Friday, October 3, 2008

How I See It

Rx for the Mass. tech economy: An ounce of prevention

With the financial markets in turmoil and the details of an unprecedented federal bailout still emerging, Massachusetts lawmakers and the governor are undoubtedly concerned. By all accounts, Massachusetts had been faring slightly better than many other regions in terms of job growth, low unemployment, lesser declines in real estate values and overall general productivity. So, could the broader fiscal crisis contagion of the national economy spread just as quickly to the Bay State? Recent revenue collection estimates are not encouraging, a state tax repeal proposal is on the November ballot, and next year’s budget could face a deficit of almost one billion dollars. No doubt many businesses here already are seeing signs of a downturn. Yet, if the national economy is a patient on life support in need of a transfusion, the Massachusetts innovation economy is a marginally healthy one in need of a good solid dose of prevention. Here’s what that prescription should look like right now.

Push capital to entrepreneurs without raising taxes. Focus on supporting the infrastructure of the innovation economy — emerging businesses — which typically account for 70 percent to 75 percent of net new jobs. Most of these businesses are self funded to start and more than 90 percent of them raise funds beyond seed stage from high net worth individuals — angels — rather than from venture capitalists. We have one of the most active angel investment communities in the nation — but it could be even better. Let’s make the connection to capital easier by creating a statewide web-based investor database like those in Wisconsin, Washington, Utah, and Pennsylvania. The cost of this initiative is minimal; the benefits tremendous. Last year, in Wisconsin alone, angel investments jumped 43 percent to almost $150 million. We can and should expect similar success here.

Push public resources to infrastructure. Hard times call for hard choices, particularly when lawmakers are allocating scarce dollar resources among our public colleges and universities. Education and training are key drivers in the innovation economy. Priority should be given to those providing demonstrable services and creating real results in the innovation economy. The new Venture Development Center at the University of Massachusetts Boston, which provides crucial finance and technology training to first-time entrepreneurs as well as on the job training for graduating students, is a case in point. Some amount of public education funding should be “performance based,” and allocated based on technology commercialization, new ventures started and research and training provided by a college community.  

Reward private investment that provides a real return. Forget bailouts and instead create expanded and meaningful seed capital tax credits for investors in emerging businesses that create jobs immediately. Like the Red Sox, Massachusetts must focus not only on sustaining companies that have achieved “big league” status, but also on the fragile farm club system. Let’s remember that tech behemoth Google Inc. started with a $100,000 investment from one investor.

The warning signs are here. Let’s put the right plan in place while we still have time.

 

Lawrence Gennari is a partner in the business and technology group at the Boston law firm of Choate Hall & Stewart LLP. He can be reached at lgennari@choate.com.