I would like to propose a sustainable solution to Alaska's economic and fiscal dilemma. If completed, the plan will expand Alaska's economic base, create tens of thousands of high-paying jobs across all regions of the state and generate new, diversified revenue for state budget needs.
It will also give every Alaskan something most have never had: a genuine opportunity to turn their hard work into immense personal wealth. The plan will work to turn thousands of regular Alaskans into multimillionaires, and some into billionaires.
The plan is simple and achievable. But it will require that we Alaskans have confidence in ourselves.
I grew up in Noorvik, an Iñupiat town in Northwest Alaska, and went to high school in Fairbanks and Anchorage. I grew up hunting and fishing, dog mushing and snowmachining, absorbing every book I could on astrophysics, learning computer programming and exploring the internet.
After high school, I went to MIT in the Boston area, started a bionanotechnology company in college, ran it for a number of years and eventually returned home to Alaska.
[Alaska 'angel fund' aims to link investors with budding businesses]
Alaska's economy (and your paycheck) exists because people in the Lower 48 and foreign countries send money here, mostly for our oil. We don't print money in Alaska. Because of low oil prices and long-term declining production, billions of dollars less money is coming to Alaska. We haven't diversified, so a huge percentage of Alaskans in nearly all industries are losing their jobs, our economy and unemployment are ranked among the worst in America and it's getting worse. We're vulnerable. Our economic model is broken.
The current debates about taxes, the Permanent Fund and cutting government are important. But they only focus on moving money around inside Alaska. To reverse Alaska's economic decline, we need to do three things:
1. Develop ways to bring billions of dollars in new money to Alaska to offset lost oil money.
2. Create diverse ways for money to come to Alaska so we're not dependent on a few commodities.
3. Expand and diversify revenue for state budget needs.
We can achieve these objectives by giving Alaskans the resources they need to create and own their own large companies that sell goods and services to customers in the Lower 48 and foreign countries — companies across a diverse set of industries that draw money to Alaska and expand the corporate income tax base in the state.
From industries that can scale anywhere (e.g. software and mobile apps), to those where we have concentrated expertise (e.g. energy and defense), Alaskans are fully capable of competing globally.
Unlike other small businesses, creating a high-growth, globally competitive company ("startup") takes a lot of money. A typical startup needs $5 million to get going (median Series A financing). Most Alaskans can't afford to launch a startup. Nor do they have the collateral to qualify for a loan to do so.
To create startups, Alaskans need the type of funding used by entrepreneurs in the Lower 48. It works as follows: If you have a good idea, you get money to try. Everyone qualifies, regardless of wealth or collateral. If you fail, you don't owe anyone anything. If you succeed, you share part of your profit with whoever gave you the money to start.
[How years of wealth weakened Alaska's spirit of innovation]
This type of funding is called equity financing, and it comes in three stages: Angel money helps you get organized, venture capital helps you get going and grow, and private equity is there when your startup gets big. A typical startup requires $66 million of venture capital to become self-sufficient (median Series A-D+). Alaska has no venture capital.
If building a startup is like climbing a 100-foot staircase, Alaska has the first 10 feet (angel) and the last 10 feet (private equity) in place, but it's missing the middle 80 feet (venture capital). How many of you would leave your job or other responsibilities to launch a startup if most of the money needed to succeed — venture capital — doesn't exist in Alaska? Not many.
To convince large numbers of Alaskans to participate, to generate more startups (deal flow, as investors call it) and to adequately fund trailblazing entrepreneurs who have already started, Alaska needs a complete funding ecosystem. Alaskans need access to venture.
I would like to build a venture capital organization in Alaska that helps other Alaskans launch and grow their own startups, creates additional growth and liquidity opportunities for angel portfolios, and expands the pipeline for private equity investors in the state. Numerous experts from MIT, Harvard and Silicon Valley have agreed to work with my organization to evaluate Alaskans' ideas, and to personally help Alaska startups grow fast and large and integrate into global networks.
I would like to work together with interested Alaska leaders to discuss how we can make this a reality for Alaskans, increase the number of people launching startups, reinforce existing support communities (e.g. accelerators, universities), and expand capital available to angel and private equity investors to sustain additional startup activity.
It's imperative that Alaska diversify its economy — that we maintain our appreciation for the important role oil continues to play in our lives, while concurrently enabling the development of additional large industries within the state.
Like some developing nations, our natural resources have afforded Alaska enormous opportunity. It's time for us to build on the wisdom of our state's past leaders and transition Alaska to a sustainable, modern economy.
Let's build Alaska, together.
Pat Kane is CEO of MarketVC LLC, a venture capital firm. He lives in Anchorage. Twitter, @patkane. More information is available at www.facebook.com/marketvc.
The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com.