Commentary: How NOT to Make America Great Again

Dan Berglund, president of the State Science & Technology Institute, offers this analysis of the budget proposal offered by the Trump administration:

The Trump Administration’s skinny budget proposal calls itself, “A Budget Blueprint to Make America Great Again.” From the information contained in the document, it is clear the Administration does not view science, technology, innovation and entrepreneurship and the economic development efforts built around those activities as the path forward to making “America great again.” The program eliminations and drastic cuts are not the way to move the country forward economically. So what is behind this proposal? Two things: 1) a fight over the proper role of the federal government in the economy, and 2) a negotiating tactic to attempt to lull advocates into thinking program survival or lesser cuts are a victory. A full community response is needed and all of us must get off the sidelines and on to the playing field.

The budget blueprint proposes drastic cuts for research at NIH, DOE’s Office of Science, NOAA and EPA and would eliminate a score of federal programs that serve as the cornerstone of federal activity in supporting an innovation economy, including the Economic Development Administration, the Manufacturing Extension Partnership, ARPA- E, the Appalachian Regional Commission, SBA’s Regional Innovation Clusters program and CDFI Fund, among others. (The National Science Foundation is not mentioned in the proposal, so details on how much the Administration will propose it be cut will not be available until the full budget is released in April or May. Similarly, the Regional Innovation Strategies program is not mentioned specifically in the budget proposal.) All of these proposals are against the aims of SSTI’s policy platform for federal support of innovation economies.

Motivations behind the budget proposal
There appear to be two primary motivations behind the budget proposal: 1) a fight once again over the role of the federal government in the economy, and 2) a negotiating tactic to attempt to lull advocates into thinking program survival or lesser cuts are a victory.
Throughout the 62-page document there are recycled ideological talking points to justify program elimination. Many comments contained in the document indicate a fundamental lack of understanding of the programs they propose to eliminate or the belief that the federal government has no role in economic development, including:

  • EDA has “limited measurable impacts and duplicates other Federal programs”
  • MEP centers would “transition solely to non-Federal revenue sources, as was originally intended when the program was established”
  • Some SBA programs including Regional Innovation Clusters are targeted because “the private sector provides effective mechanisms to foster local business development and investment”
  • ARPA-E should be eliminated because “the private sector is better positioned to finance disruptive energy research and development and to commercialize innovative technologies”

Never mind that numerous reports have been done about EDA’s economic impact, that Congress reauthorized the MEP program just last year with a funding structure that includes federal funding and without federal funding the remaining centers would drop their focus on small and medium-sized manufacturers, and that the private sector alone does not provide effective mechanisms to encourage economic development or disruptive energy R&D.

Beyond a clear ideological view that the federal government has no role in promoting economic growth — a position rejected since at least the early 1800s when the federal government funded canals and other key infrastructure items, it is hard to view this proposal as anything more than a negotiating tactic. As anyone who has bought a house or bargained for an item at a flea market knows, you start with a low ball offer knowing that you’ll settle higher and that both you and the seller will ultimately be happy with the final price.

But this budget is not a real estate negotiation and settling for reduced cuts and declaring victory should not be an option for any of us.

A concluding thought
There is broad popular support for an economic growth agenda focused on innovation, science, technology, and entrepreneurship. We regret the Administration’s initial proposal would send this country in a different direction. We look forward to doing our part and working with others to make our case to Congress.

Indiana Churning at a Moderate Pace

Although it includes the end of existing companies (and the creation of new firms), business churn is a good thing. The experts say churn is a strong indicator of innovation and growth. The State Science & Technology Institute offers churn rankings for 2004-2009, with Indiana in the middle of the pack.

See the rankings here.

Venturing Along the Capital Trail

That headline is a cute way of saying "who are the recipients of venture capital?" CB Insights, a New York-based services firm for the financial industry, tried to answer that question in a recent study. You can sign up for free to get the full report, but I found this analysis from the State Science & Technology Institute provided a good overview.

 A CB Insights’ report on the "human capital" of venture-backed Internet companies finds that vast majority of company founders are white. They also tend to be between 35 and 44 years old, male and have MBAs.

When venture capitalists are asked the most important factor in choosing a company for a deal, they often say that the founder or team weighs heaviest in their decisions. CB Insights drills down into this human element by providing data on the founders of Internet companies that received venture capital in the first half of 2010. The study includes data on race, age and experience, the number of founders per company, gender and the educational background/pedigree of the founders. It also provides specific data on deals in California, Massachusetts and New York.

Within the 165 deals tracked in the study, 87 percent of early stage, venture-backed Internet startup founders were white, with 83 percent of entire founding teams being all white. Only 77 percent of the general U.S. population is white. Asian founders represented 12 percent of founders, while making up 4 percent of the U.S. population. The percentage of Asian founders was larger in California, and their companies tended to receive larger investments. Black founders accounted for only 1 percent of company founders, while Native Americans and "other" represented less than one percent.

The founders in the study were overwhelmingly male. Across the country, 92 percent of founders were male and 86 percent of teams were all male. Massachusetts had the highest percentage of female founders with 27 percent. All-male and all-female teams received similar levels of funding, but mixed teams received substantially more.

Almost half of the founding teams had average ages between 35 and 44. Teams in the 26-34 age range, however, tended to receive more capital. Massachusetts favored somewhat older teams, New York favored younger teams, and California teams fell in the middle. Nationally, 51 percent of founders hold a Master’s or PhD, but two-thirds of all teams had at least one person with an advanced degree. In New York, founders with only an undergraduate degree actually tended to raise more capital. Cornell, Stanford and Harvard produced the most founders with undergraduate degrees. Harvard, Stanford and MIT’s graduate programs generated the most founders with advanced degrees. About 37 percent of companies had one founder, 40 percent had two, 19 percent had three, and 4 percent had four partners.

While providing an interesting snapshot of the founders who received funding in the first half of 2010, there are limits on the conclusions that can be drawn from the CB Insights report. It focuses exclusively on venture-backed Internet companies, and, since it is the first in a series of reports, no trend data is yet available. Also, without data on who is seeking for venture funding, the report does not reveal much about the preferences of venture firms. It is clear, however, that the population of venture-backed founders included in the study does not reflect the diversity of the U.S. population.

Patent Problem: Numbers Take a Big Drop

We’ve pondered in the past, both in this space and in BizVoice magazine, about what economic indicators people pay the most attention to. The same argument can apply to the innovation economy — which numbers and statistics are most important?

Tough call. One measure taking a rather significant drop through the middle portion of this decade is the number of patents produced per employee in each state. Two alphabetical groups provide the data: USPTO (U.S. Patent and Trademark Office) compiles the numbers and SSTI (State Science & Technology Institute) puts them in comparative form.

The results:

  • A total patent drop of over 10% between 2003 and 2007, with 43 states experiencing declines
  • Indiana’s performance over that period was even lower, a 19.9% decline, ranking it 35th over the five years. Overall, Indiana remained 25th in 2007, its same relative ranking as 2003
  • At the low end of patents per employees are Alaska, the District of Columbia, Hawaii, Arkansas and Louisiana
  • Idaho led the nation with 210 patents per 100,000 employees. Other in the top five (with a strong Western flavor) were Vermont, California, Washington and Oregon

An SSTI chart details the numbers.

SSTI: Save SBIR Now

The State Science & Technology Institute (SSTI) is a leading provider of tech-related news and information. Its most recent issue offers a straight-to-the-point editorial about a lack of action in Congress that could prove devastating to small businesses across the country.

Inconceivable? Unconscionable? Inexcusable? Which word best conveys what is happening to the Small Business Innovation Research (SBIR) Program? Perhaps all of them. The SBIR program will expire March 20 unless Congress acts before that date.

No SBIR-related legislation has been considered by either chamber of Congress since the current session began in early January, and without action by Congress by March 20, the program expires. SBIR could be attached to some other bill before the deadline, but there is no indication at this point that that is going to occur.

It is inconceivable that one of the most successful federal programs to support the commercialization of innovation will be allowed to expire at the same time the country is desperately seeking investments to prepare the nation for the next economy. As SSTI has reported, significant portions of the Recovery Act are focused on investing in the future. Green technologies. Alternative energy. Information and communication technologies. Smart tech. SBIR should play an important role in that – just as it has supported the early development of a number of important technologies and tens of thousands of companies for the past 25 years.

It is unconscionable and inexcusable to think that a federal program would be allowed to expire that has proven to be effective. In addition to the hundreds of anecdotal success stories and profit statements from small businesses, a multimillion dollar independent assessment conducted by the National Academies of Science found SBIR to be effective.

The battle over inclusion of venture-backed biotech firms in SBIR derailed passage of an SBIR reauthorization bill last year. Both proponents and opponents were unwilling to compromise, and it seems both sides will lose now.

SBIR has proven to be a valuable screening tool for venture capitalists across many disciplines, including biotech. Compared to other small businesses, most SBIR winners are worthy of a closer look when prospecting for firms to add to an equity portfolio. Is VC eligibility going to prove to be the deal-breaker for SBIR’s continued existence?

SBIR, through its competitive application process and market-driven need for the resulting innovations to be commercialized, costs less than $3 billion a year and supports thousands of small businesses across the country and several thousands more high-wage jobs for some of the nation’s smartest entrepreneurs.

This one seems pretty simple. SBIR reauthorization should be part of the economy’s solution.