SSTI Digest

U.S. venture capital fundraising and venture-backed exits improved marginally in the fourth quarter of 2009, despite having a very slow year overall, according to the National Venture Capital Association (NVCA). Venture fundraising increased to $3.8 billion in the last quarter, an 82.6 percent increase over the previous quarter but still far short of fundraising levels in recent years. While investors expect activity to grow in 2010, most predict that the industry will remain smaller than its scale in the 1990s and 2000s, with fewer firms and increasing focus on late-stage deals.

Overall, 2009 was the weakest year for fundraising since 2003. Investors committed only $15.2 billion to 120 funds last year, down from $28.6 billion in 223 funds in 2008, which was also a difficult year for fundraising activity. In 2007, investors committed dollars to 250 funds. Last year fewer funds were raised than any year since 1993. The NVCA report suggests that the decrease in the number of funds points to an industry that is rebuilding itself as a leaner, more efficient enterprise, with fewer firms and more experienced investors.

Give a star academic researcher a full year to reflect on what the world understands so far about regional innovation and city-region dynamics and to offer suggestions to guide future economic development initiatives to encourage growth and the results are valuable for both his homeland of Canada and its southern neighbor, the U.S. The Conference Board of Canada named University of Toronto professor David A. Wolfe its 2009 CIBC Scholar in Residence in May of 2008. His lecture and the resulting report, 21st Century Cities in Canada: The Geography of Innovation,  is enlightening, insightful, and frustrating – the final adjective because we should, but do not, have the same well grounded and succinctly articulated understanding of how American cities-regions function systemically to encourage or thwart innovation and competitiveness.

During the upcoming legislative session in Missouri, lawmakers will consider a proposal by Gov. Jay Nixon to create a funding source aimed at attracting top scientists, commercializing research, recruiting and building science infrastructure, and creating capital programs for early-stage technology companies. The Missouri Science and Reinvestment Act (MOSIRA) would dedicate an annual portion of new tax revenues generated by biotechnology companies to a newly-created state fund administered by the Missouri Technology Corporation. Funding would be reinvested in a wide-range of technology-based economic development programs designed to grow science and technology companies across the state. More information regarding MOSIRA is available from the governor's office. Read more...

Providing access to startup capital, promoting biotechnology, and investing in the green economy to create and grow jobs are among the priorities of Gov. Pat Quinn's Illinois Economic Recovery Plan presented during a speech in December. The governor's plan would establish an Angel Investment Tax Credit program to allow investors making an early-stage investment in a technology startup to receive a capped credit against their Illinois tax bill. The governor also will propose the creation of a state fund to provide matching grants for technology research companies competing for federal funding and explore the idea of establishing a venture capital fund of funds. Additional strategies to incentivize green manufacturers to retool existing operations also are outlined in the governor's plan, which is available at:  http://www.illinois.gov/publicincludes/statehome/gov/documents/Illinois Economic Recovery Plan Final.pdf.

Gov. Gary Herbert unveiled last month an $11.3 billion spending plan for FY11 that maintains level funding for higher education and slightly reduces funding for the Utah Science Technology and Research initiative (USTAR). The governor's FY11 budget plan addresses a $693 million shortfall, which is spread across FY10-11 and anticipates $34 million in state revenue growth during the next year.  Read more ...

High-tech manufacturers in Connecticut seeking to innovate and diversify their processes are eligible for grants of up to $25,000 each under a new pilot program announced last week by Gov. Jodi Rell. The goal of the Connecticut Small Business Innovation and Diversification Program is to help the state's small businesses develop, produce and commercialize new products while streamlining delivery of products and services, according to the governor's press office. Matthew Nemerson, president and chief executive officer of the Connecticut Technology Council, said in a New Haven Register article that the money will be helpful in the innovation process for companies that have not yet received seed money, but are trying to develop a model or prototype or advance research. The program, administered through the Small Business Innovation Research Office at Connecticut Innovations, is open to Connecticut-based companies with fewer than 500 employees and requires matching funds.

Government intervention in the venture capital industry might be the key to boosting the performance of venture-backed businesses, according to a recent report published by the World Economic Forum. A review of 28,800 venture-backed firms from 126 countries found that enterprises receiving moderate levels of government venture capital support outperformed other firms in terms of value creation and patent creation.  Read more ...

There is no simple answer to a frequently asked question that SSTI receives: what should we expect to be a good return on public investment in research? A new working paper available from the National Bureau of Economic Research helps clarify the range of possible answers, though, and strongly suggests the investment is worthwhile. Reviewing studies from the past half century, the authors conclude the rates of return for R&D are "usually higher than those to ordinary capital" and social returns "are almost always estimated to be substantially greater than the private returns" - both conclusions supporting an increasing role for public research investment.  Read more ...

Arizona's state, regional and university leaders already have made efforts to stimulate elements of a high-tech economy; however, missing are key fundamentals necessary for the state to compete on a national level, finds a report on Arizona's tech economy. Benchmarking Arizona against states such as Colorado, Utah, New Mexico and Oregon, the report finds that Arizona has the resources to pursue more aggressive tech-based economic development, yet the state needs a deeper pool of skilled and educated workers, sufficient access to capital to fund research, and state-level leadership that is informed and committed to implementing long-range development strategies. One of the key recommendations calls on the state and its institutions of higher education to focus on significantly increasing the number of locally educated and trained engineers and scientists.

The Ohio Business Roundtable's independent assessment of the outcomes and impacts from the first $473 million invested from Ohio's Third Frontier (OTF) Program since its creation in 2003 shows the program providing an annualized return of 22 percent - and climbing. Presented to the Ohio Department of Development Dec. 8, the report reveals product sales of OTF-funded projects already equal $440 million alone, nearly matching the state's investment. An additional $3.2 billion of follow-on funding has been secured for OTF projects as well. The rapid rate of return on the program's initial investments - even with the recession - suggest tax receipts from derived activities will surpass the state's investments as early as 2014. A renewal of the bonds supporting the program is likely to go before Ohio voters in May. Read the full presentation....