In the May 28, 2008 Issue:

Copyright State Science & Technology Institute 2008. 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.

Subscription to the SSTI Weekly Digest is free. If you are reading a forwarded copy of this issue and would like to receive your own copy each week directly, please subscribe at http://www.ssti.org/Digest/digform.htm. Requests to unsubscribe also may be completed at http://www.ssti.org/Digest/digform_unsubscribe.htm.

 Later-stage Companies Emerging as Top Choice of U.S. Venture Capital Investors
Throughout most of the history of the U.S. venture capital industry, expanding, and not start-up companies, have been the primary focus of venture investors. Recent data from the PricewaterhouseCoopers and National Venture Capital Association (NVCA) annual MoneyTreeTM Report indicates that investors are beginning to focus on even later-stage companies, which could be a problem for entrepreneurs and states trying to attract earlier-stage dollars.
 
State and national investment data by stage is now available on the profile pages of the SSTI Venture Capital Dashboard for all 50 states (plus Washington, D.C., and Puerto Rico).
 
The MoneyTreeTM Report divides venture capital investments into four stages based on the maturity of the target company: start-up/seed, early, expansion and later. The expansion stage has been the leading target of investment since the survey began in 1995. While all four stages experienced increases in investment during the late-1990s, expanding companies benefited the most from this new interest in the industry. In addition to a doubling in the number of deals between 1998 and 2000, the average deal size grew from $6.8 million to $16.2 million. These numbers fell in the aftermath of the 2001 crash, but expanding companies remained the primary focus of investors for several years. (To view data on U.S. investment trends by stage, visit http://www.ssti.org/vc/us.html#stage.)
 
More recently, however, later-stage companies have been steadily growing in popularity. In 2007, investment in later-stage companies exceeded that of expansion-stage companies. If trends continue, the number of later-stage deals will exceed those of the expansion stage as well. This change represents a growing preference on the part of investors for more mature companies, which can minimize risk. This may pose a problem for companies and regions that depend on start-up/seed and early-stage investment.
 
Start-up/seed and early-stage investment have not grown as much as later- and even expansion-stage investment in recent years. Early-stage investment represents a smaller percentage of overall investment than it did five years ago, and start-up/seed investment still comprises less than 4 percent of venture funding.
 
The trend toward increased investment in later-stage companies is fairly consistent across the country. Later-stage companies have become the leading target of investment in the top 10 states for venture capital except Florida and Pennsylvania, where expansion-stage investment has continued to grow rapidly. The trend is particularly pronounced in the top two states, California and Massachusetts, where later-stage opportunities for investment abound.
 
Small sample sizes make it more difficult to decipher an investment trend in less active states, but few states have posted significant increases in start-up/seed stage funding in recent years. One explanation for this lack of start-up/seed-stage growth during a relative boom time for venture investment is that coastal venture companies are increasingly looking for later-stage investment opportunities. This affects states without their own venture capital industries more than in more active states because start-up/seed investment can require closer proximity between venture firms and start-ups to close deals and to properly develop successful companies. While venture firms may feel comfortable investing in more mature companies in faraway states, they may not feel comfortable taking a chance on a smaller firm. Thus, overall increases in venture capital investment in smaller states may not represent more opportunities for entrepreneurs.
 
The SSTI-developed pages also provide data from 1995 to 2007 on total venture capital investment and deals, as well as national share and per capita figures for each. Investment information has been derived with permission from the PricewaterhouseCoopers/NVCA MoneyTreeTM Report with data from Thomson Financial.

return to the top of the page

Illinois Tech Index Launched
Last week, NASDAQ saw the debut of the Illinois Tech Index (symbol: ILTI), currently recognized as the only technology index in the U.S. tracking publicly traded technology companies within an individual state. Based on 61 firms with their headquarters in Illinois, the Illinois Tech Index is derived from the aggregate value of the firms’ total shares outstanding. When the index officially started on Monday, May 19, the base value of the ILTI was 1000.00. As of Wednesday’s close of markets, the Index finished at 969.20.
 
The AeA and the Illinois Biotechnology Industry Organization (iBio) identified within certain industries the Illinois companies eligible for inclusion. The composition of the index will be updated on a semiannual basis. Besides highlighting the state’s leading tech companies, the mission of the Illinois Tech Index is to increase the state’s venture capital and technology investment activity, attract technology talent and jobs, and support entrepreneurial growth.
 
Longtime readers of the SSTI Weekly Digest may remember attempts to tie distinct groups of technology companies to the market. The “Baldrige Index,” for example, was last covered in the Feb. 28, 1997 issue of the Digest. This fictitious index was composed of the publicly traded winners of the Malcolm Baldrige National Quality Awards. In that year, the collection of five wholly owned award winners outperformed the S&P 500 by a ratio of 3.5 to 1. NIST’s comparison of the winners of Baldrige Awards to the S&P 500 took place from 1994 until 2004.
 
Additional information about the Illinois Tech Index can be found at:
http://www.aeanet.org./aeacouncils/mw_techindex.asp

return to the top of the page

Minnesota Legislature Creates New Office of Science and Technology
Minnesota legislators established the Office of Science and Technology (OST) to develop a collaborative partnership between industry, academia and government that will coordinate federal funding procurement efforts in S&T with Minnesota. OST's efforts will focus on developing the partnership to help small help businesses access federal grants for technology development and promote contractual relationships between Minnesota small, medium and large businesses according to the governor's press office. 
 
The Department of Employment and Economic Development will receive $400,000 for the effort in fiscal year 2009 to expand current SBIR and STTR efforts and develop a process for technology partnering and commercialization to enhance the S&T funding pipeline.
 
Legislators also approved: 

A bill to create a High-Speed Broadband Task Force to identify areas in the state that lack infrastructure to support broadband service also was passed by the legislature. The task force is charged with developing a comprehensive plan to achieve a statewide high-speed broadband goal, according to the governor's office.

Gov. Pawlenty vetoed a bill last week authorizing the University of Minnesota to spend state-appropriated funds on stem cell research. Although no funds were set aside in the legislation, passage of the bill would have established a state policy to permit research involving embryonic stem cells. In his veto message, the governor expressed moral and ethical concern regarding destruction of live embryos and, instead, voiced his support of research involving adult stem cells.

Lawmakers authorized legislation to create the Minnesota Biomedical Sciences Research Facilities Program and approved bonding authority of $233 million over six years for the University of Minnesota to build four new research buildings. Overall, universities and state colleges face $21 million in combined cuts for the upcoming fiscal year. In his supplemental budget recommendation, Gov. Pawlenty proposed a reduction of 3.85 percent each year in general fund to help close the budget gap.

Gov. Pawlenty's K-12 Science, Technology, Engineering, and Mathematics proposals, including the creation of math and science teacher academies, were not funded in the approved FY09 budget.

Legislators concurred with Gov. Pawlenty's recommendation to remove the one-time appropriation of $2.6 million for renewable hydrogen initiative grants and also reduced by $1.25 million an appropriation for E-85 pump installation cost-share grants. The FY 2007-09 supplemental budget bill awaits action from Gov. Pawlenty.

The conference committee report on the approved FY 2007-09 supplemental budget, H.F. 1812, is available at: http://www.leg.state.mn.us/

return to the top of the page

Restructuring State Economic Development Organizations in Oregon, New York
Earlier this month, the governors of Oregon and New York both outlined changes to the structure of their states’ lead economic development organizations.
 
Before Gov. Ted Kulongoski signed Executive Order 08-11 to reorganize the Oregon Economic and Community Development Department (OECDD), it consisted of three components:

The restructuring effort separates the community development and business development efforts as two separate and distinct functions within the OECDD, and the department’s central focus will now be oriented toward the retention, creation and recruitment of employment opportunities. The separation, as outlined in the Executive Order, is the first step to moving the Community Development Division to another agency, such as the Oregon Housing and Community Services Department. During next year’s session, the Oregon Legislature is expected to take up legislation to make the division permanent.
 
The changes come after a five-month analysis of the structure and mission of OECDD concluded the agency was not able to effectively and equally accomplish both its economic development and community development tasks. With this structural change, Gov. Kulongoski also appointed Tim McCabe as the new director of OECDD. McCabe previously served as the Governor’s Senior Economic Policy Advisor since 2006.
 
On the other side of the country, New York Gov. David Patterson announced plans to consolidate the activities of the Empire State Development Corporation under a single administrative chairman. The previous governor, Eliot Spitzer, separated the actions and leadership of the Empire State Development Corp. into two equal offices -- one headquartered upstate in Buffalo and the other headquartered in New York City, each headed by a co-chairman.
 
Gov. Patterson contends the current system of two branches duplicates jobs within the agency, in addition to inhibiting the ability for the agency to reach agreement on critical matters. During a press conference on Tuesday, Patterson remarked his administration is still in the process of deciding who the sole chairman of the Empire State Development Corp. will be.
 
Executive Order 08-11, as signed by Oregon Gov. Kulongoski, can be found at:
http://governor.oregon.gov/Gov/docs/executive_orders/eo0811.pdf

return to the top of the page

Incubator RoundUp: Growing and Sustaining High Technology Companies
Offering customized workspace such as wet laboratories and specialized research equipment is one of the many benefits provided by technology-focused incubators. Access to university research, business mentoring and administrative support services often accompany the reduced rent facilities with the goal of growing technology companies into successful, self-sustaining enterprises. Following are select announcements of recently launched incubators and partnerships from across the nation. 
 
GateWay Community College recently received a recommendation from the Phoenix Parks, Education, Bioscience and Sustainability subcommittee of the Phoenix City Council to enter into an intergovernmental agreement with the college to build a bioscience incubator laboratory with wet lab space, the Arizona Republic reports. The wet lab would be a minimum of 5,000 sq. ft. and located near the Phoenix Biomedical Campus.
 
Colorado’s first aerospace business incubator will provide services, less the office space, for companies involved in space technology and resource development. The 8th Continent Project at the Colorado School of Mines announced a $150,000 grant from the Colorado Economic Development Commission will be used to serve 14-15 start-up companies per year. Funding from the commission is being matched two-and-a-half dollars for every one dollar through cash and in-kind contributions from 8th Continent’s founding partners.
 
Enterprise Florida, a public-private partnership serving as the state’s primary organization devoted to statewide economic development, announced last month the new Florida Institute for Commercialization of Public Research will be based at the Florida Atlantic University Research & Development Park. Created by the legislature last year, the institute is a “one-stop shop” to facilitate new venture creation and showcase technology and product development growing out of research from Florida’s public universities.
 
The Tavistock Group announced plans to build a $50 million, 100,000-square-foot wet lab and biotech incubator facility in Lake Nona, situated near the University of Central Florida College of Medicine and the Burnham Institute for Medical Research, reports the Orlando Business Journal. Construction is expected to begin in 2009.
 
An initial $1.15 million grant from the Indiana Economic Development Corporation will provide start-up costs related to The Hammond INnovation Center, an 8,200-square-foot incubator designed to support high tech start-up companies. Purdue University-Calumet will manage the facility. 
 
Purdue Research Park broke ground last month on its third building, a 105,000-square-foot technology incubator dubbed Purdue Technology Center II. The Purdue Research Foundation hopes to attract businesses in the fields of life sciences, information technology, and advanced manufacturing and logistics. A $3 million donation from a Purdue University alumnus is helping to finance the $14.5 million project, according to the Journal and Courier.
 
The University of Kansas Medical Center will build a regional wet lab incubator for life sciences start-up companies with help from a $3 million federal grant, according to the Kansas City Business Journal. The planned 40,000-square-foot incubator will house companies started by faculty researchers from universities in the region and entrepreneurs who license locally generated research, the article states. The Kansas Bioscience Authority and Kansas University Medical Center announced they will finance the remaining cost, which is expected to be another $3.25 million.
 
To accelerate Baltimore’s bioscience industry, an agreement was signed earlier this year by the developer of Baltimore BioPark and Baltimore City’s technology incubator, the Emerging Technology Center (ETC), to coordinate incubation and leasing activities for early-state bioscience companies. The new BioInnovation Center provides flexible, modular lab suites with wet lab and office space. Under the agreement, ETC will provide business mentoring and incubation assistance to early-stage life science and bioscience companies. In return, Bio Park will promote ETC services to tenants and prospects and offer laboratory space to tenant companies, according to a press release.
 
The new Business Engagement Center at the University of Michigan (UM) opened earlier this month. The center shares 17,000 sq. ft. with the recently relocated UM Office of Technology Transfer. The two offices will work together to strengthen UM ties to business and community partners.
 
Missouri Gov. Matt Blunt announced a North Kansas City nonprofit organization was approved for $150,000 in tax credits through the state’s Small Business Incubator Program. The facility will provide incubator services for businesses in technology and life sciences. In collaboration with the University of Central Missouri Innovation Center and the Small Business Technology Development Center, the new Avvio Center will provide training, workshops and seminars to tenants.
 
Farleigh Dickinson University in New Jersey launched a business incubator last month focusing solely on sustainable start-up and early-stage companies in alternative energy, the environment, waste reduction, urban agriculture, transportation, and business information.
 
A new round of federal funding earlier this year prompted construction of a new technology incubator at SUNY Fredonia State College. Previously operating within a temporary facility, the $150,000 earmark enables construction of the new 21,000-square-foot incubator in Dunkirk, reports Buffalo Business First. An extension of the university’s main campus in Fredonia, the incubator will house approximately 30 start-up companies within varied technology sectors. Completion is slated for next year.
 
A new 300-acre corporate campus being developed by Triangle North in partnership with Vance-Granville Community College will include a biotech incubator for start-ups in the biotechnology industry. 
 
Clemson University received final approval from the State Budget and Control Board on its request of $5 million to begin construction on a new Innovation Center at the Clemson University Advanced Materials Center. The 28,000-square-foot facility will house Clemson University spin-off companies, entrepreneurial start-ups and larger companies relocating to South Carolina that focus on advanced materials, nanotechnology and biomaterials.
 
Marshall University and the Huntington Area Development Corporation entered into an agreement last month to build a new biotech incubator, reports The State Journal.  Located near the university’s Forensic Science Center, the incubator will serve biotechnology spin-off companies that originated at Marshall University.
 
University Research Park in Madison, Wis., announced in March plans to build a new, 65,000-square-foot accelerator building to house life sciences companies that have moved beyond early-stage development. The building will be located south of the MGE Innovation Center, a larger incubator facility designed for early-stage companies.
 
return to the top of the page

State Science & Technology Institute
5015 Pine Creek Drive
Westerville, OH  43081
(614) 901-1690

© 2008 State Science and Technology Institute. All rights reserved.