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

By Leslie Boney and Chase Matson

In Paper 13, we looked at some of the policies states are trying out to help foster and grow more innovative companies. We divided those efforts into four big buckets: 1) efforts to prime the pump for small, innovative companies by offering technical assistance in preparing grant applications, providing grants, or improving access to debt or equity capital; 2) attempts to create more productive places, spots where a critical mass of entities – usually universities, technical assistance groups and private sector clients – can share space, resources or ideas to spur more invention and entrepreneurship; 3) state-level efforts to set purposeful priorities, focusing innovation efforts on a discrete set of sectors identified as key to the state’s future economic development, and sometimes building off of university research strength; and 4) efforts by some states to create strong long-term agencies or entities charged with developing pervasive policies, comprehensive innovation strategies.

So if our state is to learn from these efforts, WWNCD? Which of these approaches could work here, how do they connect up with what we are already doing, and how might we create a “best of best” state innovation policy, a policy that would help North Carolina become the place we talked about in Paper 01?:

the place where, more than any other geography in the world, innovation – the ability to translate new ideas and technologies into new systems, products and services — oozes out of our students and young workers, out of leaders and middle managers and line workers, and oozes in to young companies and old companies and state agencies and nonprofits and schools, creating new ways of doing business, new products, new companies, new jobs and a new sense of hope and optimism that our future will be even better than our past.

Priming the Pump—Get the Big Picture

The efforts of other states confirm what we already knew. To grow more innovative companies that create more and better jobs, North Carolina will have to address some of our capital gaps.

The announcement by NC Treasurer Janet Cowell that she would seek to make $250 million in state pension funds available for investment in (primarily) high-return NC companies creates a huge potential pool for fast-growing, good-investment-risk companies here. It would be a step toward solving one of several sometimes-identified “valleys of death” for NC companies, strengthening the state’s existing array of equity capital sources.

But if we want to truly address the big picture of making-capital-available-to-fuel-innovation in North Carolina, we need to look at finance strategies much earlier in the innovation picture too. Someone should comprehensively assess assets and gaps in our overall capital picture, and thoughtfully recommend tools to plug the gaps. For example:

• Our NC Board of Science and Technology (disclosure: Leslie is on the board) has a very successful  (but small) matching program for Phase I Small Business Innovation Research (SBIR) grants, but lacks funding to support companies at Phase II or the so-called “Phase III” (while Georgia does supply funding). How important is it for us to fill that gap, and how much money would it take to meet that need?
• Where are the holes in getting technology invented at universities out of the lab and into production? Does there need to be a patent fund or a tech commercialization fund as Oregon has, to help develop innovation coming out of university labs?
• What’s the right level for the state’s One NC Small Business Fund? Its Green Business Fund?
• SBTDC (disclosure: SBTDC is part of the UNC system, where we both work) is setting up a robust statewide “angel” investor network – how important are angels in our state’s larger capital scheme, and is organizing them a public or private function?
• What about good old lending? How are our state’s banks doing in meeting those needs and how could they be encouraged to do more to get them lending to small businesses again?

Right now our approach to priming the NC capital pump is eclectic, not strategic. We need a strategy, and it would be easier to concoct one if we had a comprehensive analysis of assets and gaps in the system. The creators of this strategy should take a look at New Jersey’s Edison Innovation Fund, the most comprehensive model we’ve seen in addressing capital needs, not because what we develop will or should look exactly like that, but because it shows us the value of a broader approach.

Productive Places—What Elements Do “Innovation Places” Have?

Most of the “innovation places” we looked at in other states focused on getting the right partners to the table – universities, support agencies, private firms, investors —  and created incentives for the partners to come together, whether by creating affordable spaces, building labs, or providing tax credits or state appropriations if organizations worked together in certain geographical areas.

North Carolina has spaces like these too, and is taking some steps to create more places like the Research Triangle Park, NC State’s Centennial Campus in Raleigh, the Gateway University Research Park in Greensboro, the Piedmont Triad Research Park in Winston-Salem, the University Research Park at UNCC in Charlotte, the North Carolina Research Campus in Kannapolis and others have most of the partners in place. Other smaller private and public incubators  bring together some of the support services young companies need as well.

What NC hasn’t thought through as much as some other states is whether we have the right number of these spots in the right places in our state, and whether there should be additional incentives to get the right people and organizations to play together in these places.  For example, North Carolina has a 20% R&D tax credit for private companies investing in university research; if that credit were higher, would more private companies and universities work more closely together in more places? If you set up a company in a designated “innovation” place, do you get extra services? Are you eligible for some sort of additional grants? Do you get extra special results?

There are at least three other kinds of “innovation places” we might consider as we look at how we might create more areas ripe for innovation:

• In Paper 05, we suggested NC look at “Free Innovation Zones.” These might be municipal or county units that have taken a series of intentional steps to remove barriers to innovation or shorten the time it takes to set up a company, launch a new product or get a new permit. Pull that off and you could brand your place as a certified “Free Innovation Zone,” a logical extension of the ideas in the other state “innovation zones” highlighted in Paper 13.
• Education on all levels could build out fledgling efforts to move away from a rote-learning-based system and toward a problem-solving-based learning strategy, yielding more students with the ability and inclination to see problems in different ways.
• Industrial parks, research parks and universities need to look for ways to create spaces where people from different companies could run into each other, whether through shared eating spaces, inviting shared work, play, dining or drinking places.  Innovation doesn’t just happen with your lab partner and it doesn’t just happen 8-5.

One common feature of all these ideas is that government policy is being used to create or encourage the conditions where innovation has an opportunity to happen; government is not defining or predicting what the innovation will be. Build it (virtually and physically) and innovators will come IF you do it thoughtfully, with input from others.

Purposeful Priorities – “If You’re About Everything, You’re About Nothing”

Other states have benefited from making some “big bets” to bring together economic development priorities and research strengths to drive innovation – the efforts in Massachusetts, Washington and Oregon are good examples, and the burgeoning multi-state effort of the Chesapeake Crescent Initiative (bringing together Virginia, DC and Maryland) reminds us innovation couldn’t care less about borders.

North Carolina is almost there.

The state is establishing some clear economic development priorities. On a state level, economic developers are not saying no to anyone who can create jobs in this economy, but they are putting special emphasis on a few areas, including biotechnology, green business broadly, aerospace, defense, and financial services.

Regional economic development organizations are emphasizing some of these areas as well, plus some distinctive regional priorities that build off historic and emerging regional strengths (e.g. natural products in the west, logistics in the Triad, serious gaming in the Triangle, marine science in the southeast).

Universities are beginning to focus their research strengths more narrowly as well: For example, among private campuses, Duke is making a major push in life sciences, while Wake Forest looks to regenerative medicine. UNC system campuses are in the midst of a major exercise to name a few areas where they want to have world class capacity. Two years ago they began an effort to focus research in areas that the state was emphasizing (funding for this was discontinued in the past legislative session).

What we can’t afford to do anymore is to have NO priorities. As UNC President Erskine Bowles reminds us: “If you’re about everything, you’re about nothing.” We need to figure out what we are REALLY “about” and what it will take to get REALLY good at it, so good that people from all over the world will look to us to create the next big thing (and the thing after that and the thing after that…) in that space.

The logical next step in this effort is to look for key areas where economic development activity and research strengths can be brought together to create a pathway for innovation to move seamlessly along at all levels, from raw ideas to prototypes to startups to revenue generating companies to big employers. We’ve built most of that continuum in NC with biotech. What area is next and what will it take to get there?

Pervasive Policies—Innovation is Gene Splicing, Not Cilantro

A state seeking to distinguish itself by its ability to innovate and its commitment to relentless innovation can’t treat it as an activity for a small group of people over a short period of time. In other words, it can’t be a spice you throw on the dish of state priorities at the last minute like cilantro on a salad.

Instead, if innovation is to be effective, it has to be something we weave into our state’s DNA, a fundamental part of how we see ourselves and what we are.

Put another way, the new North Carolina Innovation Council is necessary (to name the key issues, begin making progress and get innovation started) but not sufficient (to ensure that innovation is a core commitment).

The jury is still out on whether an ongoing external innovation council such as the one Oregon has will work and can be sustained over the long-term. But the idea of a strong council with staff who wake up every day knowing they need to be thinking about moving innovation forward seems promising. And so does the Maine Innovation Index, which tracks the progress the state is making in becoming more innovative.

But these are tools, means to an end. Splicing the innovation gene into our core makeup will be a responsibility all of us need to share. It’s almost 2010: let the gene splicing begin!

So what are the highest leverage ways to make this shift toward an innovation orientation? Will it take a permanent council and officially designated innovation zealots? Where do you think the capital gaps really are in our state? If we were to build innovation hotspots in NC, what would they look like and which policies would help them flourish? How can we meaningfully bring together innovative research capacity with economic development? In which areas? Send us your thoughts, comments, corrections, analysis as a comment below, or Email or twitter us.

Tags: biotech, capital, Centennial Campus, Chesapeake Crescent Initiative, Duke University, Edison Innovation Fund, Erskine Bowles, free innovation zones, green business, Innovation Council, logistics, Maine Innovation Index, marine science, Massachusetts, natural products, NC Board of Science and Technology, NC Green Business Fund, NC State University, North Carolina Research Campus, One NC Small Business Fund, Oregon, Piedmont Triad Research Park, R&D tax credit, Research Triangle Park, SBIR, SBTDC, serious gaming, Treasurer Janet Cowell, UNC Charlotte, UNC System, University Research Park, Wake Forest University