In the April 30, 2007 Issue:

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Budget Outcomes Unveiled in Several Western States
Bills have been passed and budgets approved with the close of several 2007 legislative sessions in the western states. The below article is part of the Digest's continuing coverage of the legislative outcomes of some of what governors proposed in their State of the State and budget addresses (see SSTI’s Tech Talkin’ Govs Series in the Jan. 8, Jan. 15, Jan. 29 and Feb. 19, 2007 issues of the Digest).
 
Washington
The 2007 legislative session ended last month with the approval of the first installment of $70 million over the 2007-09 biennium for the Life Sciences Discovery Fund. Created in 2005, the fund provides grants for promising life science university research within the state. The bill allocates $35 million per year from strategic tobacco settlements for 10 years beginning in 2008 (see the May 16, 2005 issue of the Digest).
 
Legislation was passed to fund Innovation Partnership Zones (HB 1091) at the request of Gov. Christine Gregoire and the Global Competitiveness Council. The fiscal year 2007-09 capital budget includes $5 million for the zones — designated areas of Washington where globally competitive companies, research institutions and advanced training are creating a special competitive advantage for the state. The $5 million allocation will fund five grants over the next two years to help pay for buildings and infrastructure. In addition, the capital budget includes $58 million for Washington State University to complete the Pullman Life Sciences Building and $5 million for broadband infrastructure in rural parts of the state.
 
Idaho
In 2006, the Governor’s Science and Technology Advisory Council - along with former Gov. Jim Risch - agreed upon a $38.8 million economic development package consisting of several recommendations to attract and grow new technology businesses that was contingent upon approval by the newly elected governor (see the Oct. 2, 2006 issue of the Digest). In his FY 2008 budget recommendation, Gov. C.L. “Butch” Otter endorsed only one of the recommendations — $15 million for the Higher Education Research Council, which could be spent on both infrastructure costs and research. However, the legislature appropriated only $1.56 million in the FY08 budget.
 
Also included in the budget is $1 million for the Business and Jobs Development Fund, with a maximum amount of $250,000 per recipient and $300,000 for the state’s Tech Connect program, the same level as FY07. The program provides assistance to technology companies with commercialization and entrepreneurial development.
 
The legislature also passed HB 222, separating the state’s departments of commerce and labor at the request of Gov. Otter, which previously were combined by former Gov. Dick Kempthorne. According to the bill, separating the departments will allow the Director of Commerce more time to focus on recruiting and retention of small businesses, international trade and other specific issues related to economic development.
 
Oregon
In March, Sen. Kurt Schrader (D-Canby) and Rep. Mary Nolan (D-Portland) unveiled the Co-Chairs’ 2007-09 Recommended Budget, which counters several recommendations offered in Gov. Ted Kulongski’s budget released in 2006.
 
Gov. Kulongoski’s budget proposal included full funding for a $38 million economic stimulus package at the request of the Oregon Innovation Council. The Co-Chair’s budget only includes half of that amount.
 
Some of the initiatives funded under the council’s plan include a continued investment of $10 million for the Oregon Nanoscience and Microtechnologies Institute (ONAMI); $10 million to support two new signature research centers; $7 million for an infectious disease drug development research center; and, $3 million for the Bio-Economy and Sustainable Technologies Center to focus on R&D in clean energy, bio-based products and green building materials (see the Dec. 18, 2006 issue of the Digest). Under the Co-Chair’s budget, ONAMI and Signature Research Centers would receive $19 million.
 
Hearings on the budget will continue until the 2007 Legislative Session closes in June.
 
Colorado
Last week, the General Assembly passed HB 07-1060, transferring $2.5 million of the general fund portion of limited gaming fund money to the Colorado Bioscience Discovery Evaluation Grant Program. The program will provide grants of up to $100,000 for an SBIR or STTR project and up to $150,000 for other research projects. Additionally, the bill increases the amount the Office of Economic Development may spend in administering the program. The program was created in 2006 with a one-time appropriation of $2 million for the advancement of new bioscience discoveries at Colorado research institutions (see the June 12, 2006 issue of the Digest).
 
Utah
The Utah Science, Technology and Research Initiative (USTAR) received $19.3 million, the proposed operating budget amount for FY08, and an additional $74,500 for compensation adjustments. USTAR was created by the legislature in 2006 to leverage the state’s research universities in creating and commercializing technologies. The legislature appropriated $50 million for start-up costs, $15 million for hiring “all-star” research teams and $4 million to provide funding for a technology outreach program. 

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Recent Research I
Learning Experience: How Does Past Failure Affect Entrepreneurial Success?
Experience can be an invaluable, and sometimes irreplaceable, asset during the intense and complicated process of building a new firm. Many theorists believe that past entrepreneurial experience, whether with successful or unsuccessful firms, prepares entrepreneurs for the pressures and risks involved in starting a company. In his book, New Venture Creation: Entrepreneurship for the 21st Century, JA Timmons observes that failure is a prerequisite for entrepreneurial success and that entrepreneurs frequently fail in creating their first company only to succeed in their second. Failures teach lessons that can only be imparted through "real world" experience and firsthand exposure to what can go wrong during the tenuous early stages of venture development.

In a recent article, however, Georg Metzger of the Centre for European Economic Research reports that not all entrepreneurial experiences are created equal. In general, prior experience with other start-ups increases the likelihood of success with future ventures. If at least one of its managing firm owners has had previous experience with forming a business, a new venture is likely to create more jobs than if none of the owners had any prior experience. On the other hand, if one of the managing owners has experienced a venture failure - meaning bankruptcy - the newer firm is likely to produce fewer jobs.

Metzger suggests that entrepreneurs who have been involved in start-ups that have gone bankrupt generally do not become more capable managers because of that experience. Instead, they tend to be intimidated when embarking on their next venture, which often leads that firm to generate fewer new jobs. Even entrepreneurs with no experience tend to create more employment opportunities than those with past failures, Metzger notes.

The article acknowledges there might be other causes of this reduced job growth besides intimidation. Entrepreneurs who have experienced bankruptcy in the past may have more limited ambitions for their new firm, choosing to focus on a smaller, more productive work environment rather than rapid growth. Regardless of the reasons for this effect, the impact of past start-up experiences tend to diminish over time.

Metzger's findings suggest that entrepreneurs who have experienced a firm bankruptcy in the past might require more, and not less, coaching from incubators, venture capitalists and start-up advisors. These clients may require special assistance tailored to help them overcome their initial hesitancy and to correct any behavioral patterns that may have led to the early end of their previous firm.

Read "Once Bitten, Twice Shy? The Performance of Entrepreneurial Restarts" at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=955756

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Recent Research II
How Does the Experience of Academic Entrepreneurs Impact Firms' Performance?
A popular strategy in the TBED community is the attempt to both recruit and develop academic entrepreneurs that may have a substantial effect on the growth of a region's economy. Successful efforts to attract researchers, such as the Georgia Research Alliance and Kentucky's Bucks for Brains programs, are being replicated across the country. However, if one of the hoped-for payoffs is the successful creation of innovative companies, what types of researchers are best suited for this role? A recent discussion paper by Dirk Czarnitzki and Andrew Toole released via the Centre for European Economic Research contributes to the growing collection of studies that measure the impact of the background of entrepreneurial researchers on their firms' performance.

In preparing their paper, the authors explored the effect of the human capital of academic entrepreneurs who started companies through the government's Small Business Innovation Research (SBIR) Program for the National Institutes of Health (NIH). They measured this human capital by the extent academic entrepreneurs were oriented toward scientific endeavors (based on past NIH grants) or commercial activities (based on past patents). Similarly, a firm's performance also was gauged by scientific or commercial orientation. Czarnitzki and Toole defined scientific success as receiving SBIR Phase II funding, thus proving a scientific "feasibility of concept." Commercial impact was measured by the patent production of the new enterprise.

The authors chose individuals who were principal investigators on an NIH research grant and on an SBIR project from 1983 to 1996. Past experiences of academic entrepreneurs definitely correlate with the differences in their firms' performance, Czarnitzki and Toole concluded. Specifically, the authors found that:

The authors acknowledged setbacks of their chosen sample. They did not observe the role of academic scientists who have a non-principal investigator role in the SBIR firm, for example. Additionally, they did not explore other sources of capital, such as venture funds, personal assets or seed money that can be provided outside of the SBIR program for NIH grant recipients attempting commercialization.

So will the background of academic entrepreneurs impact the future growth strategies of firms? The authors speculate that the composition of individuals within certain science-based sectors could influence the distribution of firm types in that sector. Additionally, those with skills geared more towards identifying and exploring commercial opportunities might not be best suited for producing knowledge in an academic research environment.

This branch of research may impact the recruitment methods of the administrators of TBED and technology transfer programs looking to increase their entrepreneurial output. Additional studies are needed to build upon this research, exploring the importance and impact of specified human capital throughout other technical fields.

Czarnitzki and Toole's working paper, Exploring the Relationship Between Scientist Human Capital and Firm Performance: The Case of Biomedical Academic Entrepreneurs in the SBIR Program, can be downloaded for free from website of the Social Science Research Network: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=966125

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Recent Research III
The Role of Innovation in the Urban Economy
Cities play a pivotal role in producing the technologies that sustain high-tech industries, hosting a majority of the businesses and individuals that comprise those industries. Modern urban theory, including the work of Edward Glaeser and Richard Florida, has popularized the idea of cities as key nodes in which new knowledge is created, spread and adopted by innovative businesses and entrepreneurs. Successful high-tech cities have a self-sustaining quality, according to Florida, in which a city's reputation for innovation attracts more skilled and creative workers and entrepreneurs, which in turn spurs further economic growth.
 
This process is symptomatic of a greater trend, according to a recent article by Luís Bettencourt, José Lobo, Dirk Helbing, Christian Kühnert and Geoffrey West. The authors argue that urban life and metropolitan economies develop according to a predictable pattern, one that closely resembles patterns observed in other types of social organization and in biological organisms. Cities with higher populations tend to experience faster rates of innovation and greater productivity in their urban economy.
 
Bettencourt, et al. find that indicators of urban activity tend to fall into three categories. The first involves indicators that relate to the needs of individuals. As a city accumulates new residents, each of those residents requires employment, housing and utilities. Thus, as population increases, these indicators tend to grow linearly.
 
A second group of indicators is affected by economies of scale. By concentrating a large population within a limited geographic area, cities are often able to increase the efficiency of their economy by reducing the number of gas stations or gas sold per capita, or the per capita length of the city's electrical cables. This effect can drive growth by reducing the amount of resources dedicated to the city's infrastructure while maintaining or increasing productivity. The benefits of economies of scale, however, appear to plateau over time as a city reaches the limits of its ability to provide services to its citizens. Eventually economies of scale can no longer be counted on to drive or support growth.
 
The final category consists of indicators that measuring the creation of knowledge, wealth and resources. The authors find that many of these indicators, including new patents, number of inventors and private R&D employment and establishments, increase even more rapidly than population. Remarkably, many of these indicators appear to grow at a similar rate, the authors observe. The pace of discovery and innovation in cities accelerates as the city grows, they say, and continued growth depends on a constantly increasing rate of knowledge production and distribution.
 
These findings suggest that it may be possible to predict future rates of urban innovation and high-tech economic development as a city's population grows. In addition, expanding urban economies may require increasing investment in innovation and R&D to support their economic and population growth and to avoid economic collapse.
 
Access "Growth, Innovation, Scaling, and the Pace of Life in Cities" from the April issue of the Proceedings of the National Academy of Sciences of the United States of America at: http://www.pnas.org/cgi/reprint/104/17/7301
 
Links to the report and more than 4,500 additional TBED-related research reports, strategic plans and other papers also can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

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Useful Stats
Industrial R&D Performance by State, 2000-2004
Industrial R&D expenditures in the U.S. totaled $208 billion in 2004 — an increase of 2.1 percent ($4.3 billion) from 2003, according to the National Science Foundation’s (NSF) Survey of Industrial Research and Development.

From 2000 to 2004, industrial R&D expenditures increased by 3.14 percent, the NSF data show. North Dakota experienced the largest increase over the five-year period, more than tripling its 2000 total with $379 million in industrial R&D expenditures in 2004. Oregon (99.4 percent), New Hampshire (84.2 percent), Connecticut (73.68 percent) and Maryland (72.87 percent) followed North Dakota, in terms of percent change.

Connecticut showed the largest dollar increase ($3.05 billion) over the five-year period. Six other states also saw an increase in industrial R&D spending of more than $1 billion from 2000-2004: Maryland ($1.61B), Oregon ($1.52B), Virginia ($1.32B), Indiana ($1.32B), Minnesota ($1.23B) and California ($1.12B).
 
SSTI has prepared a state-by-state table that shows the above NSF data for 2000-2004 and ranks the states accordingly. The table is available at: http://www.ssti.org/Digest/Tables/043007t.htm
 
The NSF InfoBrief that further discusses the data is available at: http://www.nsf.gov/statistics/infbrief/nsf07304/

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Partnership Opportunities Available at SSTI's 2007 Conference
SSTI’s Annual Conference provides the opportunity to place your organization at the center of the tech-based economic development community, reinforce your brand, and build relationships in 2007 and beyond. Each year, SSTI works to improve upon our annual conference, and one of the improvements in this year's conference is more personalized sponsorship opportunities — an array of strategic marketing opportunities to ensure greater exposure and added value to your partnership.

No other event brings together the nation’s top players in the TBED community. SSTI Conference Partners have the chance to showcase their organization with the decisionmakers responsible for crafting and implementing local and state-level policies and programs that directly contribute to the nation's competitiveness.

Take advantage of the conference’s powerful reputation to help your organization:

This is the nation’s premier TBED event, gathering more than 350 of the most powerful decisionmakers from around the country each year. The 2006 conference included representation from 46 states and four nations.

SSTI believes that by working with our partners to gain a clearer understanding of their objectives, we can tailor specific packages to fit individual needs. To request additional information regarding conference sponsorships, please contact Noelle Sheets, director of membership services, at 614-901-1690 or sheets@ssti.org. Please contact SSTI as soon as possible, as all partnership opportunities are on a first come, first served basis.

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