State Programs to Promote the Growth of Innovative Firms in the United States – A Taxonomy

Abstract

This article provides an overview of state programs designed to promote innovation– especially to those targeted at growing innovative firms throughout the United States. It argues that governments can best promote business growth by improving the working of the output and resource markets so that entrepreneurs can exploit the market opportunities and that by investing in the resource markets to increase the supply of resources, innovative entrepreneurs can successfully develop new products at low costs.

Opinions expressed here are those of the author, not of the U.S. Small Business Administration. Editorial assistance from his colleagues in the Office of Advocacy is most appreciated. However, all errors found in the presentation are mine.

Appendices

Appendix 1

Case studies of state programs to promote innovation and the growth innovative firms in the United States.

Example: Higher Education Compact for STEM Graduates (CA)

• A public-private compact of stakeholders of private sector, postsecondary education institutions, and government and community leaders;

• Goals/targets – to double the number of credentialed math and science teachers (750 to 1,500), etc.;

• The process –

  • Identify the business needs – the specific needs in the economy for postsecondary graduates;

  • Periodic policy audits to understand how state rules and regulations effect postsecondary performance;

  • Agree on the mission, priorities, and key outputs of the overall postsecondary system, including production of STEM teachers and critical occupations, and acceleration of innovation;

  • Share the responsibility for the success – outlining state government commitment to provide clear direction to postsecondary education; align and stabilize budgets and adequately fund compact efforts over the long term; and reduce the bureaucratic and regulatory burden to allow postsecondary education to be more flexible;

  • Establish mutual accountability systems to enforce the compact that includes tools such as: transparency; reward-linked funding, and deregulation; and sanctions for noncompliance;

  • Underpin accountability system with robust longitudinal data systems with performance tied to the above enforcement tools.

Source: National Innovation Initiatives’ “National Innovative Agenda” for Federal and state programs.

Example: “Creating an education system for an entrepreneurial economy in Kentucky”

New objectives of the system:

• Changing culture:

  • From one that develops employment skills to one that develops necessary skills to build new businesses,

• Creating entrepreneurship atmosphere;

  • Throughout education system for k-12 through post-secondary institutions, and

• Developing students’ knowledge/skills:

  • deploy technology resources in high-growth businesses.

Investment to promote innovation by State governments – a sample of cases

Michigan – Michigan’s 21st Century Jobs Fund, (funded in 2006 with $400 million; $75 million per year) Situated within Michigan’s Economic Development Corp., the Fund has an applied research focus in five areas – life sciences; alternative energy; advanced automotive; manufacturing and materials; and homeland security and defense.

Minnesota – In 2003 – the Initiative on Renewable Energy and the Environment at the University of Minnesota. The goal – by 2025, that the state should get 25 percent of its power from renewable sources. The initiative invested nearly $19 million in more than 110 research and demonstration projects; leveraged some $12 million in matching funds, including some from business and industry; and collaborated on research with upwards of 40 business and industry partners.

Georgia – Putting all the pieces together includes building expertise in appropriate technologies and orchestrating collaboration among key partners. The Georgia Research Alliance (GRA) provides funding to recruit “eminent scholars” to Georgia universities. To date, 54 scholars have been recruited. The GRA also funds “Venture Lab” fellows – experienced entrepreneurs who work with faculty members and others to evaluate research and build companies that meet a demonstrated commercial need.

Ohio – The state in 2003 launched its 10-year, $1.6 billion “Third Frontier” initiative establishing the Wright Centers of Innovation in biosciences and engineering. Run through the Third Frontier Commission, the state has also spent more than $50 million to develop a fuel-cell industry and more than $100 million for the Biomedical Research and Commercialization program, and awarded $60 million to create a Global Cardiovascular Innovation Center at the world-renowned Cleveland Clinic Foundation.

Maryland – The Maryland Industrial Partnerships (MIPS) Program is a project of the Maryland Technology Enterprise Institute to jointly fund technology-based research and development between Maryland industries and University of Maryland researchers. Since 1987, the state has contributed $27.8 million and industry $115.6 million.

Source: NGA Center for Best Practices, “Innovation America: A Final Report –

Enhancing Competitiveness: A Review of Recent State Economic Development Initiatives” National Governors Association (NGA)

Example: establishment of State Development Board/Corporation

Mission: to develop programs to promote innovation, entrepreneurship, and economic development in the states

Program components an investment fund; funding authority to increase R&D capacity in the state and to establish/support incubators, etc.

Investment fund(s)

Investment through venture and/or seed venture funds for innovative startups in the state

Incubators/innovation centers at state’s research universities

Example: The Biotechnology Investment Incentive Tax Credit (Maryland)

Goals: to help fund seed and early-stage biotech and bioscience companies by providing an incentive for investors- a refundable tax credit equal to one-half of initial investment.

Qualified company: biotechnology company based in Maryland with fewer than 50 full-time employees, in business no longer than 10 years, and certified by the Department of Business and Economic Development (DBED).

Qualified investor: an investor who invests at least $25,000 or a corporation that invests at least $250,000 in a qualified company."

The credit available to investors: 50 percent of an eligible investment made during the taxable year. There is a cap ($50,000 for individual investors or $250,000 for corporations and venture capital firms.) The amount of credits granted during the tax year also cannot exceed the amount funded.

Investment period: hold on to the investment for at least two years after getting the credit approved.

Other Examples:

• 2008 Kansas Angel Investor Tax Credit Program

• Ohio TechAngel Fund LLC – Fund I and Fund-II,

Example: ATDC: Helping Georgia Entrepreneurs Build Great Technology Companies

Advanced Technology Development Center: a tech incubator based at Georgia Technology University

• Missions: Stimulate economic growth through technology sector

• Services offered: Strategic business advices, networks of people and resources, entrepreneurial learning community, and turnkey facilities and services

• Programs include: Entrepreneur Resource Center, Venture@Lab, ATDC Seed Capital Fund, and Innovation Centers;

• Technology emphasis – Internet technology, telecommunications, and bioscience;

Source: Office of Advocacy, “Putting It Together: the role of entrepreneurship in economic Development”, conference Proceedings, March 2005.

Example: Maryland’s TEDCO (Technology Development Corporation): An evaluation

• Objective: business incubation to encourage, promote, stimulate, and support research and development (R&D) activity through the use of different investments leading to commercialization of new products and services by small businesses.

• 18 centers in existence; 4 new proposed centers

• Most helpful in providing inexpensive work space – office and lab space;

• Other helps from the centers–

• Reason for the success: Industry clusters – Academic R&D; over $2.4 billion; over 40 research centers (some nationally known Federal labs and major universities; over 5000 high-tech establishment employing almost 200,000

• Need for business accelerators to help the graduates to grow

Source: RTA International

Appendix 2

Sample tables on State programs summary to promote Bioscience in the United States– Tables 2.1, 2.2, 2.3, and 2.4 reprinted from: Battelle Technology Partnership Practice, “Technology, Talent and Capital: State Bioscience Initiatives 2008”

Table 2.1 Pre-commercialization/proof of concept funding in FY 2007 and FY 2008

Table 2.2 State-supported pre-seed Fund

Table 2.3 State seed capital tax credits

Table 2.4 State investments to increase the availability of locally managed, later-stage venture capital, 2006–2008