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):

          ...
VENTURE CAPITAL DOLLARS INVESTED TELL THE STORY
                                    Comparison By Region

            12,0...
OF THE TOP 5 MARKETS, WE ARE THE ONLY ONE THAT HAS STALLED
                                        Comparison By Region


...
OUR VENTURE CAPITAL FIRMS ARE GOING WEST




                                                                 Top Boston V...
HOW OUGHT THE COMMUNITY RESPOND?
FIRST WE NEED TO IDENTIFY THE OBSTACLES


• Cautious capital

• Fewer experienced startup CEOs

• Fewer networking opportu...
WE CAN’T WIN BY TRYING TO ACT LIKE CALIFORNIANS




          Cambridge, MA snow shoveller (Reuters, 2003)


             ...
SOME OF OUR STRENGTHS

•   Perhaps the highest concentration of bright minds in the world
     – Much more concentrated th...
WE MUST BUILD OUR INNOVATION INFRASTRUCTURE TO
           LEVERAGE THESE STRENGTHS

SOME IMPORTANT ELEMENTS:
   – Universi...
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 m...
THE TRADITIONAL INCUBATOR MODEL

•   Nearly all incubators costs are covered by governments or universities

•   Nearly al...
IN CONTRAST: CIC’s MODEL


•   No government or university subsidy

•   Located in prime real estate / a highly desirable ...
CAMBRIDGE INNOVATION CENTER’S STORY
  Founded in 1999 by MIT grads, based in an MIT-owned building

  Has become the large...
CIC HAS GROWN OVER THE PAST 7 YEARS
                                                         Companies and Investment

   ...
WHAT MAKES CIC POPULAR WITH ENTREPRENEURS?


•   People
     – New startups are surrounded by other startups, successful C...
SOME EVIDENCE OF IMPACT

•   ―Money factor‖
     – At least $750M invested in CIC companies, 2003-2007
         • Total in...
SOME NOTABLE PAST AND PRESENT CLIENTS…



                                                                            Foun...
SO, IF IT IS WORKING, WHY IS IT WORKING?



•   Location, location, location: Proximity to MIT and the T

•   Density effe...
CIC



MIT Sloan
New England Economic Development and Impact of Innovation Centers
New England Economic Development and Impact of Innovation Centers
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New England Economic Development and Impact of Innovation Centers

  1. 1. Regional Economic Development and the Role of Innovation Centers Timothy Rowe April 2009
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. HOW OUGHT THE COMMUNITY RESPOND?
  7. 7. 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”
  8. 8. WE CAN’T WIN BY TRYING TO ACT LIKE CALIFORNIANS Cambridge, MA snow shoveller (Reuters, 2003) WE NEED TO LEVERAGE OUR OWN STRENTHGS.
  9. 9. 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
  10. 10. 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
  11. 11. THE BALANCE OF THIS PRESENTATION EXPLORES OPPORTUNITIES FOR IMPACT THROUGH INNOVATION CENTERS
  12. 12. 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
  13. 13. 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…)
  14. 14. 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.
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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!
  19. 19. 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
  20. 20. 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
  21. 21. CIC MIT Sloan

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