Change Papers: A shared effort to change North Carolina's climate for innovation.

By Leslie Boney and Chase Matson

In Paper 03, we talked about the “sweet tea” seductiveness of “innovationalism.”  In Paper 07, we talked about the importance of North Carolina government remaking itself with Red Bull-fueled fervor.  Now it’s time for a “V-8 moment.” No, not the Mopar Hemi Magnum V-8 that comes standard on the Dodge Ram 1500:  the vegetable juice.  And not just because it tastes better than prune juice.

This is about the “V-8 moment” we are currently in the middle of on innovation. It sure seems like a bunch of us, simultaneously, are smacking our foreheads with the base of our palms and saying, “ohmygosh — we gotta get innovative!”

So, bad news first: we in North Carolina are not alone.

Now the good news: we in North Carolina are not alone. Some other states are smacking their foreheads too (and other nations, as well, as noted in Paper 02 and here), and the sorts of things they are trying as they recover from their head slaps can give us some good ideas about what works and what doesn’t.

First, an observation: California, the state most renowned for its innovation capacity and the one attracting more than ½ of the nation’s total venture capital investment (50.4% of the national total last year — NC checks in at 1.92%), isn’t especially aggressive with state policy support for innovation.  No place currently has the established innovation culture of Silicon Valley — cutting edge universities, companies with a history of innovation, individuals with enough money to afford to fail, consumers ready to try out new stuff, savvy venture capital firms — so maybe the state thinks it doesn’t need to do much. But in some ways, California almost seems to be putting up barriers to homegrown innovation: it costs more to live and use energy in both places, and state policy makers have put up some barriers to siting, permitting and regulating new projects.

That doesn’t mean innovation will go away in California; it does mean there are opportunities for other states to catch up — if they can take care of capital challenges, create places where innovation can happen, focus their priorities, develop intentional state strategies and build a culture of innovation.

Some of the other states struggling to catch up are trying all of these things. In this paper, we’ll take a look at four big “buckets” that those other state’s ideas seem to fall into; in the next post we’ll look at which ones NC might consider and how we might organize those strategies.

Primed Pumps

Many of the statewide efforts focus on finding new financial vehicles or tax treatments to do one of two things, 1) either convince people to translate an idea into a company (or invest in such a company) by making it more worthwhile, or 2) offering specific help to get ideas through one of the various “valleys of death.”  These important transition points could be the step from a good idea to a viable prototype, from a prototype to product production, or even product to profitability.

Rhode Island’s “Innovation Tax Credit” offers up investors in small companies a 50% tax credit (up to $100,000) for investments in “high wage, high growth companies.” Pennsylvania’s Keystone Innovation Zone program gives $25,000 planning grants, $250,000 startup grants and distributes a pool of $25 million tax credits to companies that meet eligibility requirements. Oregon’s “Venture Development Fund” targets proof-of-concept funding for companies seeking to transfer university technology. Virginia’s Center for Innovative Technology is tech-focused, but provides a variety of financing tools for innovative Virginia companies. Georgia’s Venture Lab reaches out to Small Business Innovation Research (SBIR) grant recipients with grants for both Phase I (feasibility) and Phase II (prototyping) and up to $250,000 in low-interest loans for Phase III (commercialization).

New Jersey, through its Edison Innovation Fund, has a rich array of capital and tax credit offerings. They will invest up to $200,000 for “innovation commercialization” of companies that have not yet completed “proof-of-concept” research,  provide technical assistance to companies applying for SBIR grants; and, up to $1 million is available for growing companies in the post-proof-of-concept phase. Other options include a statewide “loan pool” for qualified businesses with awards up to $5 million, and a Technology Business Tax Certificate Transfer program that enables unprofitable life-sciences or tech companies to sell new operating losses and R&D credits to profitable companies for up 75% of their value. Downside: you gotta live in New Jersey.

Productive Places

New Jersey and Pennsylvania have both created “innovation zones” that in many ways sound like Change Papers’ proposed “free innovation zones” — places where there is a critical presence of people and stuff and a critical absence of administrative barriers to innovation.

Pennsylvania’s Keystone Innovation Zones and Michigan’s “SmartZones” are built in communities with institutions of higher education, and bring together campuses, businesses, business support organizations, venture firms and foundations with the idea of improving commercialization of university-created technology. In addition to grants and tax credits, companies get access to incubator space; while, universities get the chance to provide strong internships for their students, deepen relationships with local companies and help improve their local economy.

New Jersey’s Edison Innovation Zones bring together many of the same partners, but are each built around “commercialization centers.” Companies that spin out of universities or other labs and spin into these Zones get high quality office/lab space and qualify for various grants, loans, and tax credits. But you’ve still gotta live in New Jersey.

Purposeful Priorities

Some states are focusing their innovation efforts: at times on particular industries to reflect state economic development priorities, or at other times on particular areas to reflect university research strengths.

For example, in Texas, seven regional Centers of Innovation and Collaboration try to identify promising emerging technology companies for investment by way of the statewide Texas Emerging Technology Fund, with a preference toward the six sectors identified as priority industry clusters (advanced technology and manufacturing, aerospace and defense, biotechnology and life sciences, information and computer technology, petroleum refining and energy).

The states of Washington, Massachusetts and Oregon go one step further:  intentionally linking research investments with economic development priorities.

The state of Washington attempts to synch up its funding to connect the 12 “areas of research preeminence” at the University of Washington and Washington State (biotech, genomics, sensors, chromosome biology, etc.) with key economic development areas (life sciences, etc.).  Massachusetts is taking a similar approach, with the John Adams Innovation Institute and others championing state level efforts that bring together areas of research strength with economic priorities (life science, wireless technologies, oceanographic research).

Oregon sets aside funding for both economic development priorities and research strengths, with funding geared toward encouraging innovation in five “industry initiatives” (e.g. food processing and seafood), and three “Signature Research Centers” (e.g. nanoscience, microtechnologies, biotech and drug development).

Pervasive Policies

Perhaps the most interesting observation from the preliminary review of states is not that any single idea is brilliant, but that many states are starting to develop intentional, comprehensive innovation strategies.

Oregon’s “Innovation Council” may be too big — its gaggle of more than 50 senior business execs, university leaders, venture capitalists and legislators must be an administrative and logistical nightmare to manage. But its continuity — started in 2005 — its varied constituencies, and its permission from the Governor and legislature to act, all enable it to see innovation as a whole and “connect the dots” between university research and economic development priorities, including various finance and capital strategies.

Rhode Island’s “Research Alliance,” sort of a board of science and technology on steroids, established a statewide university-based “Center for Innovation and Entrepreneurship,” that manages the Innovation Tax Credit program, invests in collaborative research, convenes people annually for a statewide symposium on research trends, and serves as the acknowledged organizer of innovation thinking in the state.

Maine’s “Office of Innovation,” around since 2004, manages the not-quite-as-unwieldy-as-Oregon 30-member Maine Innovation Economy Advisory Board, which serves as the “R&D planning arm for the state.” The Office of Innovation is responsible for working with the state, higher ed and industry to coordinate allocation of federal agency research dollars, for overseeing R&D bond funds and for releasing a (really-well-done!) annual Innovation Index to measure Maine’s innovation progress.

What’s missing? Culture, the element Mark Rostick highlighted in earlier comments.  The overwhelming focus of all of the above efforts is technology-driven, place-based, Field of Dreams: build it/fund it/focus it and they will come. This approach will surely enable states to capture a greater percentage of the innovation that is already happening, and we need to explore every good idea in it, but it won’t raise up a new generation of innovators, and it’s hard to see how it will let the current generation of people with new ways of thinking, new systems, new products know they have permission, or an obligation, to innovate now, and that if they don’t, their state slowly sinks to mediocrity.

In our next post we’ll float some thoughts on which of the ideas other states are experimenting with might work in North Carolina, how we might adapt them, and how we might bring culture change into the mix as well.

Which of the ideas from other states get you most excited? Which ones could work in NC? Send us your thoughts, comments, corrections, analysis as a comment below, or Email or twitter us.

Tags: California, Georgia, innovation culture, Michigan, New Jersey, Pennsylvania, Rhode Island, Silicon Valley, Texas, V-8 moment, valleys of death, venture capital