In the February 21, 2003 Issue:

Copyright State Science & Technology Institute 2003. Information in this issue of the SSTI Weekly Digest was prepared under a cooperative agreement with the U.S. Department of Commerce, Economic Development Administration. Redistribution to all others interested in tech-based economic development is strongly encouraged — please cite the State Science & Technology Institute whenever portions are reproduced or redirected. Any opinions expressed in the Digest do not necessarily reflect the official position of the U.S. Department of Commerce.

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ATP Shines in Latest Two Independent Reports
Editor's note: Few federal programs that fund research have undergone as much independent review and outside scrutiny as the Advanced Technology Program (ATP) within the National Institute of Standards and Technology and come out with high marks nearly every time. Yet two more independent papers described briefly below find that ATP funds make a positive difference for spurring innovation and commercializing technology. The program effects and encourages change that accelerates the development and adoption of technologies with large scale, national impact.

Given the great number of studies conducted on ATP since its founding more than a decade ago, it is clear that rigorous analyses from independent economists and highly respected organizations such as the National Research Council will not be enough to convince its detractors. Perhaps, Congress' action on the FY04 budget, future Administration budget requests and policy direction will be swayed by the continuingly growing mountain of evidence in support of ATP's effectiveness.

Universities, Joint Ventures and Success in the Advanced Technology Program
ATP participation has substantial positive effects on innovations in firms when compared to patenting levels prior to and after ATP funding. This is a major finding of the NBER working paper, Universities, Joint Ventures and Success in the Advanced Technology Program. The paper, written by Michael Darby, Lynne Zucker and Andrew Wang, supports the suggestion that ATP participation promotes organizational-wide changes that encourage an increased rate of innovation. ATP participants totaled more than 40 percent of all patents issued to U.S. entities from 1988 to 1996. An increase between 4-25 percent, or 5-30 patents, annually in patenting activity is seen in correspondence with ATP program participation.

One element stressed is the role ATP plays in increasing the social network of R&D for participating firms. The inherent design of ATP encourages firms to relax their boundaries, share knowledge and promotes access to intellectual property produced within a joint venture, the report states. "Spillover" or transfers of knowledge to other joint venture members occur within this framework and by fostering organizational exchanges; ATP helps to assemble the basis for innovation. From this interaction, firms gain access to complementary knowledge and business resources of R&D partners and collaborator firms.

With the goal of assessing whether ATP participation has an effect on the development of new intellectual property within a firm, the authors use firm-level patent data in the study. Various types of ATP arrangements are considered, including joint ventures, single participants and the effect of university partnerships. The study finds ATP project participation has a positive impact on the number of patents for a firm on a yearly basis. Furthermore, joint ventures have a positive effect in relation to single participants and joint ventures with university partners have an additional positive effect.

The results of the study also imply that the effect of ATP participation extends beyond the project and has an impact on the entire organization. ATP as a public-private partnership program plays a vital role in developing the institutions and social processes critical to innovation, the report concludes.

The report is available form the National Bureau of Economic Research: http://papers.nber.org/papers/W9463

The Advanced Technology Program: Assessing Outcomes
ATP is a successful federal partnership program that has a considerable positive effect on advancing technologies that can contribute to significant public objectives. This is one of the core findings of The Advanced Technology Program: Assessing Outcomes, a report prepared by the National Research Council’s (NRC) Board on Science, Technology and Economic Policy. The National Institute of Standards and Technology asked the NRC to review the performance of ATP as part of a broader initiative to carry out an assessment of government-industry partnerships. The report was prepared through two major symposia, a workshop to review the program’s operation and a substantial review of a large body of independent analysis of the program.

Other core findings of the study include: the peer review process of applicants in the program enhances its goal of advancing new technologies; the program’s high standard for assessment provides confidence in the programs evaluation of its accomplishments; and extensive evaluation illustrates that the program has been successful in achieving its principal intention of advancing private sector R&D projects where social returns are likely to surpass returns to private investors.

Some recommendations provided within the report to improve the ATP program include: extend the window for award applications, accelerate the decision-making process, and extend the periods in which awards can be made; retain the debriefing process for unsuccessful applicants; concentrate a considerable amount of the awards in selected topical areas; expand existing efforts to integrate evaluation results into the decision process; increase the stability of R&D funding; and continue to focus on small business.

Additionally, increasing collaboration on national initiatives and pushing for matching grants by states were two new initiatives suggested for the ATP program.

The Advanced Technology Program: Assessing Outcomes is available at: http://www.nap.edu/catalog/10145.html

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Programs with Results: Second in an Occasional Digest Series
OCAST Building A Strong Tech-based Future
The Oklahoma Center for the Advancement of Science and Technology (OCAST) has provided the state an 8:1 return on its $78 million investment since 1993, according to From Concept to Commercialization, a new OCAST impact report, and accompanying press release. The state's leading organization for building a tech-based economy finds its client companies also have enjoyed a 90 percent survival rate.

Formed in 1987 by state government leaders, OCAST nurtures start-up companies in the biotechnology, telecommunications and manufacturing industries through a spectrum of financial and technical assistance programs that ranges from early research through commercialization. The center's impact report highlights the successes of some of these programs.

Since 1993, OCAST has funded 815 projects that have attracted more than $700 million in federal and private dollars through various programs, the report states. Roughly 46 percent of these projects is in the biotech sector, and 28 percent is in the telecom industry. Also, 10 percent is in advanced materials and chemical research, 9 percent in manufacturing and 7 percent, other.

Two of the non-government, nonprofit organizations OCAST has helped finance – the Oklahoma Technology Commercialization Center (OTCC) and the Oklahoma Alliance for Manufacturing Excellence – have proven to be key players in the state's innovation economy. In fiscal year 2002, OTCC facilitated more than $11.5 million in capital acquisition and saw four of its companies access more than $165.2 million in mid- or late stage financing. Meanwhile, the Alliance was responsible for creating almost 500 new jobs and retaining more than 600 existing jobs the same year.

Other programs, such as the OCAST Applied Research Support (OARS) program, have been extremely beneficial as well, the analysis finds. OARS, which helps accelerate R&D and tech transfer, leveraged $113.8 million in private and federal funding and business financials in FY 2002, a 56 percent increase over the previous year. OCAST's OARS R&D Faculty and Student Intern Partnerships program also has done well to increase "the pool of scientists and engineers to Oklahoma industry and encouraged students to be scientists and engineers." The program had 74 active interns in 2002 and 49 employed in high tech areas.

The OCAST impact report highlights the success of two Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Incentive Funding programs and the center's SBIR Matching Funds program, which provides valuable transition funding between Phase I and Phase II of federal research projects.

Requests to obtain copies of the OCAST impact report may be sent to dcox@ocast.state.ok.us. More information on OCAST programs and services is available at: http://www.ocast.state.ok.us/

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Redefining Silicon Valley
No region of the world encapsulates the aspirations of many metro and regional technology-based economic development programs as Silicon Valley, particularly to the benefits of having a cluster of technology companies feeding off of each other to the mutual benefit of all. The Valley was the global tech leader during the heyday of the IT boom, but is undergoing a tremendous structural shift since the dot-com bubble burst.

Area leaders point out the technology shift is just the latest chapter in the economic history of Silicon Valley — the move from defense business to integrated circuits in the 1970s, to personal computers in the 1980s, and to the Internet in the 1990s. As a result of the changes, Silicon Valley may become a model for other regions in how to prepare and negate the negative side of being cluster-dependent.

The continuing but evolving work of Joint Venture: Silicon Valley provides an example. The group recently published the 2003 Index of Silicon Valley, the eighth annual report on 37 indicators or measures of the region's health. The indices have been helping the group monitor progress toward achieving the goals outlined in its first strategic plan, Silicon Valley 2010.

According to the new Index, fundamental shifts in Silicon Valley's economic structure and population profile create new job opportunities but underscore the need for a new, regional economic strategy. As Silicon Valley businesses struggle to recover from the latest boom-and-bust cycle, software has become the driving economic source of jobs in the region, the prominence of employment in the computer and related hardware sector has declined, and the biomedical industry has emerged as a growth opportunity, the Index reports.

The Index suggests that the Valley's economic recovery depends on finding "new means of wealth generation through innovation and entrepreneurship" and strengthening the region's global competitive advantage through greater productivity to offset the high costs of doing business in the region.

Accompanying the economic transition, the Valley's population has become more diverse, more international and more educated, the Index shows. The Index finds that the region is the third most diverse metropolitan area in the country. In addition, more than 34 percent of the Valley's population in 2000 was born outside of the U.S., compared to 23 percent in 1990. Fifty-seven percent of the 2000 population were born in an Asian country and 28 percent were born in a Latin American country.

Migration patterns have helped to raise the region's educational level. Since 1990, the number of residents with a bachelor's degree or higher jumped sharply from 423,000 to 609,000, 32 percent to 41 percent. San Jose is the country's third most-educated area as measured by share of college graduates.

In addition to reporting Silicon Valley's dramatic shifts in its economic structure and population profile, the Index examines 37 indicators of economic vitality and quality of life in the area. Among the developments during 2002, the Index finds a continued increase in productivity, extending a 10-year upward trend, but total jobs, average pay and venture capital investment have returned to near 1998 levels.

The Index suggests that the region's business, labor, educational and community leadership should address the policy issues raised by the economic and population transitions, including:

In addition, Joint Venture: Silicon Valley points out the region needs to continue to work collaboratively to achieve the livability, educational and social goals, which were envisioned in Silicon Valley 2010. Silicon Valley's new, regional economic strategy must include removing barriers to innovation from regulatory and tax burdens and add incentives for the workforce and technology, the group asserts.

The 2003 Index of Silicon Valley is available at: http://www.jointventure.org/resources/pubs.html

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Regional Councils in Massachusetts to Spur Job Growth
Massachusetts Governor Mitt Romney recently announced a plan to spur job growth in the state by tapping the expertise of area business, community and education leaders through Regional Competitiveness Councils. Six such councils will represent the Berkshires, Cape and Islands, Central, Northeast, Pioneer Valley and the Southeast regions of the state. The Greater Boston area, due its size and diversity, will be approached on a cluster basis by working through existing technology-focused organizations, such as the Massachusetts Biotechnology Council.

Each of the six councils is comprised of about 25 members from fields ranging from financial services and health care to manufacturing and tourism. In addition, key elected officials have been named as ex-officio members. The councils have been charged with a set of first tasks to perform, including:

Governor Romney said in a press statement he would use the blueprint the councils develop to market each region's strengths, promoting economic development.

Each council is expected to convene its first meeting by mid-March. A complete list of each council's respective chair and members is available through the governor's website: http://mass.gov/portal/index.jsp?pageID=aghome&agid=gov

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Mississippi Technology Alliance Infusing S&T Mindset Via Tech Councils
Community buy-in to building a technology-based economy is vital for TBED success. Establishing a strong private sector commitment to science and technology can make a significant difference, particularly as elected officials are deciding what to cut or trim from the budget. TBED organizations use different approaches to get the buy-in. In states such as Massachusetts (see story in this Digest), the top-down direction from the Governor could provide the group critical access. Mississippi's grassroots approach to building tech councils, on the other hand, is designed to infuse a science and technology mindset throughout the state at the very local level — with a little financial and technical assistance from the state's lead TBED organization.

Since Fall 2001, the Mississippi Technology Alliance (MTA) has awarded more than $90,000 in grants to communities around the state to establish tech initiatives. MTA provides business and industry support for cluster development organizations to help foster technology expansion in the state. Communities can receive a $1,500 grant to start up a technology council or up to $3,000 if they partner with each other. Not all of the Alliance's investment has led solely to the creation of tech councils, but at least five councils have emerged in just a year-and-a-half and eight others seem to be in the works.

The Mississippi Gulf Coast Technology Council (MGCTC), for example, was launched earlier this month at a membership luncheon that convened nearly 160 area business and economic leaders. Along with the Alliance, MGCTC is a joint project of the Mississippi Gulf Coast Alliance for Economic Development and the Mississippi Gulf Coast Economic Development Council. One feature of the newly created tech council, which encompasses six counties, is using its website to enable participant companies to list job openings. A 70-member board and 13-member steering committee guide MGCTC.

The Fall 2002 issue of Pointe Innovation magazine – a privately funded publication published by MTA and distributed throughout the Mississippi technology community – highlighted additional communities that have benefited from MTA's investment, including the Mid-South region, Natchez, Oxford and Starkville. The "Technology @ Home in Mississippi Tour," which has visited 30 communities since the summer of 2001, has been a forum for these grant recipients to entertain technology discussion with state legislators and others. The MTA website also mentions technology councils are in the planning stages for Brookhaven, Canton, Cleveland, Greenwood, Hattiesburg, Koscuisko, Laurel and McComb.

For more information on MTA and technology council grant recipients, visit: http://www.technologyalliance.ms/

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Growthink Provides VC Deals on Metro Level
More than $4.7 billion of venture capital was invested in 524 private companies, according to Growthink Private Equity Funding Reports for the Fourth Quarter 2002. Companies securing investments numbered 30 less than the previous quarter.

Among major metropolitan areas, the San Francisco Bay Area continued to lead the nation with $1.43 billion in investments, or 30.5 percent of the nation's total, the Growthink data shows. Boston followed with $460.6 million (9.8 percent) and 58 deals, and Washington D.C., with 27 deals, was next at $274.3 million (5.8 percent). Dallas was the fourth leading metro area, where 15 companies raised $204.5 million.

Along with Dallas, the Minneapolis/St. Paul metro area (eighth) moved into the top 10 with $141.5 million in VC investments. Chicago and Los Angeles both dropped out of the top 10, which totaled 67.6 percent of the nation's total fourth quarter activity. San Diego, New York City, Orange County (CA), Seattle and Research Triangle (NC) were the other leading metro areas.

Growthink reports only private, U.S.-based companies that receive equity investments of $300,000 or more. The company does not collect information on venture capital investments in public companies, debt financing or other areas. The fourth quarter survey, including data by geographic region, state, metro area and industrial sector, is available in individual sections or in its entirety at: http://www.growthinkresearch.com

Other Angel and VC News
A new program designed to match entrepreneurs with Central New York investors is close to reality, according to The Post-Standard, a Syracuse, NY-based newspaper. The "Angel Network" will be based around a website, www.syracuseangels.com, that will not be available to the general public. Instead, investors will be able to view business plans submitted by entrepreneurs via a password system. The Greater Syracuse Chamber of Commerce will serve as a mediator between the two groups, arranging meetings when investors want to lend or invest money in the entrepreneurs' businesses. Further arrangements would be worked out between individual investors and businesses, the paper stated. The network is expected to launch in early March 2003 with up to 40 investors participating in the program.

On a much larger scale, efforts are underway in such states as New Mexico, where Governor Bill Richardson has proposed the state use up to $200 million (2 percent) of state permanent funds to invest in New Mexico businesses. In North Carolina, MCNC Ventures LLC, which was created by 1980 legislation to help attract high tech research and jobs, will invest $25 million in NC-based technology companies. South Carolina's State Legislature is considering bills that ultimately would encourage up to $100 million in VC investments using state tax credits. And, in Utah, lawmakers are considering a $100 million, private sector-created fund to bring venture capitalists to the state, the Associated Press recently reported. Tax credits expected to be part of the bill would form a safety net, providing up to $20 million a year in converted tax liability relief, should investors experience a small annual return.

On a down note, the Private Investors Network (PIN), a group of angel investors in the D.C. metro area, held its final meeting on Jan. 30, the Washington Post reported. As many as 130 members once were a part of PIN. The network was an incorporated entity of the Mid-Atlantic Venture Association (MAVA) that was organized through the Baltimore-Washington Venture Group (BWVG) within the University of Maryland's Dingman Center for Entrepreneurship. Factors such as less disposable income were cited by the Post as reasons for PIN's demise.

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Useful Stats: State Business Churning Figures (1998-2001)
The U.S economy experienced a turbulent year in 2001. However, small businesses demonstrated resilience and strength according to the Small Business Economic Indicators for 2001, a report released by the SBA Office of Advocacy. The February 2003 report states that although economic activity was sluggish in the months leading up to September 2001, economic output grew for the year as a whole.

In comparison to 2000, small businesses seemed to hold steady in 2001. The levels of employer firms and the self-employed were relatively consistent with previous year totals. While employer firm births showed a slight downward movement during the year and firm closures increased slightly, the most alarming number was the rise in business bankruptcies.

SSTI has prepared a table presenting "business churning" statistics and rankings for all 50 states and the District of Columbia over a four-year period from 1998-2001 using data from the SBA indicator report. Business churning is a measure of new firm births and existing firm deaths as a share of total firms. This churning increases as the number of new start-ups and existing business failures per year increases. Business churning is seen as a major driver of innovation and growth.

The table is available at: http://www.ssti.org/Digest/Tables/022103t.htm

Other state level data available in the report include the number of self-employed, business bankruptcies, and financial information. Industrial level data is provided for nonfarm private employment and the fastest and largest growing industries in 2000-2001. Other macro-level indicators for the U.S. economy are presented as well. Small Business Economic Indicators for 2001 can be downloaded at: http://www.sba.gov/advo/stats/sbei01.pdf

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