In the October 3, 2007 Issue:

Copyright State Science & Technology Institute 2007. 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.

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Window Closing Soon to Attend SSTI's Annual Conference
Only a dozen seats remain available for new registrations to attend SSTI's 11th Annual Conference, which will be held Oct. 18-19 in Baltimore's fun-packed Inner Harbor. That's 12 seats, not a baker's dozen of 13. Given the two-week lead time before the event, SSTI strongly anticipates we will not be able to accommodate walk-in registrations the day of the conference. We encourage those of you making arrangements or planning to attend to register as soon as possible. Registrations can be taken over the phone (614.901.1690) or on our secure webpage: https://www.ssti.org/Conf07/registration.htm

We're called crazy when we do it, but SSTI firmly believes that it is in the best interest of our conference participants to limit the size of the audience. It stimulates better discussion during the 19 dialogue-intensive breakout sessions. It makes it much easier to start and continue conversations during the 30-minute networking breaks, breakfasts, lunch and two receptions. Overall, it is meant to convey SSTI's commitment to a quality event. Our attendees are participants in the TBED community's premier professional development event of the year, not merely registrant #s. 

We're closing the door at 375 this year, so 12 more of the nation's leading TBED policymakers and practitioners are welcome to join your peers in Baltimore, Oct. 18-19. As in years past, we will keep a waiting list for cancellations, should that be necessary.

It is up to you.

Conference information is available at www.ssticonference.org.

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Governors Unveil New TBED Priorities for 2008 Legislative Sessions
Just a few short months ago, many states were wrapping up their 2007 legislative sessions and preparing for the start of a new fiscal year. Laying the groundwork for a successful 2008 session, two governors recently announced major TBED initiatives that will be presented to lawmakers in the coming months.
 
Colorado Economic Development Package Supports Life Sciences, Alternative Energy
Building upon a successful legislative session last April which resulted in several energy-related bills becoming law, Gov. Bill Ritter introduced an economic development package that includes proposals to invest in emerging industries, support rural businesses, and capitalize on economic development opportunities within alternative energy.
 
A major element of the package calls for establishing a $3.5 million a year bioscience and life science fund to be administered by the Office of Economic Development. The purpose of the fund is to promote the growth and sustainability of the bioscience industry, provide research institutions with funding to commercialize viable technologies, and provide incentives to help attract new businesses and retain and expand existing companies.
 
To help small, rural businesses grow by making it easier to qualify for job creation incentives, Gov. Ritter proposes modifying Colorado’s Performance-based Incentives Fund (PIF). PIF was created by the General Assembly in 2006 to provide incentives to businesses that create high-paying jobs throughout the state. The proposal extends the timeline for job creation from one month to six months, allowing more companies to qualify.
 
Last session, Gov. Ritter signed into law SB 246, establishing a $7 million Clean Energy Fund to attract renewable energy investment to the state, assist in technology transfer, and provide incentives for purchasing renewable energy products. Gov. Ritter’s proposal for 2008 will dedicate $3.5 million from the fund specifically for economic development opportunities. Under the proposal, up to $1 million will be made available to companies seeking funding assistance in the form of state grants. Consideration will be given to providing support to a renewable energy incubator, and funds will be used to attract and retain renewable energy businesses.
 
A press release outlining the initiative is available from the governor’s office at: http://www.colorado.gov/governor/

Gov. Pawlenty Announces $70M Initiative Aimed at Encouraging Entrepreneurship in Rural Minnesota
To help strengthen communities and expand the small business base in rural Minnesota, Gov. Tim Pawlenty unveiled a new Strategic Entrepreneurial Economic Development (SEED) initiative last week. The plan will facilitate new business development through 22 new or expanded programs that target three strategic areas, including developing and growing entrepreneurs, providing new capital for rural businesses and sustained competitive advantage for rural Minnesota.
 
The proposal calls for a total investment of $70 million -- $20 million from the state’s general fund and $50 million in one-time bonding. The $50 million in bonding is slated for business development infrastructure, a redevelopment grant program and bioscience development infrastructure, while the $20 million in general funds would go directly to implementing some new programs:

SEED also emphasizes “targeted rural opportunity communities” located in one of 64 Minnesota counties that have either experienced population decline or have unemployment rates greater than the state average, according to the governor’s office.
 
The initiative expands upon the JOBZ program created in 2004 to promote economic development in distressed areas through exemption of state and local taxes. The program has its limitations, however, including the exclusion of small retail businesses. More information on the SEED initiative is available at: http://www.positivelyminnesota.com

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What’s the Single Best Place to Keep Up with State TBED Policy?
SSTI’s 11th Annual Conference, of course! Join more than 350 of the top practitioners and policymakers in Baltimore, Oct. 18-19, to learn firsthand about all the best tools of the trades and new innovations to sustain regional TBED efforts. Already 47 states are represented among the speakers and conference participants. Check out the agenda at: http://www.ssticonference.org/Conf07/schedule.htm

University of Maryland Offers $250K Fund for Socially Conscious Companies
Socially-responsible entrepreneurs at the University of Maryland now have a new financial resource available to help them get new businesses off the ground. The university's Impact Pre-Seed Fund program will offer grants to students with business plans that could offer potential benefits to global society. Students participating in the university's Hinman CEOs program and the Hillman Entrepreneurs program will be eligible for two kinds of grants: Seed Fund grants of $2,000 to $5,000 will be awarded to students with complete, well researched business plans, and Opportunity Assessment grants of $500 to $1,000 will be available to fund promising ideas that require additional research. Each grantee will be assigned a mentor to help guide the new business and to monitor the use of the award.

Warren Citrin, co-founder of the Solypsis Corporation (now Raytheon Solypsis), donated $250,000 to launch the fund. Citrin hopes it will provide students with the financial support they need to exert a positive influence on the world around them. "The weakest link for student entrepreneurs has always been the funding," says Citrin in a press release announcing the new program. Citrin's gift is part of a seven-year, $1 billion campaign at the University of Maryland to raise private funds to support student programs, university facilities and academics, and innovative research.

The fund will be administered by the Maryland Technology Enterprise Institute (MTECH), which oversees the university's entrepreneurial education programs and its partnerships with the private sector to create new businesses and bolster the state economy. MTECH is seeking applicants with ideas to address the environment, education, healthcare and other markets and communities that have been underserved by the private sector and the entrepreneurial community. Any plan, however, that promises a positive impact may apply.

The University of Maryland is the latest of several universities to offer business plan awards to social entrepreneurs. Since 2005, the University of Washington's Global Social Entrepreneurship Competition has offered financial awards to university students around the world with feasible and sustainable business plans to improve quality of life in Third World countries.  This year, the first and second place winners will receive at least $7,500 to implement their plan. The University of Florida's Howard J. Leonhardt Business Plan Competition added a new category this year for social ventures that aim to produce positive and sustainable societal change.

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Learn More about Maryland’s Entrepreneurship Efforts
Dean Chang, director of MTECH Ventures, will provide more information about University of Maryland program during a panel discussion on entrepreneurship education at the 2007 SSTI Annual Conference. Come hear about the University of Maryland's comprehensive approach to fostering the next generation of entrepreneurs on Oct. 18-19 in Baltimore. For more information, visit www.ssticonference.org.

Science Foundation Arizona Secures $25M from Stardust Charitable Fund
Earlier this year, Arizona Gov. Janet Napolitano and the Arizona State Legislature committed $100 million over four years to support Science Foundation Arizona, a nonprofit public-private partnership to coordinate the state’s R&D investments in science and technology. The catch? The law required a dollar-to-dollar match of non-government funding of the annual $25 million allotment before the state could release its funding to Science Foundation Arizona.
 
The initial $35 million appropriation for 2007 did not come with the restriction. Science Foundation Arizona allocated $30 million of that funding to 55 recipients for projects ranging from improving science and math education to commercializing new research discoveries.
 
The first funds to be affected by the tight purse strings are for fiscal year 2008, which potentially created a sizable hurdle for developing and sustaining a long-term S&T investment strategy for the organization and state.
 
In steps the Stardust Charitable Fund with a $25 million check to cover the FY 2008 obligation. The Stardust Charitable Fund, a foundation established by the Scottsdale-based real estate developer Stardust Companies, provided Science Foundation Arizona a $2.5 million grant earlier this year. Prior to the $25 million contribution, Stardust had donated approximately $10 million in the areas of science, research, engineering and innovation as part of its Discovery and Innovation Initiative.
 
More information is available at www.sfaz.org.

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Recent Research I
Why Do Entrepreneurs Make the Choice to Pursue Venture Capital?
At some point, most start-up businesses require an infusion of outside capital to grow into a profitable enterprise. This infusion often comes in the form of venture capital (VC) investment, which provides capital and some degree of managerial guidance in exchange for an equity stake in the company. Venture investment can be a blessing for entrepreneurs looking to survive the risk-filled early stage of firm development and to professionalize their business, but it also reduces the entrepreneur's incentive to create a highly profitable company. The entrepreneur loses some of the freedom to govern the company as he sees fit, and once the company makes a successful exit, the venture investors will claim their share of the profits.
 
Despite the visibility of the VC industry, only 10 percent of start-ups receive VC support. The remaining 90 percent turn elsewhere for outside funding, often from commercial banks. Bank loans do not come with the same strings attached as venture investment, but borrowers do not have access to the managerial and industry guidance that may be available through venture firms. Entrepreneurs are forced to make it on their own but are allowed to govern their company as they see fit and collect a greater share of the profits.
 
In the current issue of the Journal of Business Venturing, Jean-Etienne de Bettignies and James Brander of the University of British Columbia's Saunder School of Business investigate the decision-making process of entrepreneurs faced with the choice of pursuing VC or securing a bank loan. The decision, they find, hinges on the value of input from the venture firm. Without this input, bank financing would always be preferable to venture investment. Entrepreneurs, however, cannot be sure of the value of VC guidance from the outset. They must offer a sufficient incentive to venture firms to be highly involved, but doing so will decrease their own incentive to perform.
 
The authors find that VC investment is most appropriate when the value of entrepreneurial input is low. If this is the case, VC firms can be given a large enough equity stake in the company to provide an incentive to be heavily involved in company development. If the value of entrepreneurial input is low, then reducing the ownership of the entrepreneur is less likely to hamper the company's growth. Companies that depend on the input of the individual entrepreneur may fare better with bank financing.
 
Their model also suggests that venture investment is most desirable when the industry of the start-up company aligns with an area of expertise for the VC firm. Without that kind of alignment, the VC firm may not be able to provide sufficient input to make the equity tradeoff worthwhile. The authors argue that the need for specialized VC knowledge is the reason that certain industries, such as software and biotech, have become dominant in venture investing. These industries require a great deal of specialized managerial knowledge, increasing the value of VC input.
 
This model may be useful for states seeking to improve high-tech start-ups' access to capital. Since public organizations often lack the specialized knowledge of high-tech industries possessed by private venture capital firms, it may be more beneficial to use state funds to offer and improve access to loans than to make public equity investments. Alternatively, state equity programs could be divided into separate programs that serve individual industries, staffed by experienced industry veterans.
 
Purchase "Financing Entrepreneurship: Bank Finance Versus Venture Capital" at: http://www.sciencedirect.com/science/journal/08839026

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The Evolving Role of States in Equity Capital
SSTI will host a panel discussion of the state's role in equity capital at this year's annual conference in Baltimore. The session, moderated by Phillip Singerman of Toucan Capital Corp., will feature insights from Jerry Bird of the Massachusetts Technology Development Corporation, Rebecca Bagley of the Pennsylvania Department of Community and Economic Development, Phillip Battle of SSTI, and Frank Dixon of the Maryland Venture Fund. Please join us as we discuss recent state trends in promoting access to venture capital and the future of state equity in high-tech start-ups. Find out more about the conference at www.ssticonference.org.

Recent Research II
Who is More Likely to Advance the Exchange of Knowledge within and between Regions?
Within economic development literature, many researchers believe the success of regional industry clusters is dependent on the strength and quantity of local “gatekeepers” – the organizations, firms and individuals that both draw knowledge from outside the region and distribute knowledge within the region. But what are the characteristics of these gatekeepers that may lead to a more productive exchange of knowledge?
 
In a recent paper, Gatekeepers in Regional Networks of Innovators, Holger Graf investigates the actions of these entities within four economically diverse regions of Germany. Graf gauged the relationships inside and outside of a region by analyzing information about the patents filed. He used the number of patents filed by an entity as a proxy for its size, and concluded size was not a major reason for being a gatekeeper. However, the number of distinct inventors that appear on an entity’s filed patents, known as the absorptive capacity, was found to be a very important predictor of being a gatekeeper.
 
Throughout the paper, the physical location of the collaborators for the filing of a patent was used to judge if any entity had internal connections within the region in addition to external connections outside of the region. As admitted by the author, the use of patent data to measure the amount of interaction may be an imperfect metric, as there are many other forms of interaction and communication that can occur. Nevertheless, the patent data represents a way to quantify the relationships that can be tracked and then analyzed statistically. Within the sample population used in the paper, a gatekeeper was defined as an entity that had both at least one relation internal to the region and one relation outside of the region. The author also concluded that public research institutions perform more like gatekeepers compared to private firms, perhaps due to the willingness of public organizations to share their knowledge when compared to incentive-seeking private firms.
 
While the paper did not investigate if gatekeepers create more economically successful regions, it did explore how to identify gatekeepers and their characteristics. From a practitioner’s perspective, if one accepts that increasing the number and quality of local gatekeepers impacts the economic potential of a region, then the information provided in the report may influence strategies to strengthen the connectivity of firms, organizations, and individuals to other entities both inside and outside a region.
 
The paper also provides a window into social network theory, analyzing the complex linkages between the various patenting entities within a region. The paper gives some examples on how to graphically observe and investigate these connections within the selected regions of Germany – two of which are considered to be economically booming while the other two are more economically stagnant.
 
Gatekeepers in Regional Networks of Innovators is available at:
http://ideas.repec.org/p/jrp/jrpwrp/2007-054.html
 
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The Forum for Improving TBED Policy & Practice
SSTI’s annual conferences each year are carefully crafted to balance breakout session topics and formats between the strategic and tactical. Between policy and practice. Between why public-private partnership to encourage TBED should work and how to make them work more effectively. 
 
It is the one professional development event of the year where TBED policy research and formulation meets the hard-knock lessons of real TBED practice in lively discussions engaging participants along the entire strategic-to-tactical spectrum. The result? SSTI conference participants walk away from the event with the best strategic grounding for the TBED policies they want to pursue AND the practical, proven tactics on how to implement them successfully.

For more information, visit www.ssticonference.org.

SSTI Job Corner
Complete descriptions of these opportunities and others are available at http://www.ssti.org/posting.htm.

Following its corporate mission of "turning knowledge into practice," RTI International is launching an initiative aimed at eliminating underdevelopment and unlocking opportunity in economic growth centers throughout the U.S. and worldwide. For this initiative, RTI seeks to immediately fill two important positions: (1) a program manager for innovation-based economic development who will play a key role in leading this initiative with other professionals across RTI and (2) an economic development analyst who will design, manage, and support technology-based economic development research and implementation projects. Each position has its own set of responsibilities and qualifications.

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