Ireland and Models for Entrepreneurship

My law professor colleague Gordon Smith, who is on the faculty at BYU, writes and teaches and blogs about corporate law and entrepreneurship. Prompted by a story in the New York Times, he posted the following today about Irish entrepreneurship:

"The NYT suggests that Ireland's recent entrepreneurial success is the 'culmination of nearly four decades of government policies.' Here's the formula:

The government rewrote its tax policies to attract foreign investment by American corporations, made all education free through the university level and changed tax rates and used direct equity investment to encourage Irish people to set up their own businesses.

In addition, there was the fact that Ireland is a member of the European Union. What, exactly, has the EU contributed?

One reason for many changes in Ireland is its membership in the European Union, which has brought new perspectives and regulations from its governing councils in Brussels.

New perspectives and regulations? 'Perspectives' seems to refer to the fact that some Irish entrepreneurs are transcending Ireland's borders. Of course, that is not just a matter of perspective, but a matter of free movement of goods and services across EU member state borders.

The EU 'regulations' referred to in the story aren't new rules designed to promote entrepreneurship, but rather new rules that, for example, aim to improve worker health and safety, thus creating business opportunities for compliance firms. One firm's burden, another firm's treasure.

Of course, all of the EU benefits inure to every member state, so what makes Ireland special? Is it really just a matter of reducing taxes, providing free higher education, and making direct government equity investments? This paper suggests a more complex answer for Ireland:

Regional transformation through technology-based entrepreneurship cannot be easily measured by solely by 'tangible' resource input factors such as access to seed capital or telecommunications infrastructure. Instead, it is important that policy makers need to recognize the importance of fostering a 'bottom-up' approach towards technology-based entrepreneurship especially the role of 'intangibles' such as role models, culture towards risk and failure, and leadership in stimulating technology based entrepreneurship in regions.

I am not trying to suggest that the academics are spot on about Ireland while the NYT reporters are hopeless simpletons. But I believe that finding the root causes of entrepreneurship is a difficult task. In the end, I tend to give more credit to the accounts that describe a stew with many ingredients than the linear cause-and-effect stories."

Pittsburghers, take heed.

Pop City's Real Deal Companies

While I wait for more feedback on my "Real Deal" post, other blogs are following my lead, asking (and answering) the same question. Yesterday, Matt Harbaugh at IW weighed in. Today, Pop City offers "Top Pittsburgh Tech Companies to Watch in 2008." The Pop City list and Matt's list overlap -- but they aren't the same. From Pop City:

• Akustica


• BPL Global


• Knopp Neurosciences


• Landslide


• Plextronics


• Medrad


• A Meakem Becker Venture Capital "stealth" company


• Redpack Logistics


• Renal Solutions


• Talkshoe


• Tiversa


• Vivisimo

Focus on Pittsburgh Entrepreneurship

Today's Sign of Utopia:

Welcome to the blogosphere and Burghosphere to Pittsburgh Ventures, a new blog written by Matt Harbaugh at Innovation Works. The blog will focus on "new (primarily tech related) ventures in the Southwestern PA region, as well as on the act of 'venturing,' as it applies to entrepreneurs, investors and the region as a whole." Matt's first substantive post responds to my "Real Deal" post of last Thursday: What are the up-and-coming companies in the region with meaningful potential economic impact?

In the same spirit, don't miss Harold Miller's most recent column for the Post-Gazette: "Attracting more entrepreneurs leads to more jobs." Harold has posted what I believe is the same copy on his blog, Pittsburgh's Future.

The Real Deal

A long-time friend of Pittsblog wrote me yesterday to suggest this post:

What are the top three entrepreneurial companies in the Pittsburgh region that folks think are the real deal, with job creating potential and wealth creating potential of 100+ jobs and $10M plus in annual revenues?

The 100+ employee threshold and the $10M revenue numbers are arbitrary. What my friend and I are trying to get at, however, is whether folks think (i) that there are more real prospects for sustainable success locally than there were, say, five years ago, and (ii) there are more prospects than ever that can attract and sustain successive rounds of formal and informal private investment -- as opposed to economic development investment via a government-affiliated or subsidized entity.

Post your nominations, justifications, and reservations in the comments. I'm especially interested in hearing from folks in the economic development and investment spaces. Anonymity and pseudonymity are permitted, so long as the comments are on topic and civil.

Manufacturing Jobs in Pittsburgh?

Pop City reports today that Medrad's new plant will house hundreds of new workers, "making it the largest source of high tech manufacturing jobs in Western Pennsylvania."

Cool beans.

PittsburghToday Featured

John Craig's PittsburghTODAY "regional indicators" project got a nice boost in this morning's Post-Gazette, with coverage of a presentation that John and Paul O'Neill made to the Pittsburgh Technology Council. I've had a link to the project itself on the blogroll (left) for some time. I just added a link to the PittsburghTODAY blog.

John and PittsburghTODAY are quite explicit about something that the P-G's coverage leaves ambiguous. This is a project about the Pittsburgh region, not a project about the city of Pittsburgh. Click here for an introduction to their various definitions of the Pittsburgh "region," the broadest of which includes parts of West Virginia and Ohio.

Link to the PittsburghToday, the regional indicators project.

Link to the PittsburghToday blog.

Renal Success

I first blogged about Renal Solutions, based in Warrendale, PA, more than three years ago. I wrote:

What we can do is look around for ways in which we can make the city and the region better, and we can celebrate ways in which others are doing the same.

Today's suggestion is from the business sector, courtesy of a friend: A company in Warrendale, PA called Renal Solutions, which could use a sexier name but which is apparently making some nice progress on the biotech front.

Today, Renal Solutions announced that it has been acquired. The acquiror, according to a press release on the company's site, is "Fresenius Medical Care AG & Co. KGaA. RSI will continue operations as a wholly owned subsidiary of Fresenius Medical Care, the largest integrated global provider of dialysis products and services. [RSI President and CEO] Peter DeComo will continue to lead RSI operations in Warrendale, PA and Oklahoma City, OK." The total purchase price is $190 million.

This is a great success story for the region. Congratulations to Peter and to RSI (and to Draper Triangle Ventures, the local venture firm that backed RSI).

Jobs in Pittsburgh

At a meeting earlier this week I heard that the Pittsburgh Tech Council is in the process of a website revamp. Great news! After meeting a Pgh newcomer on an airplane earlier this month (he's taken a job with Westinghouse and moving his family here from Connecticut), I went to the Tech Council site to see what kinds of jobs are listed. Answer: I don't know. To search, I have to create an account. That should be optional. [Updated 11/28: As Jim points out in the Comments, anyone can search, even without registering. My bad. Still, the fact that I made this mistake makes me wonder whether I'm alone, and whether improved site design would improve access to the resource.] If I were a student, I could search for internships without registering. That's good. When I look at the list of internships, I can click links to see the full-time jobs being offered by companies offering internships. So there's a back door into the full-time job listings, at least for some companies. But the current site is a muddle, and it projects the wrong impression -- that breaking into the Pittsburgh job market is tough.

That impression needs to change. Pittsburgh employers and regional service organizations need to make it easy to find jobs and apply for them. In fact, and contrary to the popular image of Pittsburgh as a dying city, there are new jobs in Pittsburgh -- lots of new jobs. Good jobs. Westinghouse is hiring. Allegheny Technologies/Allegheny Ludlum is hiring. Kennametal is hiring. (Yes, I know that the company is located in Latrobe.) US Steel is hiring. And those are only the companies that I know about from face-to-face conversations. If your company is looking to hire, feel free to add a link in the Comments.

But Pittsblog comments are no way to run a region. There must be a better way to get this word out. There's work to do in Pittsburgh. (Feel free to adopt this as a slogan, if you like it.)

The Tech Council can only be part of a solution. Flipdog, now part of monster.com, has a Pittsburgh jobs board. And I only spent 15 minutes this morning looking around the web. Thoughts?

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.

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.

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.

Channelling the Manifesto

Carl Kurlander's Next Page paean to Pittsburgh storytelling yesterday hit most of the nails on the head. As an intellectual property lawyer, I'm not fond of his phrase "Take intellectual property seriously" (it's a nice slogan, but it doesn't mean anything), and Pittsburgh needs more than one "hit" to create a post-tipping point narrative. But his emphasis on risk, on investing in novelty and talent, on mobility, and on nurturing an important creative and wealth-creating community in Pittsburgh that doesn't necessarily include "higheder education," "robotics," "tissue," or "biotech" in its name -- all of those things are terrific.

What Pittsburgh Needs from Young Entrepreneurs

Harold Miller has a good post up featuring Project Olympus, a new effort at Carnegie Mellon to promote local careers for its computer science graduates and generally to build a robust infrastructure for an IT sector in the region.

Lenore Blum, Director of Project Olympus, estimated that only 20 (5%) of Carnegie Mellon's 2007 Computer Science graduates were staying in Pittsburgh. That means another 400 could potentially stay here. If Project Olympus merely doubles the current percentage of CMU's CS graduates who stay each year through entrepreneurship, it could significantly expand the number of startup companies in Pittsburgh.

Maybe so -- though that all depends on lots of other things falling into place locally. And what happens to the other 380 graduates? Where do they go? Where do they work? What kinds of Pittsburgh connections do they or their employers have -- if any? In the absence of a local entrepreneurial infrastructure that can easily absorb another two dozen CS grads each year, is Pittsburgh better off spreading the gospel according to CMU as those folks migrate around the world? Or should Pittsburgh try to keep them here in town and hope that the infrastructure eventually emerges?

Perhaps that's a false choice:

What do these students want/need in order to stay? Based on a survey of students conducted by Project Olympus, three things are key:

(1) Access to angel/venture capital and other assistance through networking opportunities;
(2) A "safety net," i.e., other job opportunities if the initial one falls through; and
(3) A region that views entrepreneurship, even in failure, as a valuable learning experience.

In other words, recent graduates want people to give them money, give them jobs, and treat them nicely. At one time or another on Pittsblog, I've argued for the very same things. What Pittsburgh needs to do, etc. etc. Much of Harold's post is a plea for the same things, and he's right.

What's missing here, though, is a commitment from the grads themselves. The sleep-on-the-sofa, max-out-your-credit-cards, borrow-from-friends-and-family, believe-in-your-dream-no-matter-the-cost kind of commitment that entrepreneurs know that it takes to succeed even in the face of failure after failure. Pittsburgh absolutely needs to develop the kind of infrastructure that Harold Miller and Project Olympus are referring to, but Pittsburgh needs something in the bargain, too, and what it needs is a commitment by those would-be entrepreneurs to stick to it. What three things are new grads willing to do? Find the resources yourselves. Go around institutional obstacles. Persevere. Force change.

Easier said than done, I know, especially when money is tight here and seems to flow freely elsewhere. One solution is to import the money. The Olympus board is interesting to me because it seems to reflect what might be a diasporan mentality -- investors from elsewhere looking to Pittsburgh in order to keep Pittsburgh tech here, rather than export it to the West Coast. Is that a correct perception?

Up, Up, and Away

Another promising local tech startup is leaving Pittsburgh for Boston. Why? As Willie Sutton never said, because that's where the money is, and moving is what the money wants.

Cori Shropshire's P-G report on the impending departure of Logical Therapeutics does a good job of pointing out some of the other problems that keep Pittsburgh biotech/biomed startups on the launch pad for other destinations:

(1) Depth. Boston has it; Pittsburgh doesn't. "Moreover, biotech firms are risky, so it's difficult to persuade experienced workers to relocate to Pittsburgh without guarantee of success, [Logical Therapeutics co-founder Carolyn] Green said. In Boston, there are several hundred companies where workers can go if a venture doesn't work out, she said." I've written about this before.

(2) Infrastructure that supports biotech operations. "Despite the University of Pittsburgh Medical Center's global reputation in basic research and clinical trials, particularly in drug development, 'What's missing is the expertise in designing and carrying out early tests for new drugs, managing the federal regulatory process and manufacturing material used in clinical trials,' [Logical Thereapeutics c-founder Dr. Mitchell] Fink said." I may not have blogged about that problem before, but I've certainly heard about it in private conversations. Pittsburgh has a lot of magnificent scientists, and Pitt and UPMC are getting better at pushing technology into the private sector. But the regulatory gauntlet is daunting, and there aren't enough people in town who are trained to manage it.

Updated and extended with most of the text of a comment that I left on an earlier Pittsblog post:

Is LT's departure fair to PA taxpayers, in view of PA-subsidized investments in the firm? One thing to note is that PA taxpayer money in LT (or in any private co. with university-developed technology) may be dwarfed by indirect money coming from the federal treasury. Pitt and UPMC take in several hundred million dollars in federal grant money each year, a huge chunk of which goes into biotech/bioscience research. I don't know how much federal money went into the technology that LT is developing, but federal indirect cost reimbursement funds facilities that likely housed much of the early work.

Federal law (Bayh/Dole) gives university researchers using federal funds the right to patent and license resulting inventions; the researchers split licensing proceeds with their employers under the terms of policies set by the employers. Here, that means Pitt and UPMC. State interests usually end up taking a back seat to federal policy. Biotech investing is a particularly high-stakes version of poker, and state-related investment funds are playing with public money. But they are investors nonetheless, placing bets with their investments and hoping to win a hand or two. Returns are never guaranteed.

The question in my mind isn't whether the PA funds are entitled to their money back, but whether they should be playing at all, given the amounts that they are able to invest, and the stakes. Are they are playing at a table where they don't have enough cash to compete effectively over the long term? Biotech and biomed investing is a long-term game, and every play is risky. While LT is leaving with PA money and has chance to succeed elsewhere, would we as PA taxpayers be happier if it stayed in Pittsburgh -- and was more likely to fail? Personally -- no. Remember, you're a federal taxpayer as well as a PA taxpayer. When you combine your taxpaying hats, that's the point at which you should ask whether you're getting a fair deal while the government invests your betting money. In some ways yes, you are, and in some ways no, you're not. I'll save more for a later post.

The University as Investor

From time to time at Pittsblog, I have drawn comparisons between Pittsburgh and New Haven, Connecticut and specifically between Pitt's role locally and Yale's role in New Haven. In many ways, Pitt doesn't compare favorably. In the real estate department, its economic development initiatives over the last decade have been confined largely to making the campus more secure and serene for students, more pleasant for shoppers, and more robust for researchers. On all three counts, the university has succeeded brilliantly. But its ambition has been limited. On the whole, and outside of Oakland (and outside of co-developments with the Steelers) Pitt has not used its leverage as a licensor or investor -- which is significant, given Pitt's size -- to make the City of Pittsburgh a more vibrant economic community. Not publicly, anyway. While New Haven, by contrast, still has even farther to go than Pittsburgh, Yale's impact has been direct and tangible impacts on the quality of the city.

But Yale is hardly impervious to criticism. The New Haven Independent reports today that Yale is facing criticism for pursuing the purchase of a soon-to-be-abandoned biotech research facility in -- West Haven, not New Haven. Bruce Alexander, the Yale official who runs Yale's property program, is one of the shrewdest real estate developers in the country -- university or no university. So I'm willing to bet that he knows what he's doing. Still, the report suggests a significant public relations misstep. The economic footprint of a research university is regional, not city-wide. Yale has learned that a better city makes a better university, and it has invested accordingly. But universities need to take account of political boundaries, too.

Visualizing Job Growth

Harold Miller has posted some graphical illustrations of his recent observations about job growth in the Pittsburgh region - or the lack thereof.

As JP observes in a comment on Harold's post, the data illustrate two phenomena which may be independent of one another: Pittsburgh's trend line lags the national trend by about a year, more or less. And Pittsburgh's growth rate overall remains significantly below the national average.

Harold Miller on Slow Job Growth

Harold Miller has a very interesting post up today about job growth in the Pittsburgh region. The thesis: "[W]e’re not creating the jobs needed to attract new residents to the region. In fact, there are over 16,000 fewer jobs in the Pittsburgh Region today than there were six years ago."

Harold argues that job losses across the board can be traced to an "uncompetitive business climate." He also notes that Pittsburgh's growing dependence on jobs in health care poses risks, given the likelihood of future regulation of that sector. A question: Where should job growth be occurring -- that is, in what sectors of the regional economy?

Welcome to the Blogosphere: Robert Lowe

Rob Lowe, CMU entrepreneurship and tech transfer researcher and Director of Enterprise Creation (I believe that's still his title), has launched a blog: "Mock Economy."

Rob's inaugural post is about Baumol's theory of destructive entrepreneurship. That's an interesting place for a local expert on university-based economic development to start. A couple of years ago, I heard local tech transfer administrators use the phrase "destructive entreneurship" to defend the idea that universities should pick winners when deciding which faculty research to promote and commercialize, and which to hold back. Too many startups, apparently, would dilute the pool of qualified private management and follow-on investment.

I didn't hear references to Baumol in this pitch, and I'm pretty sure that they were misusing Baumol's theory, and in any case I am optimistic that Pitt and CMU have both moved beyond the "picking winners" approach. It will be interesting to read whether Baumol has anyhthing to do with Pittsburgh today.

Link: http://mockeconomy.blogspot.com/

While I Was Away

I was out of town for several days last week. Interesting things that I missed:

The American Economics Association is consolidating its publishing activities in Pittsburgh. If only local economists could count on a home town advantage in the publishing process!

The Riverlife Task Force got some nice PR for its efforts.

According to Pop City, Pittsburgh's Life Sciences Greenhouse and Cleveland's BioEnterprise are partnering on unspecified economic development projects in the biosciences.

Pittsburgh got to pat itself on the back with its selection as a "City of the Future" by a panel convened by Foreign Direct Investment magazine. (Post Gazette coverage) (Pop City coverage). The Allegheny Conference must be handing out the SPF 50. The future's so bright, I gotta wear shades!

Actually, I shouldn't be cynical about this last thing. Once in a while, it's a good thing for Pittsburgh to stand up and agree with the rest of the world. This really is a pretty nice city.