmidt, mayor of Chapel Hill, North Carolina, hails from what he calls “the quintessential college town.” But in addition to a thriving academic scene, Chapel Hill also boasts a startup community that is growing thanks to support from the local government.

Kleinschimdt visited 1776 last month, along with other members of the Mayors Innovation Project, hoping to absorb some ideas to take back to his hometown. During his visit, Kleinschmidt sat down with 1776 to talk about what the two cities—and their startup communities—can learn from one another.

First off, what would you say makes your city, Chapel Hill, unique?

Chapel Hill is the quintessential college town—and we don’t just have any old college. We have the University of North Carolina, and from UNC graduate these extraordinary people. We have technology and business and a competitive edge a lot of that, particularly in the health care industry, because of the quality of the hospitals associated with the university. That’s a lot of what goes on in Chapel Hill.

We don’t have a very diverse economy. It all issues from this great university, but there is diversity of what comes from it—and we take advantage of that. The university is what makes Chapel Hill such a great place to live, have a family, develop a business. It allows us to take some risks when it comes to policies that other more complex, more complicated communities may not be able to take.

How would you characterize the startup scene in Chapel Hill? When and how did the movement really start?

It’s really just been over the last five or six years that there even has been a startup scene in Chapel Hill, or even in the Raleigh-Durham-Chapel Hill “Triangle.” It’s taken off there, just as it has around the country.

The startup scene itself began with a retired entrepreneur, Jim Kitchen. He was one of those very successful serial entrepreneurs who could retire at a relatively young age, and he had some offices on Franklin Street, our main drag.  He was doing some work with the UNC business school, and some of his students had ideas, so he said, “You know what, I’ve got a room in the back of my office. Why don’t you come and work up there? I can talk with you about how to get this going.”

That led to dozens of small businesses being generated out of his office space, upstairs above a Carolina t-shirt shop. No one knew about it. He had created an incubator there, connecting these businesses in their infancy with great minds around entrepreneurship and business. Because he was a serial entrepreneur and well connected—he had his hands in lots of business circles—he was able to find experts in various industries and bring them in to help the students. He just accidentally created this great incubator!

I remember going through there for the first time, and—I’m not exaggerating—it almost brought tears to my eyes at how amazing this experience was that he was creating. After working with Jim, we knew he needed more space. He needed to develop a full ecosystem for the startup community—and it had to be more than just him. It had to be more than just one guy mentoring and bringing people in.

So working with him and the business school and our county government, we all worked to create a new incubator with programming to support the businesses—a lot like what you have at 1776. We bought this space, hired a manager, brought in connections to a local VC group, and started Launch Chapel Hill. From there we’ve now had a Startup Weekend in Chapel Hill, participated in startup competitions through the incubator.

Meanwhile, Jim started another incubator. He never stopped doing what he was doing. He just got a bigger office space and started another incubator on Franklin Street. It’s called 1789 Venture Lab, because that’s when the university in Chapel Hill was founded. We have both 1789 and Launch in Chapel Hill and the whole community is really committed to nurturing these businesses.

We focus on regulated industries. In Chapel Hill, what industries have typically thrived and how are startups innovating in those spaces?

We’re finding some special success—though it’s very broad—in health care industry-related startups, largely because we are a center for health.

The other area is social entrepreneurship. For example, we have a young woman who did a Fulbright in Ghana. She and a fellow Fulbrighter ended up developing a business model to assist women in Ghana who were starting their own businesses, producing things and selling them. They started the business in Chapel Hill, and she was able to raise a lot of capital.

A lot of those types of businesses have done well, even though it’s slightly different with social entrepreneurs. They want to be successful and make money, but there’s also the “change the world” element, so they often need a little more time, a little more care in their strategies and approach toward raising capital. Fortunately, in a place like Chapel Hill, we have that ethic and have people who have been successful in those kinds of industries.

So you mentioned that she was able to raise a lot of capital. What is the investment scene like?

There’s a whole group of these serial entrepreneur people who were able to retire at 50. They’re a whole array of entrepreneurs who have ties to the UNC as alumni, and they want to help. Not only do they want to help create new businesses with young people, but they’re also looking for ways to invest in smart things and continue to change the world. We have a community of folks like that throughout the Triangle. There are extraordinary ecosystems in those communities as well.

What are you doing in Chapel Hill to promote entrepreneurship?

1776 Ventures Managing Director David Zipper—who also grew up in Chapel Hill—was saying that (D.C. Mayor) Vince Gray will just pop in at 1776, and people draw energy from that. That’s what I do (at Launch), and it’s always funny to me when people get excited about it. I also participated for a whole day in a startup event, a competition, engaging with people who were taking brand new ideas from scratch and building them. That’s the cheerleader aspect, which is important for elected officials to play.

But on the policy side, I led the town’s effort in coordinating with the university and the county so the three of us could come together and create Launch. We paid off the old lease for this tech company that was outgrowing its space and needed to move, but then we created incentives to keep them in Chapel Hill: We said they had to reinvest back in Launch. It’s been exciting to help be at the front of it all.

What do you see happening in D.C. that you’d want to implement in Chapel Hill?

There are special things about D.C. as far as its access to federal government. Regulated businesses all want—and need—to have a presence in D.C., not only for access to government, but also to the lobbyists, lawyers and associations here. There’s a particular set of advantages to being here if you’re in a regulated industry.

In Chapel Hill, it’s been a little more challenging to determine our specific niche. What is better done in Chapel Hill than anywhere else? We’re competing with the startup ecosystems that are in Raleigh and Durham—literally right down the road. The good news is that those cities’ mayors and I are good friends and we’re working that out. If you’re going to launch a startup in the Triangle, where is it best to do that?

It’s becoming clear that if you’re starting a business in the health care industry or along the lines of social entrepreneurship, Chapel Hill is where you land. We have the resources, the experience, the entrepreneurs with track records—we’re where you go. If you want to do open source, you go to Raleigh. Durham, well, they’re such a hipster community; I think there’s a requirement that you wear a fedora and smoke cigars.

What could D.C. learn from Chapel Hill?

We’re fortunate to have UNC as a major partner, and I think the District of Columbia has enormous academic resources nearby. That relationship is something we do really well. If 1776 wants to develop that kind of partnership with its universities, it might be wise to take a trip down to Chapel Hill and see how we use that asset to our ecosystem’s advantage.

Garrett Johnson

Senior Integration Manager, 1776

Garrett is the manager of the Startup Federation at 1776, a network of the world's top incubators that together create a global ecosystem for entrepreneurs. Prior to his current role, he worked on the…