SSTI Digest

The IRS and CDFI Fund released their first guidance for the federal Opportunity Zones incentive. This wave of guidance addresses zone selection issues only — the most important clarification is that the certification window will expire on March 21, with the option to request one 30-day extension. The guidance includes a list of all eligible census tracts, which were covered by SSTI last week, as well as a list of tracts that are not low-to-moderate income but may be included in contiguous Qualified Opportunity Zones.

SSTI’s Tech Talkin’ Govs feature continues as governors across the country are wrapping up their state of the state addresses. We review each speech for comments relevant to the innovation economy, and bring you their words directly from their addresses.

In this latest installment of Tech Talkin’ Govs, Arkansas is celebrating its low unemployment while Maine says it will focus on a commercialization bond and grow the workforce in part through a student debt relief program. Connecticut wants new goals for clean energy and Wyoming’s focus on economic diversification continues with the governor there calling for full funding for the ENDOW initiative.

Arkansas Gov. Asa Hutchinson celebrated the state’s low unemployment and its economic growth.

While the United States grapples with yet another proposed budget that drastically reduces investments in innovation, Canada’s federal government has announced that five industry-led organizations will share up to C$950 million as part of the country’s supercluster initiative. The superclusters program, a part of the Trudeau government’s innovation and skills agenda announced last year, seeks to encourage leaders from business, research institutions, and the public sector to support the growth of targeted industry sectors. Other elements of the strategy include investments in venture capital, entrepreneurship, and collaborative R&D projects.

The Appalachian Regional Commission has released a request for proposals for the 2018 POWER (Partnerships for Opportunity and Workforce and Economic Revitalization) Program. In this round of funding, ARC will commit up to $20 million to support efforts that create a more vibrant economic future for coal-impacted communities in the ARC region by cultivating economic diversity, enhancing job training and re-employment opportunities, creating jobs in existing or new industries, and attracting new sources of investment.

In previous rounds of funding, ARC partnered with the Economic Development Administration (EDA) to award POWER grants. However, in 2017, EDA launched the Assistance to Coal Communities (ACC) program. While POWER targeted projected in ARC counties, the ACC program made awards to coal-impacted communities across the country in 2017.

The Office of Science and Technology Policy (OSTP) is seeking input from all interested parties on the development of a national strategic plan for advanced manufacturing. OSTP wants to hear ideas on ways to improve government coordination and on long-term guidance for federal programs and activities in support of U.S. manufacturing competitiveness, including advanced manufacturing research and development that will create jobs, grow the economy across multiple industrial sectors, strengthen national security, and improve healthcare. Responses are due by March 7 and should be submitted online at https://www.nist.gov/​oam/​rfi-response or via email to amnpo@nist.gov. The National Science and Technology Council (NSTC) is soliciting recommendations from a wide range of stakeholders, including representatives from diverse manufacturing companies, academia, and other relevant organizations and institutions.

Workforce development programs and apprenticeships continue to win favor in many of the governors’ state budget proposals. In our latest review of TBED initiatives being proposed in state budgets, we found Kansas asking for additional funds for research, worker training and apprenticeships; Massachusetts is looking to double community college scholarship funding and increase several workforce development initiatives; and in Michigan, skilled trades training would receive a boost.

Kansas

In a supplemental FY 2019 budget proposal drafted by previous Gov. Sam Brownback, $5 million of additional funding was requested to enable the National Institute for Aviation Research (NIAR) to expand its research and worker training in automated manufacturing processes.  Located at Wichita State University, NIAR houses three Federal Aviation Administration designated centers of excellence in general aviation research, composites and advanced materials, and airworthiness assurance.

Governors are continuing their annual address to legislators and constituents and workforce development continues to take center stage, with the governor of Oregon rolling out a new five-step plan she hopes will invigorate the economy and close the skills gap while Oklahoma acknowledged difficult times and Tennessee says it may achieve an education goal two years ahead of schedule.

Illinois Gov. Bruce Rauner took pride in saying that the state produces 10 percent of the nation’s computer scientists and called on citizens of the state to “ignite our economy.”

“There is no question we need the economic spark. News of population declines and slow business growth have effects that go far beyond troublesome headlines. They cost us jobs, and rob us of tax revenues.”

“We helped launch the Illinois Innovation Network and the Discovery Partners Institute, a U of I-led effort to link the power of great research with entrepreneurship and new business formation.”

With more than 30 percent of rural America still lacking access to what the FCC considers adequate broadband, governors from across the country are working toward diverse strategies to build rural broadband capacity. By providing rural communities with access to full-speed, stable broadband, these governors hope that they can revitalize rural communities by helping small business formation and expansion as well as improve educational achievement/workforce training for rural citizens. Governors have announced new initiatives in Michigan, Missouri, North Carolina, and Wyoming, and in Wisconsin, Gov. Scott Walker is calling for Federal Communications Commission (FCC) rule changes to increase access to broadband internet across the country.

Michigan

New research from Ian Hathaway of the Center for American Entrepreneurship confirms a common theory in economic development circles: that high-growth firms are predominantly found in large and mid-sized cities with high densities of talented workers and a culture of entrepreneurship. Hathaway’s research uses data from Inc. Magazine’s Inc. 5000 lists for each year from 2011 to 2017, with a focus on the 14,000 unique companies from the lists that meet the OECD definition of high-growth – annualized revenue growth of 20 percent or more each year during a three-year period.

Note: this article has been updated.

The recent tax law created a new vehicle, “Opportunity Zones” (Section 13823), to spur investment in companies and projects in distressed communities. As covered in detail during a recent SSTI members-only webinar, the tax incentive provides investors who reinvest capital gains into these zones with the ability to defer taxes on those gains and, if the Opportunity Zone investment is held at least 10 years, to waive taxes on any new capital gains. Zones must be declared this spring by each state’s governor, and only 25 percent of a state’s high poverty or low income census tracts may be included.

With the 2017 data in the books (see our analysis of MoneyTree and useful stats from the Venture Monitor), SSTI continues our series (see part 1) highlighting trends to watch in 2018. In this installment, we review two technology areas poised for increased VC-backed investments —genetics technologies for healthcare and specialized artificial intelligence and machine learning — as well as spotlight other potential areas that might emerge as key technology areas for VC-backing.

While each year brings the potential for unknown emerging tech areas of investment, these industries are poised for growth due to several unique factors such as increased consumer demand, early successes from VC-backed startups in a similar technology area, and significant advances in the basic technologies that build the foundation for startups in those industries.

Last week, SSTI looked at recently released data on venture capital dollars and deals by state, finding that total investment has skyrocketed but remains heavily concentrated in a few markets. This week we examine this data through two additional lenses: VC investment intensity and VC investment per technology startup.

Late last year, the Information Technology and Innovation Foundation (ITIF) released data on tech-startups by state, which they define as firms 10 years old and younger in 10 R&D intensive industries. These include six manufacturing industries like medical devices and semiconductor machinery, and four service industries like software publishing and scientific R&D.

Young R&D-intensive technology startups are the types of companies that attract venture capital; there is a very high correlation (0.86) between the quantity of tech-startups in a state and its venture capital activity.