BuildinganEcosystemforAgtechStartups
SubmittedTestimony
U.S.HouseofRepresentativesSmallBusinessSubcommitteeonAgriculture,Energy,andTrade
KevinKimleFebruary2018
AgriculturalEntrepreneurshipInitiativeIowaStateUniversity
Ames,Iowa50011
KevinKimleistheRastetterChairofAgriculturalEntrepreneurship,SeniorLecturerintheDepartmentofEconomics,andDirectoroftheAgriculturalEntrepreneurshipInitiativeatIowaStateUniversity.
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Technologyisnothingnew,ofcourse,whetherinagricultureofanyotherindustry.Whatmaybenewisthespeedandscaleatwhichtechnologycanshapenewopportunitiesanddisruptexistingbusinessesandindustries.Agtechisbyallindicationsimportant.Therearemanyacceleratorprogramsrelatedtostartingagtechbusinesses,fundingofagtechstartupshasgrown,etc.Fundingforagtechstartupshasincreasedsignificantly.AstrackedbyAgFunderNews,investmentinagtechincreasedfromabout$150millionin2010tomorethan$800millionin2016andmorethan$500millionin2017.TransactionslikeMonsantobuyingClimateCorpin2013for$930millionorin2017DuPontPioneerbuyingGranularfor$300millioncertainlygotattentionofinvestors,entrepreneursandagriculturalbusinessprofessionals.BothClimateandGranularwerefoundedinSiliconValley,thehubfortechstartupsandinvesting.WilltherebeaClimateorGranulartypeexiteventforanagtechstartupfromtheHeartland?IsthereanecosystemforagtechstartupsapartfromSiliconValley?A2017reportfromM25examinedtheMidwestandlabeleditastheregionthatwillgiverisetothenextcropof$1billion-pluscompanies(Schulman2017).Fromwheredoesthatobservationarise?What’sgoingonintheMidwest?ThispaperwillprovideexamplesofIowa-baseddevelopmentsinagtech,anddiscussionoflargerissuesfortheecosystemforagtechstartupsintheMidwestandthepotentialimplicationsforeconomiesinruralareasoftheregion.AgriculturalEntrepreneurshipInitiative,IowaStateUniversityTheAgriculturalEntrepreneurshipInitiativewasfoundedin2005andisoneoftheforemostprogramsfortraininganddevelopinghighgrowthagriculturalentrepreneursintheworld.TheAgriculturalEntrepreneurshipInitiativebuildsonarichhistoryofentrepreneurshipatIowaStateUniversity.Forexample,twentypercentofgraduatesoftheCollegeofAgricultureandLifeSciencesatIowaStateUniversitybetween1982and2006havecreatedatleastonebusiness,resultingincreationofalmost57,000jobs(Jolly,Yu,Orazem,andKimle2010).AgriculturalentrepreneursfromIowaStateUniversityhavebeenresponsibleforinnovation,invention,andbusinesscreationinimportantsectorsofagricultureandthefoodindustryrangingfromseed,agriculturalequipment,GPS,agriculturalchemicals,biotechnology,pharmaceuticals,andfoodproducts.TheAgriculturalEntrepreneurshipInitiative’sactivitieshaveafoundationintheLandGrantUniversitymissionofeducation,thoughtleadership,andoutreach.BycreatingabroadunderstandingofentrepreneurshipamongfacultyandstudentsoftheCollegeofAgricultureandLifeSciencesatIowaStateUniversityanditssupportingcomponents,undergraduate
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programsaredesignedtosupplystudentswithexposureandexperiencewithentrepreneurship,bothintheclassroomandoutsidetheclassroom.Adiverseportfolioofeducationalexperiencesiscomplementedbyprogramsinbusinessincubation,public-privatepartnerships,technologycommercializationandindustryinteraction.Eachacademicyear,theAgriculturalEntrepreneurshipInitiative:
• Touches1,200undergraduatestudentsintheCollegeofAgricultureandLifeScienceswithatleastoneprogram.Thisincludesclasses,out-of-classroomactivities,andinternships.
• Takesmorethan200studentsthroughanEntrepreneurshipinAgriculturecourse,withstudentsdevelopingstartupbusinessconceptspresentedatsemester’sendtoinvestorandentrepreneurpanelists.
• Places30to40internswithentrepreneurialagriculturalbusinessesworkingonvariousbusinessdevelopmentandinnovationprojects.Studentsareplacedinbothdomesticandinternationallocations.
• Bringstocampusmorethan150entrepreneurs,investors,andagribusinessprofessionalsasclassroomspeakers,studentpresentationpanelists,andindustry,market,andtechnologymentorsandexperts.
• SupportsfifteentotwentyfivestudententrepreneursaspartofAgEI’sStudentIncubatorprogram.NotableexamplesfromtheStudentIncubatorProgramincludeScoutPro,AgricultureConcepts,AccuGrain,andTerva.
• Partnerswithentrepreneurialbusinessesfordomesticandinternationaltravelcourseprojects.Studentsactasconsultingteamforparticipatingbusinesses.
• CreatesoutreachopportunitiessuchastheEntrepreneurialAgribusinessExecutiveConferenceandtheAgriculturalEntrepreneurshipUnconference.
• HelpsfostermentoringandinvestmentplatformsfortheagriculturalentrepreneurshipecosystemsuchastheAgStartupEngine,whichwasfoundedin2016andhasinvestedinfivebusinesses.
TheAgriculturalEntrepreneurshipInitiativehasservedasamodelforotherprograms,havingassistedincreationofnewprogramsinotherstatesaswellasGreeceandTanzania.AgriculturalStartupEngine,IowaStateUniversityResearchParkTheAgriculturalStartupEngineisaninvestmentplatformbasedintheIowaStateUniversityResearchParktofundagtechstartups.Forexample,studentsandalumnioftheAgriculturalEntrepreneurshipInitiativemayhaveagreatidea,butnothaveaclearpathforwardtowardfunding.TheAgStartupEngineseekstoleverageanimbalancebetweenqualityseedstageideasintheagriculturalspaceandavailablecapitaltocreateaplatformfordevelopmentofhigh-growthagtechstartupbusinesses.TheAgStartupEnginebelievestherearetwofundamentalcategoriesthatneedtobemorerobustintheStateofIowaforstartupstobecomemoresuccessful:
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1. Organizedmentorshipfromsuccessfulentrepreneursandbusinessprofessionals2. Earlyseedroundinvestment($25,000-$50,000)
Targetsforinvestmentincludestartupbusinessesinrobotics,precisionagriculture,animalhealth,agtech,livestockautomationandcleantech.
Trueseedinvestmenthelpstransformanideaintoastartupbusinessthatestablishesatargetmarket,developsaminimumviableproduct,articulatesdifferentiation,andestablishestractionthroughcustomerdiscoveryorsuccessfulgrantdevelopment.
TheAgricultureStartupEngineisasupportiveagentinIowaStateUniversity’smajorstartupinitiativetomakeitatop5universityinstartupcreation.Assuch,itworksintandemwiththeStartupFactory,PappajohnCenterforEntrepreneurship,andtheAgriculturalEntrepreneurshipInitiativearoundagriculture-centricventures.AgricultureStartupEngineinvestorsincludeSummitAgriculturalGroup,AgLeaderTechnologies,AgVenturesAlliance,PeoplesCompany,HertzFarmManagement,VeridianCreditUnion,NextLevelVenturesandIowaFarmBureauRenewRuralIowa,andPetersonGenetics.TheAgricultureStartupEnginehasmadefiveinvestmentstodate.Portfoliobusinessinclude:
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• SmartAg–Developedaplatformforfarmequipmentautomation.Firstdeploymentisa
self-drivingtractorpullingagraincart.• PerformanceLivestockAnalytics–Developedasoftwareplatformforbeeffeedlotsthat
automatesthefeeddeliveryprocess,enablingbeefproducerstomakebetterperformanceandfinancialdecisions.
• Gross-WenTechnologies–Inventedanalgal-basedwastewatertreatmentprocessthatrecoversnutrientsfromwastewater.Thealgaebiomassthatisproducedcanthenbeusedasaslow-releasealgalfertilizer.
• Terva–Afarmlandsoftwareplatformthatservesfarmers,landownersandrealestateprofessionalswhenbuying,selling,renting,appraisingandprospectingland.
• Nebullam–Developedaeroponicstechnologyforindoorvegetableproduction.
TheAgricultureStartupEngineaimstoinvestin15businessesinthenextthreeyears.CantheMidwestbeaHubforAgtechEntrepreneurship?TheMidwestishometothegreatestconcentrationofanimalproteinsupplychainactivityintheUnitedStatesandearly-stageagriculturaltechnologyactivityintheMidwestisparticularlyrelevanttothesesupplychains.Forpurposesofthispaper,theMidwestiscomprisedofIllinois,Indiana,Iowa,Kansas,Michigan,Minnesota,Missouri,Nebraska,NorthDakota,Ohio,SouthDakotaandWisconsin.TheMidwesthasastrongconcentrationofpublicandprivateentitiesfocusedondevelopingagriculturaltechnology.Itishometolandgrantpublicuniversitiesthatprovideauniquenetworkofcutting-edgebasicandagriculturalscienceplatforms.Thereisalsoaconcentrationofagriculturalbusinessesengagedintechnologydevelopmentatmanydifferentlevels.TheMidwestisacatalystofUSagriculturalinnovation,knowledgetransfer,andentrepreneurshipdevelopment.Andyetthereismuchuntappedandundevelopedpotentialforagtechentrepreneurshipandinvestment-relatedactivity.Examplesofgeographicclustersofearly-stageagriculturaltechnologydevelopmentintheMidwestincludeestablishedpublicandprivateorganizationsthatshapetheenvironmentfortechnologydevelopment,businessdevelopmentandentrepreneur/startupmentoringandsupport:
• DesMoines/Ames,Iowa.o MultipleplantscienceagriculturalbusinesssuchasDuPontPioneerandStine
Seedo IowaStateUniversity-landgrantpublicuniversity.
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o IowaStateUniversityResearchPark-assistanceandaccessibilityforearlystagebusinesses
o IowaStateUniversityAgriculturalEntrepreneurshipInitiative-developmentprogramforagriculturalentrepreneursandagriculturalinnovation
o AgricultureStartupEngine–investmentplatformforagtechstartupbusinesseso IowaAgriTechAccelerator-Mentor-drivenbusinessacceleratordesignedto
fosterinnovationintheAgTechindustryo CultivationCorridor–Organizationaimingtocreateaglobalcenterofexcellence
inagbioscience,biorenewables,biotechandadvancedmanufacturing
• Omaha/Lincoln,Nebraska.o HometoagriculturalbusinessessuchasGreenPlainsEnergyandValmonto UniversityofNebraska-landgrantpublicuniversityo NebraskaInnovationCampus:supportforearlystagecompanieso WaterforFoodInstitute-researchinstituteforachievingfoodsecuritywithless
pressureonwaterresources.o UniversityofNebraskaEnglerAgribusinessEntrepreneurshipprogram-support
andencourageentrepreneurshipamongststudents
• St.Louis,Missouri.o Monsanto-plantscienceagriculturalbusinesso Bio-Research&DevelopmentGrowthPark-bio-researchfacilitiesforemerging
scientificenterpriseso DanforthPlantScienceCenter-nonprofitscientificfacilitytoincrease
understandingofplantbiologyo YieldLab-agtechacceleratorwithastatedmissiontosustainablyincreasethe
globalfoodsupplyandreduceinputstoagriculturalproductionanddistribution
• TwinCities,Minnesotao UniversityofMinnesota-land-grantpublicuniversityo HometoagriculturalandfoodbusinessessuchasCargill,GeneralMils,CHS,and
LandO’Lakes.o TechstarsFarmtoForkAccelerator–focusedonthetech/digitalsideoffoodand
agriculturefromagtech,manufacturingandsupplychains,tofoodsafety,wastereductionandtraceability.
ThoughagtechinvestinghasrisensignificantlyintheU.S.andentrepreneurialactivityintheMidwestasevidencedbyprogramsrelatedtoagtechhasalsoincreased,evidenceofsignificantlyhigherventurecapitalfundingintheMidwestislimited.VenturedealsintheUnitedStateshavebeenmostheavilyconcentratedinSiliconValley,withupto50percentoftotalVCinvestmentdollarsinthecountryflowingtocompaniesinnorthernCaliforniaduringsomequarters.TheMidwestremainsunderdevelopedrelativetootherpartsoftheUnitedStatesinattractingventurecapitalfunding.Whileventurecapitalinvestedinthe
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Midwestrosefrom$1.8billionin2007to$4.0billionin2017,thisrepresentedonly4.7%ofthetotalintheU.S.in2017,makingtheMidwestapoorperformerintermsofpercapitaventurecapitalinvesting(NationalVentureCapitalAssociationData).Early-stagebusinessactivityisdifficulttotrackbyitsnature.Inventors,entrepreneurs,andinvestorsadvanceprojectswithoutextensivepublicdisclosure,andpersonalnetworksareanimportantmeansofcommunicationanddevelopment.Toprovideaproxyforthestateofearly-stageagriculturalinnovationactivityintheMidwest,ananalysiswasconductedofbusinessplansdevelopedbystudentsattheAgriculturalEntrepreneurshipInitiativeatIowaStateUniversitycomparedtothosetrackedbyAgFunderin2016.Thedatasetofferedhereisasnapshotofearly-stagebusinessdevelopmentactivity,muchofitrelatedtoagriculturaltechnology.
ThisanalysisrevealedahigherinterestbyISUstudentsinproductionagricultureorientedtechnologiesthanthosetrackedbyAgFunder.Areasofactivitysuchasanimalhealthandmanagement,decisionsupporttechnologies,foodscience,energyefficiency,feedefficiency,sustainableproductionsystems,environmentalmitigationandmanuremanagementaremorefocusedontheagriculturalactivitiespresentintheMidwest.
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EcosystemOpportunitiesandChallengesThecommonmetaphorforfosteringentrepreneurshipasaneconomicdevelopmentstrategyis“ecosystem.”Butwhatmakesanecosystemvibrantforentrepreneurialactivity?AHarvardBusinessReviewarticleprovidedatrue/falsequizonthetopic(Isenberg2014).
Youknowthatyouhaveastrongentrepreneurshipecosystemwhentherearemoreandmorestartups.FALSEOfferingfinancialincentives(e.g.angelinvestmenttaxcredits)forearlystage,riskyinvestmentsinentrepreneursclearlystimulatestheentrepreneurshipecosystem.FALSEInordertostrengthenyourregionalentrepreneurshipecosystem,itisnecessarytoestablishco-workingspaces,incubatorsandthelike.FALSEAccordingtoentrepreneursthetopthreechallengeseverywhereareaccesstotalent,excessivebureaucracy,andscarceearlystagecapital.TRUE
WantingavibrantentrepreneurialecosystemforagtechentrepreneursintheMidwestandactuallyhavingonearedifferent.Specificchallengesincludethefollowing.
• Funding–Therightmoneyattherighttimeforeachstartupbusinessisalwaysachallenge.Thegoodnewsisthattherearemanymoresourcesforearly-stagefundsthan20yearsago.ThepopularityofshowssuchasSharkTankhasledtoaproliferationofcompetitionsthatoftenhavefinancialprizes,andisaculturalphenomenonthatshouldn’tbediscounted.Therearepitchandbusinessplancompetitions,incubationandacceleratorprograms,agreaterarrayoflocalandregionalfundstodaythaneverbefore.
• Mentoring–Moststartupsuccessstorieswillalsohavestoriesaboutkeymentorsthatprovidedkeyadviceandperspectiveatkeytimes.Entrepreneursbreakrulesandmakemistakesinanefforttodrivetheirbusinessesforward.Aswithfunding,mentoringprogramsarenowmuchmorecommonthan20yearsago.However,themostvaluablementorsforentrepreneursareentrepreneurs,andthosecanbedifficulttofinddependingonwhereyoulive.Forentrepreneursworkingtobuildhigh-growthbusinesses,thebestadvicewillcomefromthosewhohavebuilttheirownhigh-growthbusinesses.Butthenumberofindividualswhohave‘doneit’isnothigh,especiallyinaregionwithlowerpopulationdensity.
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• Change-makingculture–Anelementofsupportforentrepreneursiscultural.Aculturethatisacceptingoftherisksandcontrariannatureofnewideasisimportant.ThefriendlyandegalitariancultureoftheMidwestmayattimesbeatoddswithwidespreadcelebrationofentrepreneurialrule-breakingandrisk-taking.ThereisanoldsayingintheMidwestthat’sindicativeofaculturethat,attimes,maynotbeconducivetoentrepreneurs:“Nothingispunishedinasmalltownlikesuccess.”
• Agglomeration–Economistsviewagglomerationasanissueimportantineconomicdevelopmentinthatfirmsandprofessionalsfromanindustryareoftenlocatedneartoeachother.Thisconceptrelatestotheideaofeconomiesofscaleandnetworkeffects.Asmorefirmsinrelatedfieldsofbusinessclustertogether,theircostsofproductionmaydeclinesignificantly(firmshavecompetingmultiplesuppliers;biggertalentpool;greaterspecializationanddivisionoflaborresult).Citiesformandgrowtoexploiteconomiesofagglomeration.ButwhatabouttheMidwestandagriculture?Byit’snature,agricultureisspreadout.ThebiggestconcentrationofagriculturalproductionintheU.S.isinthemiddleofthecontinentwhilethehighestpopulationsdensitiesareonthecoasts.Whileit’sagoodthingthatcitiesandagriculturedon’tonalargescalecompeteforlandintheU.S.,italsomeansthatagriculturalprofessionalsandentrepreneursdon’thavetheagglomerationaffectsofsomethinglikethetechindustryintheBayareaofCalifornia.
Ontheothersideofeachofthesechallengeslieopportunities.Agtechinvestingandthepopularizationofitasasectoruntoitselfnowresultsinwebsites,funds,conferencesandothereventsthatenablecoordination,newrelationshipsandotherpositivespilloveraffects.FortheagtechecosystemintheMidwesttocontinuetobecomemorevibrantthreethingsarecritical.
1. Exposemoreyoungpeopletotheconceptthatentrepreneurshipisanoption–Whetheruniversityprogramsorevenhighschoolprograms,youngpeoplewillbenefitfrombeingexposedtoentrepreneurship.Feweryoungpeopletodaygrowupinfamilieswithfarmsandsmallbusinesses,soweneedthemtomeetothersandhaveexperiencesthatexposethemtotheideathattheycannotonlysomedaygetajob,butalsomakeajob.
2. Continuetodevelopmoreformsofearly-stagefunding–Themoresourcesoffundingforearly-stagestartupsthericherarrayofstartupbusinessesthatwillemerge.Competitivefiltersonfunding,whetherapitchcompetitionorreviewpanelsforgovernmentprograms,areimportantnotonlytoinsurethebestideasrisetothetopbutalsotoinstitutionalizefeedbackloops.Themoresourcesofearlyfeedbackforaspiringentrepreneurs,bothpositiveandnegative,thebetterofftheywillbe.
3. MoreMidwesternfunds–Thedevelopmentofmoreprofessionalfundsintheregion,whetherangel,seed,venture,privateequity,orwhateverwillbenefittheregion.Investorsfromoneregionandentrepreneursfromanothercanworksometimes,ofcourse,butlocationmatters.IftherearemorefundsintheMidwest,therewillbemoreinvestingintheMidwest.
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RuralVitality
Arethereimplicationsofagtechdevelopmentfortheeconomiesinruralareas?
Theadoptionofagtechwillresultinamoreproductiveandsustainableagriculture.Theprocessoffarmtoforkwillbemoreautomated,connected,sensed,andtraced.Theabilitytodoandcreatenewproducts,servicesandexperienceswillcreateopportunitiesthatcanworkanywhere,includingruralareas.
Willtherebeagtechstartupbusinessesinruralareas?Yes.Agglomerationaffectswillstillfavormoreurbanenvironmentsformanyagtechfirms,butsmallertownsthatsupportentrepreneurswillresultinstartupactivity.Asoneexample,theStartupFactoryprogramatIowaStateUniversityhasstartedtoworkwithruralcommunitiesonrunningparallelprogramsforentrepreneursinAmesandinthosecommunities.
Themostsignificantimpactofentrepreneursonruraleconomies,however,willcomefromMainStreetbusinesses.TheentrepreneurswithhighgrowthagtechbusinessestohaveemergedfromprogramsattheIowaStateUniversityAgriculturalEntrepreneurshipInitiativearetobecommended.Butamuchhigherrateofnewbusinessformationandemploymenthascomefromthemanyalumniwhohavestartedanewlivestockoperation,cropfarm,vegetablefarm,seedbusiness,trenchingbusiness,cropinputsupplybusiness,etc.Andmanyormostofthesebusinessesareinruralareas.Weestimatethattwentytimesmorealumnihavestartedthesetypesoffarmsandbusinessesthanhavestartedhigherrisk/higherrewardbusinesses.
A2008surveyofIowaStateUniversityalumnifrom1982to2006foundthat15.8percenthadstartedatleastonefor-profitbusiness.Thesebusinessesresultedincreationof222,569jobs.Thesecompanieshad2007revenuesofapproximately$64billion.Foranindicationofmagnitude,notethatIowagrossdomesticproductwas$135.7billionin2008.
Ofthe222,569jobscreatedatthebusinessesstartedbyISUalumnientrepreneurs,only35,242ofthosewerecreatedinthestateofIowa,15.8percentofthetotal.AhigherproportionoftotalcompaniesfoundedbyalumniwerelocatedinIowa(35percent),butthosebusinesseslocatedoutsideIowahadmorejobscreatedperenterprise.LargemetropolitanareasbothintheMidwest(Minneapolis,Chicago,St.Louis,KansasCity)andoutsidetheMidwest(Phoenix,LosAngeles,Dallas,Seattle,SanFrancisco)recordedmultiplealumnistartingbusinesses.Aalumnibasethatwasgreaterthan75percentfromthestateofIowacreated84percentofjobsoutsidethestateofIowa.
Therearelikelymultipleexplanationsforthis.Thetopresponseforbusinesslocationinthesurveywas‘whereIlived’(82percentrankingitasveryimportant)indicatingthatalumnihadalreadymovedawayfromIowatopursuetheircareerswhentheystartedtheirentrepreneurialventures.RatherthanmovebacktotheirnativestateofIowa,theylocatedtheirbusiness
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wheretheylivedcurrentlyandhadbuilttheirpost-undergraduatecareerandlives.Thefirstbusinessstartforalumniwasonaverage10yearsaftergraduation.
ThefoundingofentrepreneurialventuresbyISUalumnioutsidethestateofIowamaysignifythe‘braindrain’problemlongcitedintheMidwest.Butthegraduationperiodforthissurveygroup,1982to2006,hadanextendedperiodofeconomicdistressinagricultureandotherIowaindustries.JobopportunitiesforISUgraduateswereoutsideofthestateandevenregionandtheysettledandstartedtheirbusinesseselsewhere.
Willafuturesurveyof2007to2031graduatesshowsimilarresults?Preliminaryindicationsarethatno,ahigherproportionofentrepreneurialactivitywilloccurinIowaandtheMidwest.Certainlytheattractivenessofacareerinagriculturein2018comparedto1988ishigherbasedonenrollmentatCollegesofAgricultureatIowaStateUniversityandotheruniversitiesalso.Moreyoungpeopleseekingcareersinagricultureislikelypositiveforruralareas.66.6percentof2015/16ISUCollegeofAgricultureandLifeSciencesgraduates,forexample,acceptedtheirfirstjobsinthestateofIowa.
Andmoreprograms,competitions,andculturalcelebrationofentrepreneurshipisalsopositivefortheeconomiesofruralareas.Sharktankscanworkanywhere.
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ReferencesIsenberg,Daniel.“WhatanEntrepreneurshipEcosystemActuallyIs.”HarvardBusinessReview.May12,2014.Jolly,RobertW.,LiYu,PeterF.Orazem,andKevinKimle."Entrepreneurshipandhighereducation:anoverviewoftheIowaStateUniversityalumnisurvey."(2010).Schulman,Katherine.“AgtechintheMidwest:CreatingFertilegroundFortheNextUnicorn.”M25Group.2017.
