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A Snapshot of Startups in Small-Town America

Church Street in Burlington, Vermont
Walter Bibikow | AWL Images | Getty Images
Church Street in Burlington, Vermont

In recent months, Entrepreneur has been taking a virtual tour of cities around the country to see how the recession sparked or dampened entrepreneurial activity.

No doubt, large and mid-size cities from New York to Houston have been flexing their entrepreneurial muscle. But there's also plenty happening in suburbs and smaller cities. In fact, new ventures can have an even more meaningful impact in areas where employment options are sparse.

Take small towns in Vermont, for instance, where underemployment is still prevalent. "You know that old song 'Moonlight in Vermont?'" notes Cairn Cross, co-founder of FreshTracks Capital, a $25 million venture fund based in Shelburne, Vt. "There used to be a popular bumper sticker" that you literally had to moonlight -- or take a second job -- or else starve, he says. Now, however, a growing number of Vermonters are following the lead of bigger cities and focusing their energy on launching high-growth startups, he says.

(Read more: The Rise of Silicon Prairie)

These days, entrepreneurs in smaller cities across the U.S. have plenty of opportunity, thanks to advances in technology that weren't so readily available five years ago. The proliferation of open-source tools and cloud computing has made it possible to start a fast-growth company from virtually anywhere. And social media has given entrepreneurs -- wherever they are located -- a cheap and an easy way to access thousands of potential new customers.

Of course, small cities weren't insulated from the financial crisis. From Florida to California, many towns suffered a blow when the housing market collapsed. Still others felt the impact when local behemoths -- like the auto industry in Michigan -- nearly buckled under recessionary pressure. And it remains difficult for startups in many small towns to attract investors, recruit talent or find the right entrepreneurial resources to succeed.

Here's a look at the entrepreneurship scene in five small U.S. cities.

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Burlington, Vt.
Population: 42,645

No longer just the ski-in, ski-out state for weekend warriors from Boston and New York, Vermont has become a destination for entrepreneurs with national and global ideas.

It's a far cry from 2000, when Cross and his partners launched FreshTracks Capital. Back then, he says, he might have looked at 15 to 20 business plans a year from the region. These days there's no shortage of great ideas brewing in Burlington and surrounding communities.

Last October, for example, the Entrepreneurship Club at University of Vermont held its first business plan competition, says Cross, who helped with the event. "We received 66 entries," he says. "Probably half of those were software-enabled businesses."

Burlington was somewhat sheltered from the economic storm, says Cross, who chalks it up to the economy's three-legged stool of state government, health care and higher education -- there are half a dozen top universities in and near the city. That said, as in many small cities, the community is rallying around budding entrepreneurs, recognizing the growing role new ventures can play.

Of course, Burlington puts its own stamp on startups. Case in point: The annual Peak Pitch Vermont event is a hot ticket for investors and entrepreneurs. Leveraging Vermont's natural assets, the event gives entrepreneurs the span on one chairlift ride to pitch their stories to investors at Sugarbush Resort.

(Read more: Global Crowdfunding Soars as Banks Rein In Lending)

Chico, Calif.
Population: 86,300

This college town about three hours north of Silicon Valley has a surprisingly robust startup community. Chalk it up to fresh air, a diverse student population and plenty of craft beer from the likes of Sierra Nevada Brewing.

Like many cities in California, Chico's housing market was at the epicenter of the housing crisis. Median sales prices, according to Zillow, peaked at $342,000 in late 2005 and bottomed out at $211,000 in May 2012. The rest of the local economy felt the aftershocks, says Jon Gregory, managing director of Innovate North State, a public-private partnership that supports high-growth startups in the region. Yet, as in many cities, new ventures plowed ahead.

In fact, the recession -- as well as local success stories, such as Bill.com -- has added credence to the importance of new ventures. The preponderance of students coming from the Bay Area to study engineering and computer science at California State University-Chico has been a huge resource to the community.

Meanwhile, such events as the Sierra Nevada Innovation Challenge, held in June in the 350-seat "Big Room" at the Sierra Nevada Brewery, have been a rally call for would-be entrepreneurs. In March, Innovate North State launched the 530 Angels Network, a nod to the area code. A week later it unveiled a co-investment fund spearheaded overseen by Bob Bozeman, the former general partner of Angel Investors LP, an early backer of Google and PayPal.

Lehi, Utah
Population: 48,700

When Tom Karren launched his mobile- and cloud-computing company, MokiNetworks, in 2009, he assumed most clients hadn't heard of the town of Lehi. But these days, he says, it's the place to be. "For us it's a competitive advantage to say we're in Lehi," he adds.

What was once a bedroom community to Salt Lake City, 30 miles to the north, and Provo, 17 miles to the south, is now a hotbed of high-tech activity. In December 2012, Adobe Systems cut the ribbon on its new campus in Lehi -- a state-of-the-art facility that is home to more than 900 employees. Other large companies have moved or are planning moves to the city. One of the biggest draws is convenience, says Karren. The Wasatch Front -- or Silicon Slopes -- has no shortage of housing options and, thanks to the newly completed Timpanogas Highway and FrontRunner commuter rail, is easy to get to.

Iowa City, Iowa
Population: 68,900

Among literary circles, the city is known for the world-renowned writing workshops at the University of Iowa. In recent years, however, the city has been pushing its creative limits with high-growth startups, many of them focused on education.

The 2008 floods devastated many parts of Iowa City, as well as nearby Cedar Rapids. The rebuilding in the city not only served as an economic buffer during the recession, it has helped spark new ventures. "While the physical buildings and infrastructure are being rebuilt, we're working more on the people side, by trying to cultivate a more entrepreneurial culture here," says Andy Stoll, cofounder of Startup Iowa.

In the past year, says Stoll, three entrepreneur-focused coworking spaces have opened in the area, and there's been a boom in meetups and other startup events, from BarCamp to TEDx.

(Read more: It's the Best Time to Be an Entrepreneur: Pro)

Lansing, Mich.
Population: 114,605

The stories of how bad things were in Michigan during the recession are legion. In Lansing, Michigan's capital, the state government and nearby Michigan State University offered some buffer, but the auto industry still played a major role in the city's economy. When the Lansing Car Assembly closed in 2005, for example, it put 3,500 people out of work, and was one of many blows to the area.

"The recession hit Michigan much earlier than the rest of the country," says Paula Sorrell, managing director of entrepreneurship and innovation for Michigan Economic Development Corporation.

The bright side: The city of Lansing -- along with the rest of the state -- has had nearly a decade to focus on programs to spark entrepreneurship and retrain Michigan's workforce. In 2006, Michigan State University's Broad College of Business launched its Institute for Entrepreneurship. Through this program, students and faculty can access a wide range of expertise and capital to help build their startups.

Meanwhile, the Michigan Biotech Institute is working on developing and commercializing bio-based technologies. Next door in East Lansing, the Technology Innovation Center converted an old department store into a 7,000-square-foot office space. There are 11 startups at the center, focusing on everything from medical devices to custom wine cellars.

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