Grants for VC-Funded Small Businesses?

A Battle Over Venture Capital for Small Businesses
NY Times, Oct. 25, First Business Page
Link

Representative Jason Altmire, a Pennsylvania Democrat, says he was just trying to help the small technology companies blossoming in his district, just north of Pittsburgh.

So when two of his constituents argued that small businesses should be able to qualify for federal research grants without being penalized for accepting venture capital money, he agreed to introduce legislation that would help them.

His bill, the Small Business Expansion Act of 2007, sailed through the Small Business Committee and then the full House of Representatives on a 325-to-73 vote last month. But the House adopted an important change as the measure came up for a vote — it specified that a small business could not give up an ownership stake of “50 percent or more” to a venture capital firm.

The amendment was meant to satisfy critics, among them officials of the Small Business Administration who argued that allowing venture capitalists to pour unlimited amounts of money into these fledgling businesses would fundamentally alter the concept of a small — and independent — business.

But as the legislation awaits Senate action, opponents argue that the amendment did not resolve their concerns. The S.B.A., they say, has long had discretion in determining whether venture capital’s support of a small business represents an investment or whether it crosses the line into control of the company. The legislation, they say, takes away that discretion by spelling out a particular percentage.

In addition, the critics say they fear that the bill will clear the way for venture capital firms to use their investment to take a controlling stake, giving them the potential to masquerade as small firms and tap into billions of dollars in federal research grants and contracts.

Is it possible to discuss this question intelligently without falling back on folklore, mythology, and stereotypes about small businesses -- or venture capitalists? I doubt it, but -- the merits of the legislation aside -- it's a good thing that Rep. Altmire appears to be trying.

Cutting Off Pittsburgh's Nose

Is there any other small city in the country that still suffers from as much city dweller resentment of its suburbs as Pittsburgh does?

Almost every day, it seems, there is a letter to the editor of the Post-Gazette that complains about the illegitimacy of suburban interest in the election for Mayor of the City of Pittsburgh. Today's installment, from Guy DeFazio of Greenfield, is relatively tame:

As current residents of the city of Pittsburgh, my wife and I take exception to Craig Conley's Oct. 11 letter ("City Voters, Change Your Ways on Election Day"). He claims that city residents have no common sense when it comes to our "woes" and the upcoming mayoral election. We'd like to know why this is of any concern to him, as a suburbanite. He apparently chose to leave the city to move to the suburbs. Maybe he should have stayed and fought for change.

It seems that the people who are most critical and judgmental of the city and its residents are those who no longer live here, or those who never did. Mr. Conley no longer lives here; he should not sink to insulting those of us who do.

I don't wish to insult City residents, plenty of whom are as disgusted by the antics and immaturity of the current Mayor as are my fellow suburbanites. It's the persistent us-vs.-them attitude that intrigues me.

There are some American cities that have every good reason to look down on their suburban neighbors. New York. Chicago. (OK, maybe there are two American cities that can do that.) There are other American cities that look down on their suburban neighbors because their egos would have it no other way, and they get away with it sometimes because they've got genuine urban charm that goes back centuries. Boston ("the Hub") comes to mind, and perhaps Philadelphia.

That brings me to Pittsburgh. I'm hard pressed to think of any other American city today where the city/suburb conflict is so stark, or where the persistent anxiety about the suburbs is so unjustified. Certainly, in the first half of the 20th century, the City of Pittsburgh was rich and powerful and important. In the latter half of the 20th century, increasingly the City was not, and increasingly the suburbs are wealthy, if not necessarily always important, or powerful. Historical hangovers take a long time to improve, if they ever do.

This plays out both materially (money and jobs) and conceptually (the energy and vision that drives the region). I'll leave the material details to Chris, who always does a better job with that stuff than I ever could do. But I do get the point that suburbanites who work in the City but don't pay City taxes are responsible for some portion of the City's fiscal woes. They aren't the only ones who might be paying taxes; there are plenty of big, needy fish in town who could pony up much more.

The conceptual point, however, is that the anxiety is backward-looking rather than forward-looking. (Ah, so what's new about that in Pittsburgh?) Economically and culturally the City of Pittsburgh needs its suburbs just as much as the suburbs need the City. The future of Pittsburgh is not merely a City issue; it's a regional issue. This is why suburban-ites care about the next Mayor of Pittsburgh, whether or not they are former City residents. There are pockets of economic vitality and promise in both City and suburb - and beyond. Leaders and members of political, business, educational, cultural, and community institutions live all over the place. Like a lot of people in Western PA, I'd like to find ways to engage more of them in regional solutions. I'd like to encourage in-migration of all kinds of populations, to all kinds of different communities. How do we engage them? Attract them? With the man that Chad Hermann calls The Boy Who Would Be Mayor?

Up in Boston, Tom Menino has been Mayor for a long time. He's far from perfect, but he's a great ambassador for and advocate of both city and region. Boston isn't the Hub of anything except in the minds of people who believe, and Menino has the maturity and stature and presence to get them to believe. (Pace Tug McGraw.) Unless the City of Pittsburgh lets go of its suburban anxiety, it runs the risk of becoming something else -- a hole in the Western PA doughnut.

Vanity Plate of the Month

Spotted on a minivan on the Parkway East at lunchtime:

MUGL MVR

Thinking About DUQ

Like all good self-absorbed local progressives/liberals, I've been thinking this week about the WDUQ flap. Planned Parenthood wanted to sponsor "brought to you" ads on the air. Duquesne University, a Catholic institution and holder of the license that brings WDUQ to its listeners, would not allow the ads to run.

Now long-time DUQ supporters are up in arms about the station's lack of independence from the Catholic Church (see, for example, Mac Booker's comment here) and the mainstream media is clucking about the station's lack of editorial integrity (Post-Gazette editorial; New York Times coverage).

Is the university's decision a smart one? Consider a couple of possibilities. First: It's pretty far-fetched to imagine that anyone listening to the station would think (i) WDUQ is sponsored by Duquesne University, and (ii) WDUQ is also sponsored by Planned Parenthood, and therefore (iii) Duquesne endorses Planned Parenthood's mission. Second: If Duquesne is worried about its collective conscience quite apart from what DUQ listeners would think, the connection still strikes me as pretty tenuous. But I'm not Catholic and can't pretend to know the nuances of the mindset or belief structure. The bottom line is that Duquesne is likely entitled to make this call, and they made it.

But protest by suspending my occasional contributions? Stop listening? The critics are performing like Captain Renault in Casablanca. I'm shocked -- shocked! -- to discover that Duquesne is a Catholic university.

The trouble here is that the DUQ listening, underwriting, and contributing communities deal with some deep ambiguity in the fact that some of DUQ's programming comes from National Public Radio. The Catholic university connection seems to have completely disappeared from public consciousness. (If so, then Duquesne may have made the wrong move for a third reason: It shouldn't have dumped Planned Parenthood; instead, it should have dumped the station.) The Public is the source of the trouble. DUQ is not a "public" enterprise in the sense that it is owned or run by the state or federal government, but people tend to treat it (like many but not all "public" radio stations) more or less as if it is. NPR is allegedly the "people's radio" (having appropriated that status from Pacifica Radio). How can a mere licensee (Duquesne) meddle with what the people own?

But DUQ isn't "public" except in that very loose sense. DUQ is really a private enterprise that acquires programming from NPR and from other sources (American Public Media, for example) and that produces its own programming. Suppose the Pittsburgh Tribune-Review or the Post-Gazette (which produce their own content and acquire other content via various wire services) were approached by Planned Parenthood, which wanted to run a full-page display ad at market rates. And suppose that the Trib or the PG declined to take the money and run the ad, declaring that it didn't want its advertising pages used to advance PP's mission. If you like, remove PP from the hypothetical and substitute "the Catholic Church."

Wise move on the paper's part? Almost certainly not.

A reason not to buy that particular paper? Maybe, but only if the decision leads to legitimate suspicion about the paper's editorial integrity. Personally, knowing as much as I do about the news business, I'm pretty skeptical about the mythology of "editorial independence" in journalism.

Would that decision be a surprise? Depending on your history and biases, maybe yes, maybe no.

In DUQ's case, there is no evidence that the editorial integrity of the station has been compromised. Even if there were, the decision to reject the underwriting at the behest of the university is no real surprise.

If you want to fight for Planned Parenthood, give to Planned Parenthood and help the organization find ways to publicize its mission and help people. If you want to fight for "the public's radio," then I think that you should give money to DUQ (and other "public" radio stations). A financially weakened DUQ has even less leverage against the university than it has right now.

Rick/DUQ: How can you close me up? On what grounds?
Captain Renault/the outraged public: I'm shocked, shocked to find that gambling is going on in here!
[a croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.
[aloud]
Captain Renault: Everybody out at once!

We know which one of these two turns out to be the hero.

Too Sexy for My Blog

Actually, that title is there only to see if you're still paying attention. I've been traveling again and neglecting my blogs. I might have defended not posting by claiming that nothing interesting is going on, but that's not true. While I was out of town, an actual election for the Mayor's office almost broke out. Give it about another week, and Pittsburgh may yet see real democracy.

Evidence? Even Luke Ravenstahl's erstwhile buddies are having a crack at him. From a Letter to the P-G editor last Wednesday from one of his college classmates:

"Luke, I have news for you. The harshest criticism of you is not from the media, it's from your fellow young professionals who stay in the Pittsburgh area because it's home, or who came here because of the opportunities it presented. When you defend your missteps with "that's what 27-year-olds do, and I shouldn't be any different," we wince, grimace and gasp in disbelief. We could never make such a claim to our bosses and continue to have their respect.

No local figure is the public face of young professionals' initiative, creativity and ability more than you. Every gaffe you commit, and every time you defend yourself by mentioning your youth, you bring down the success and advancement of all young professionals in Pittsburgh. You're opening the door for other young professionals to run for office, to invest in startup businesses, open medical and law firms and achieve important positions in established firms and industries. We need your time in office to show that we are serious and can handle these immense tasks.

Please, Luke, don't screw it up for the rest of us.

JOHN P. FRIEDMANN
Uniontown"

Meanwhile, did you see this? The New York Times noticed Lawrenceville in its Sunday Travel section:

But in the past five years artists and other creative types have bought into the area's dirt-cheap storefronts and turn-of-the-last-century brick row houses, and opened galleries, boutiques and interior design shops along Butler Street. Today, it's a hub for an arts, fashion and interior design district called the 16:62 Design Zone that begins at the 16th Street Bridge in the adjacent Strip District and extends to the 62nd Street Bridge in Lawrenceville. Throw in some good restaurants and other ancillary amenities, and Butler Street is slowly becoming a go-to destination.

Tres cool.

Link

Encore in Mt. Lebanon

Back (in part) by popular demand: a renewed Blog-Lebo, commenting on the shenanigans that Pittsburghers refer to as Mt. Lebanon. A partial explanation here.

That partial explanation mentions changes coming. Among them: I will likely be a little more aggressive in moving the more interesting content to the bigger stage that Pittsblog offers. There's good, bad, and ugly in Lebo just like there is in every community in the region, and there's no reason why other communities can't learn from Lebo's wisdom -- or from its screwups.

City Managers in Pittsburgh

I rode into Pittsburgh yesterday on a plane from Minneapolis and sat next to a gentleman arriving for the Annual Conference of the International City/County Management Association (ICMA). The conference website is here, and the ICMA has a conference blog -- though it appears that you have to go through the conference website to get there.

If my seatmate is representative of the organization, and I hope that he is, this is a group of public sector employees who will give the City and the region a thorough but fair going over. I hope that the blog will turn out to be something more than tourist reactions. Honest feedback is welcome! If Pittsburgh can impress the IMCA, then we're doing something right.

Welcome to town. Have a great convention.

The Times on Ravenstahl

This morning's New York Times carries an update on Pittsburgh's young mayor. Writer Ian Urbina largely gives the Mayor a pass on his indiscretions. The Times relies on John McIntire to represent both the critical local media and the Pittsburgh blogosphere, though I also exchanged emails and phone messages with the Times, and I know that Duquesne law professor and Ravenstahl critic Joe Mistick, who writes for the Trib, was in touch with the paper as well.

Blogging as Community Theater

Some of the comments on this post about Mt. Lebanon are having their desired effect. The blog was suspended not merely because of the threat of a lawsuit; it was suspended largely because I did not and do not have the ability to make it the priority that it needs to be when the associated stress levels get that high. If the stress levels can be brought under control, thought will be given to reviving Blog-Lebo in some form. And as one friend said to me, "Was it over when the Germans bombed Pearl Harbor?" I'm trying to figure out how to make it fun. Cut the cake?

Since the events of last week, I've been thinking a lot about why I started blogging in Lebo, about what the blog "means" in Mt. Lebanon, and about various other issues raised by the episode. I've heard both Blog-Lebo and Pittsblog referred to as "journalism" in recent days. That characterization is quite wrong. This isn't journalism, and I'm not a journalist. If not that, then what? What do Blog-Lebo and Pittsblog represent? In no particular order:

Community blogs confound traditional notions of community privacy. Small communities and neighborhoods enjoy a presumptive privacy that comes from being geographically distinctive. Neighbors and friends can share gossip over the back fence or while walking the dog and have a lot of confidence that what gets said in those conversations won't get amplified and broadcast. Roads and parks and buildings isolate neighborhoods from one another. Outsiders are kept outside. Blogging about a community at times threatens that privacy, because it takes some of that neighborhood conversation and ignores physical boundaries, putting the news out there for all the world to read. Sometimes, even often, that's a good thing. I've learned that there are Mt. Lebanon ex-pats literally from coast to coast who follow local goings-on via Blog-Lebo. And bringing a bit of Internet sunshine to local politics, business, and culture can be a provocative but useful way to break up and expose in-group coziness, political fiefdoms, and sweetheart deals. Mt. Lebanon is no different than many small towns in this regard -- no better, and no worse. Sometimes, of course, bringing neighborhood news onto the Internet is risky; feelings get hurt. Reputations are threatened. People don't understand that the local privacy constructed by geography is rapidly eroding for reasons that have nothing whatsoever to do with a weblog, or even with the Internet. No neighborhood is an island. The transition from neighborhood isolation to neighborhood connection is inevitable, but it is also painful. From all sides of the blogosphere -- author, commenter, reader -- we feel our way to resolution of offense and misunderstanding, with little to go on but decency and common sense. And at times, those elude us.

Among the many tensions at work here is a tension that's expressed everywhere online but that exists even in the offline "world," between more or less "traditional" or top-down information management, and more or less "novel," emergent, bottom-up information management. If you're a semiotician, try out this phrase: Who controls the meaning of Mt. Lebanon? Or of Pittsburgh? Or of Southwest PA? Community blogging is an exercise in old-fashioned democracy, the original bottom-up technology. But it's also an exercise in citizens speaking out about what matters to them -- whether that's something as seemingly trivial as a walking path or as important as a mayoral election, and using that power to define themselves. Blog-Lebo isn't Mt. Lebanon; Pittsblog isn't Pittsburgh. No blog can represent a community that way. But by the same token, my community isn't defined by the images I see when the local government-sponsored magazine appears in my mailbox once a month, or even by what the Post-Gazette delivers to my driveway each morning.

There's also a tension between what appears to be the "real" community represented on the blog, and the simultaneous presence of a fictional community. One friend of mine referred to Blog-Lebo recently as a kind of "Oz," a land of wonder that embodies our hopes and aspirations for the town. I don't know about "Oz," but a community blog does become a kind of stage where the community enacts all kinds of performances. Some are comic, some serious, some dramatic, some tragic, some silly. Those of us who post under our own names are performing for an unseen audience, creating and sustaining characters that we largely but do not entirely control. If we perform well, we attract traffic and commentary and links from other blogs. Anonymous and pseudonymous commenters benefit from the ability to perform without repercussion -- a freedom that comes with serious risks, and when I reject comments, as I do from time to time, I'm stage-managing. "Get back in character"; that's what I'm trying to say; "help the play." Blog moderators face a peculiar challenge: feeding "lines" to community members at a pace and in a style that keeps the dialogue moving forward. Novelty and surprise are the things we prize. We try to disagree without being disagreeable; in the differences, new players find roles for themselves. Silence is bad; repetition is worse. Occasionally, I cut off comments when the conversation circles back on itself. No blog wants to become Groundhog Day.

I hear Sonny & Cher. Or is that Blutarsky shouting, "Let's do it"? Gotta go.

Juvenilia

How many Pittsburghers are wishing that Mayor Luke Ravenstahl would just grow up? Or go away?

I haven't surfed through the blogs for recent commentary on what we might call the American Pie incident (Luke and his pals drove a Chevy to the levee -- well, he drove a GMC to the country music concert). I know what it must say. Restated in polite terms, it goes something like this: In any ordinary business, a CEO who takes a company car for a joyride will face the wrath of the Board, and if he's unrepentant, the Board should give him the boot.

But the City of Pittsburgh isn't a business, and the voters of the City show little inclination to give him the boot.

Of course, they should. Focus not on the fact that the Mayor seems to be enjoying an extended adolescence. Focus on the fact that his antics in the role of Prom King embarrass the City of Pittsburgh in precisely the context where the office of the mayor may actually matter: Selling businesses on the idea that Pittsburgh is a place where local government is serious about helping them start and grow.

If Republican candidate Mark DeSantis has one thing to offer the voters, this is it: He's not just a grownup. He's not just experienced in public policy and private administration. He is the embodiment of credibility to an economic development constituency that wants to be sure that whatever the business risks, the government won't completely melt down.

Since I've said repeatedly here that this blog isn't about politics, I'll reemphasize that I like DeSantis not because he's a Republican (because I'm not), but because he actually seems to understand something about what the mayor's office can and should do, and what challenges Pittsburgh really faces, especially when it comes to the big economic picture. He's not alone; there are Democratic politicians out there doing very good things, too. Having rugged transportation to a Toby Keith show is not among them.

Back from Mt. Lebanon

Two years ago, I took Pittsblog content related to my Pittsburgh suburb, Mt. Lebanon, and opened a separate blog: Blog-Lebo. Today, I posted a slightly different version of this post at Blog-Lebo. I was asked to remove it from that space. I am reproducing it, edited and extended, below.

A recent post on Blog-Lebo opened a conversation about a walking path in my neighborhood. From the post and the comments, the location of the path became clear, along with the identities of the neighbors whose landscaping project threatened to cut off access to it.

A lively comment thread ensued. Among the facts that emerged on that thread were that the deed to the property in question does not refer to that walking path, but that prior deeds to that same parcel do refer to some sort of easement or interest. (I've seen the deeds myself; you could, too, if you searched the Allegheny County Recorder's website.) I do not know why the more recent deed omits reference to an earlier recorded interest. There are a variety of possible explanations, some of which involve perfectly legitimate transactions. The discrepancy is immediately obvious, however, to anyone who saw the earlier deeds.

The owners of the property apparently did not like the attention. This afternoon, the three co-authors of the blog (for I had enlisted two others to post with me) received a strongly worded letter from their lawyer, Arthur H. Stroyd of Del Sole Cavanaugh Stroyd, a little Downtown law firm, threatening us with unspecified legal action if we don't take down the post. Mr. Stroyd is the father of one of the property owners, and the family as a whole is, in my understanding, a long-standing, highly regarded, and influential Mt. Lebanon family. The entirety of the letter is marked "NOT FOR PUBLICATION," so I won't post the whole thing here, even though that legend is pretty dubious, in my opinion, both as a matter of law and as a matter of legal ethics. But here is a key passage, which I reproduce as it obviously bears on a question of public interest: Will Blog-Lebo continue, or will we shut it down?

The blog entry . . . and the comments posted in response thereto are predicated upon, and littered with, self-interested untruths, lies, and falsities that are too numerous to list in this letter. As a result, this letter is limited in scope to dealing with the obviously libelous information that directly impacts [the property owner's] professional reputation.

The entry on the path has been removed. Along with the post, the comments have disappeared as well. I wish the property owners well on their search for peace in their backyard, and in Mt. Lebanon.

The letter asks for some things that will not be provided. It asks for an acknowledgement that the post has been removed because it contained an abundance of false information about the parcel and the people who live there. The post did not contain an abundance of false information about anyone or anyplace; it contained a lively and civil conversation among neighbors about a matter of neighborhood -- and therefore public -- interest. If anyone has a claim to be offended by attacks on their personal or professional reputation, it's me: Some of the commenters all but accused me of being a Communist! And the letter demands that there be no further blog-based discussion of the property. That's a tough one; if the mainstream media pick up the story -- as it did not long ago in connection with a different walking path in Mt. Lebanon, near Foster School -- then our blog practice ordinarily would be to post a link to that news story.

It should be clear that I regard the letter that we received as legally and factually baseless. It is a transparent and cynical attempt to discourage legitimate public discussion of a topic of legitimate public interest. Acceding to these sorts of things is an example of the "chilling effects" that First Amendment lawyers worry so much about, and that anyone who cares about meaningful discussion of the future of our community also should worry about. And yet, for all of that, I have no time or energy to deal further with the mess. Removing the post acknowledges only that this is the fastest and cheapest way to respond to the demand.

Finally, I meant what I said above about whether Blog-Lebo should survive or disappear. We three authors chatted occasionally about the fact that various officials in Mt. Lebanon apparently regard the blog as a purveyor of rumor and innuendo -- or at least of information that runs contrary to the official line of the Municipality of Mt. Lebanon, usually as expressed in the official town magazine. I can handle the occasional irritated public official. When one neighbor threatens to sue another neighbor over public discussion of neighborhood matters, a line has been crossed. I'm not leaving Mt. Lebanon. But I may relocate to a different part of cyberspace, where more is at stake, and the skin is thicker.

The existing Blog-Lebo will remain in place, sans the post that triggered this episode. But there will be no further posts there. Pittsblog, please welcome Mt. Lebanon back to this space.

A Project

One of my current research projects is thinking about the following question:

What changes to intellectual property laws would help entrepreneurs and entrepreneurship?

Note that the question is not what changes to the law would help inventors or innovators or artists or authors. The question is economic development. And the question is economic development at the local or regional level, rather than at the national level. Among other reasons, that's why I put the question out on this blog, rather than elsewhere.

Here are two possible examples:

One -- Change the law on non-competes. Pennsylvania law, like the law in most states, enforces non-competition agreements. "Non-competes" are contracts that companies sometimes require that their employees sign. The provision reads: If the employee leaves the company, he/she cannot go to work for a competitor for some specified period of time. PA law says that non-competes are valid so long as they are "reasonable" - they can last only for a reasonable length of time, and cover competitors in a reasonable geographic area, and limit their scope reasonably to employment in the employee's field.

What if non-competes were invalid? This is how California law works. Non-competes in CA are never enforced, except in connection with a sale of a business. Trade secret law is in full force, so an employee who goes to work for a competitor is free to do so but will be strung up by his/her thumbs if trade secrets go to the competitor as well. There is a fair amount of evidence that (i) California labor markets, particularly markets for technical and executive expertise, are more lively as a result, and (ii) the entrepreneurial marketplace is livelier to.

Two -- Change part of the law on mandatory assignment of inventions. Currently, the federal Bayh-Dole statute permits university researchers to patent inventions developed with federal research dollars. The theory is that the university community is more likely to be effective at commercializing the research than the federal government would be. In practice, virtually all research universities (like virtually all private industrial enterprises) require that faculty assign rights in their inventions to the university, in exchange for a share of any eventual royalties. Universities' tech transfer offices take over to try to commercialize the inventions. Yet universities are terrible at this. Just about all tech transfer offices are treated as profit centers by their universities (which is a bad idea), and just about all tech transfer offices just about break even annually. Entrepreneurially-minded faculty complain that tech transfer offices are obstacles to success, and private investors and entrepreneurs who would like to know more about university research find themselves stymied by tech transfer bureaucracies.

What if the law were changed to prohibit mandatory assignment of patentable inventions funded by federal research money? University faculty without the entrepreneurial spirit would still be free voluntarily to assign their inventions, but others would be free to keep their inventions and work directly with the private entrepreneurial community. Unlike the non-compete example, there is no evidence from some other jurisdiction that shows how a different system might work better. The current tech transfer system is clearly broken, however. There must be some way to do better.

These are thought experiments, not conclusions or even proposals. Thoughts?

News Tidbits

My attention has been elsewhere recently, but still, there are interesting and amusing things in the local news:

The City of Pittsburgh is having a pledge drive. It seems to me that the donations would come rolling in if it could give away coffee mugs and hired Click and Clack, Michael Feldman, and Nina Totenberg.

CEOs for Cities will hold a national meeting here in 2008. [Here is the group's website.] There's nothing but good news there.

Pittsburgh and Cleveland could buckle up with a tech belt. So much old money, so little time, goes the thinking. But some of that old money is leaving for New York. Whether it's belt or suspenders, perhaps Pittsburgh could use some new money.