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Friday, April 3, 2009
Of industry clusters, venture capital and the feds
MHT's Efrain Viscarolasaga: How social networking is changing business
Interactive map of Bedford's Crosby Drive tech hub
Video tech industry grows in NE: Brendan Lynch on NECN
For a lot of years, I was a sector-focused venture capital investor with Advent International, where I spent a good deal of my time looking to uncover the next big opportunity within a given sector — software, advanced materials, Internet, etc. As you’ll discover if you surf early-stage venture funds’ sites, sector-focus — versus a generalist approach — tends to be the norm and for pretty good reasons: First, investors use this orientation to build or expand knowledge, networks and experience within a given market area, providing greater insight into specific opportunities and greater potential to add value following investment. Second, investors use this concentration to define and differentiate themselves from investors lacking this knowledge, experience and strategic focus.
Industry clusters — geographically concentrated groups of interconnected companies, universities and related institutions that arise out of linkages or externalities across industries — reflect a more expansive sector orientation. Used as focal point of economic development, clusters come in two flavors: Local clusters are products and services traded within a region’s borders — health care services, tourism, retail and transportation are typical examples — while traded clusters reflect commerce outside of a region’s borders.
By fostering attention and resources on the entire ecosystem of a given sector — its suppliers, service providers, trade associations, etc. — the theory goes that a region can stimulate and accelerate business growth. Massachusetts is no stranger to industry clusters, which have been both studied and activated by previous governors and sustained by Gov. Deval Patrick. A look at the state’s Regional Economic Development Framework shows this focus. Other New England states (Maine and Connecticut) have initiated cluster studies and are at various stages of implementation.
In his budget proposal, President Obama authorized funds to support development of innovation clusters, focused on high-growth tech sectors in the economy. Late last year, Maine-based Karen Mills was tapped by Obama to lead the Small Business Administration. Mills is a former private equity partner at Solera Capital LLC and worked with Maine’s Gov. John Baldacci as the chair of his Council on Competitiveness and the Economy. Mills also helped secure a $15 million Workforce Innovation in Regional Economic Development grant to support Maine’s boat-building cluster and co-authored an April 2008 Brookings Institute report entitled “Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies.” This paper advocated for funds to support grants for emerging cluster programs as well as a cluster information center to track these initiatives nationally.
For the past two years, I’ve had the pleasure of Karen’s company at board meetings of CEI Community Ventures, the venture capital fund I’ve managed since 2003. During our time together, Karen participated in our effort to catalyze a specialty food industry cluster in Maine — a non-traditional but high growth traded cluster in which we’d made three investments. Karen’s cluster lens, coupled with her VC and economic development focus, leads me to conclude that, if confirmed, she is likely to 1) overlay the SBA’s tools (loans, grants, etc) with a cluster focus, and; 2) align SBA’s initiatives with those of other federal departments so as to create a more unified development strategy.
So, who should care about clusters? For one, state governments and economic development groups ought to be following the lead of Massachusetts, who got on the bandwagon early, so as to stake their claim in the innovation economy. Entrepreneurs considering new ventures ought to keep an eye on cluster developments throughout New England as this broader regional focus may provide financial and resource leverage to their efforts. Technology councils and granting organizations, too, should ensure that they are looking at the world through cluster-informed lenses.
Clusters reflect coordinated initiatives — including competitors within a sector — with multiple stakeholders working together toward a shared objective that benefits all. In a market in which every party from federal and state government to private sector to nonprofits is reeling from the effects of our economic malaise, we need to do everything we can to work together to rebuild our capacity to compete locally, regionally and nationally. With Massachusetts as our model, New England must begin to think of itself as a regional player to benefit the individual states and the region at large.
Michael Gurau is the managing general partner of Clear Venture Partners, a New England venture capital fund-in-formation. You can reach michael at mg@clearvcs.com.
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