Regional Economic Development and
the Role of Innovation Centers
Timothy Rowe
April 2009

BACKGROUND ON NEW ENGLAND’S SUCCESS
KEY DRIVER’S OF REGION’S GROWTH
(over 400 years):
• Entrepreneurship
• Local networking (―Bump and Connect‖)
BUT WE’RE NO LONGER LEADING IN THESE AREAS
Source: Robert Krim, Boston History and Innovation Collaborative Study

VENTURE CAPITAL DOLLARS INVESTED TELL THE STORY
Comparison By Region
12,000,000,000
Silicon Valley
10,000,000,000
8,000,000,000
6,000,000,000
New England
4,000,000,000
2,000,000,000
-
2003 2004 2005 2006 2007
IN 2003 THE VALLEY WAS 2X NEW ENGLAND.
TODAY IT IS 3X NEW ENGLAND.
Source: PricewaterhouseCoopers MoneyTree Report, 2008

OF THE TOP 5 MARKETS, WE ARE THE ONLY ONE THAT HAS STALLED
Comparison By Region
12,000,000,000
Silicon Valley
10,000,000,000
8,000,000,000
Next 3 regions combined
6,000,000,000
New England
4,000,000,000
2,000,000,000
-
2003 2004 2005 2006 2007
We’re falling behind.
Source: PricewaterhouseCoopers MoneyTree Report, 2008
Regions ranked by 2007 total VC investment; Next 3 = San Diego, LA, Texas

OUR VENTURE CAPITAL FIRMS ARE GOING WEST
Top Boston VCs that opened a West Coast office
•Northbridge
•Matrix
•Highland Capital
Top West Coast VCs that opened a Boston
•Charles River
office •Polaris
•DFJ (affiliate) •Greylock
•KP (affiliate) •Atlas
•Morganthaler (sort of, originally Cincinnati) •Bessemer
•Venrock (sort of, originally New York) •Battery
This is not a great picture

HOW OUGHT THE COMMUNITY RESPOND?

FIRST WE NEED TO IDENTIFY THE OBSTACLES
• Cautious capital
• Fewer experienced startup CEOs
• Fewer networking opportunities
• Marketing: we’re not as good at telling our story
– they tell the Google/Apple/Cisco stories…
Leads to a “vicious cycle”

WE CAN’T WIN BY TRYING TO ACT LIKE CALIFORNIANS
Cambridge, MA snow shoveller (Reuters, 2003)
WE NEED TO LEVERAGE
OUR OWN STRENTHGS.

SOME OF OUR STRENGTHS
• Perhaps the highest concentration of bright minds in the world
– Much more concentrated than competitive areas
– In 5-10 minutes you can walk between the offices of Nobel
laureates, top venture capitalists, and some of the country’s most
promising startups
• An incredible flow of bright minds coming to the area every year
– Approximately 2,800 new top minds move to Cambridge ever year to
attend MIT alone
– Represents an evergreen world-class labor force
• Access to a tremendous amount of venture capital

WE MUST BUILD OUR INNOVATION INFRASTRUCTURE TO
LEVERAGE THESE STRENGTHS
SOME IMPORTANT ELEMENTS:
– University research
– Government funding for university research
– Corporate research
– Entrepreneurship education programs
– University out-licensing programs
– Mentors and advisors
– Innovation Centers
– Experienced former CEOs
– Startup-savvy population of risk-taking employees
– Independent investors (―angels‖)
– Venture capitalists (seed, early, and late stage)
– Startup-savvy service firms (law, accounting, PR)
– Sources of debt financing

THE BALANCE OF THIS
PRESENTATION EXPLORES
OPPORTUNITIES FOR IMPACT
THROUGH INNOVATION CENTERS

WHAT IS THE ROLE OF AN INNOVATION CENTER?
Concentrate entrepreneurs in one place nearby a university
- So they can model success, legitimize this career path
- So they can learn from each other
- So students can easily work in startups before graduating
Offer optimized support infrastructure for entrepreneurs
- Far more economically efficient, lowers cost, risk to get started

THE TRADITIONAL INCUBATOR MODEL
• Nearly all incubators costs are covered by governments or universities
• Nearly all are in economically depressed areas, in dis-used real estate
• Nearly all ask for equity in the startups
They are a positive force in depressed
areas, but few move the needle
(don’t create Gillette, Lotus, Google, EMC…)

IN CONTRAST: CIC’s MODEL
• No government or university subsidy
• Located in prime real estate / a highly desirable location
• Does not take equity stake in the companies that come in
– this tends to drive away the best entrepreneurs
• Uses term ―innovation center‖ to differentiate from ―incubator‖ concept
• Designed to be attractive to the most capable/best financed entrepreneurs
Early evidence suggests this
approach works very well.

CAMBRIDGE INNOVATION CENTER’S STORY
Founded in 1999 by MIT grads, based in an MIT-owned building
Has become the largest innovation center (incubator) in the US (that we know of)
• Located in One Broadway, center of Kendall Square
• Uses no university or government subsidy
• Has helped more than 350 businesses get off the ground
Approximately half of the activity at CIC is companies founded by MIT graduates and staff(1)
(1) Calculated as a percentage of VC dollars invested in CIC startups founded by MIT students and staff vs. others
4/20/2009 (C) Cambridge Innovation Center

CIC HAS GROWN OVER THE PAST 7 YEARS
Companies and Investment
Cumulative Investment Cumulative Number of Companies at CIC
400 250
350
200
Cumulative Number of Companies at CIC
300
US Dollars (Millions) Invested
250
150
200
100
150
100
50
50
0 0
2001 2002 2003 2004 2005 2006
Year
This chart was created in early 2006.
Since then we’ve doubled.
4/20/2009 (C) Cambridge Innovation Center

WHAT MAKES CIC POPULAR WITH ENTREPRENEURS?
• People
– New startups are surrounded by other startups, successful CEOs
– ~180 leaders of new orgs in one building—they have many connections
• Flexibility
– All agreements are month-to-month, with just a 1-month deposit
– Charges are partly per-person, rather than per square foot
• Location
– Right next to MIT
– Means that many/most initial employees may be top students, still in school

SOME EVIDENCE OF IMPACT
• ―Money factor‖
– At least $750M invested in CIC companies, 2003-2007
• Total investment today is approximately $900M
– Represents a meaningful percentage of the $16B of venture capital
invested in New England 2003-2007!
• ―Cool factor‖
– In a recent unscientific list of ―cool‖ companies in MA and NH by Globe
reporter Scott Kirsner, 8 companies, or about 25% of those on the list
founded since 1999, were founded at CIC
Over 350 companies have taken root at CIC since our founding!

SOME NOTABLE PAST AND PRESENT CLIENTS…
Founded by two MIT grads, is a leading
supplier of high-brightness LEDs
Leading coal gasification company, raised
largest VC round in recent Mass memory,
building plant in Fall River
Acquired by Yahoo for $160M, became
base of new Yahoo office in New England
Founded based on MIT’s Bob
Langer’s research. On its way to
Established New England HQ at
curing paralysis caused by spinal cord injury
CIC, grew from 1 to ~200 people
Media-lab spin-out has become
world leader in RFID technologies.
Media-lab spin-out invented wireless
mesh networking, created the Zigbee
standard Prominent local oncology bio-
tech, grew from 2 people at CIC

SO, IF IT IS WORKING, WHY IS IT WORKING?
• Location, location, location: Proximity to MIT and the T
• Density effect: Large number of high quality startups/entrepreneurs in one
building
– 24x7 networking
• Note that these two factors work together: the MIT-proximate location is
necessary to achieve the density

CIC
MIT Sloan