The Brookings Institution recently published a white paper titled, “Turning up the Heat: How Venture Capital Can Help Fuel the Economic Transformation of the Great Lakes Region.” In it, Author Frank Samuel, former Science and Technology Advisor to the Governor of Ohio, tackles a problem that has plagued the Great Lakes region for decades – how to transform a former manufacturing mecca into a 21st-century knowledge-based economy. Samuel identifies the following negative trends ailing the Great Lakes region*:
· out-migration of young, educated workers;
· failure to replace manufacturing job losses with new growth industries;
· metropolitan areas that are unable to attract people and businesses
Additionally, Samuel highlights a sad disparity: despite the fact the region contributes 40% of Venture Capital dollars nationwide, produces 31.4% of US patents on annual basis, and receives 35% of NIH grants, only 13.8% of US Venture Capital is invested in the Great Lakes region. This disproportion is insufficient for a region seeking to re-invent itself; absent significant investments, it will be difficult to compete in changing times.
Samuel recommends a “Great Lakes venture capital superfund” as a partial solution to this problem. This $1-2 billion dollar “fund of funds” would invest in Great Lakes-based venture capital firms, placing investment decisions in the hands of regional funds. While not suggesting such a measure as a panacea, Samuel states that it would “help the region grow, and retain, the new businesses and jobs it needs to ensure a more prosperous and secure future.”
Samuel was kind enough to offer his insights in an interview with TECHdotMN [part 1]. Our angle was to assess the local impact from the proposed Great Lakes 21st Century Fund. Responses have been shortened and summarized.
Zach Robins (“ZR”): What role should politicians play in the formation/operation of the Great Lakes 21st Century Fund?
Frank Samuel (“FS”): “It will take the political will of state administrations and legislatures to stay out of the [investment] decision-making process. Otherwise the Fund would just be another political pork barrel – and thus would not attract investment from third-party sources.
Decisions must be made by marketplace. An enterprise will only succeed if it can attract outside investors – the Fund cannot be the only investor. In fact, the Fund should ultimately be the smallest investor. When investing, business success and financial performance come first!”
ZR: How can the region maintain adequate knowledge-based workers to support funded companies?
FS: “The region needs both dollars and more entrepreneurs. You won’t get one without the other. You also need more local investors, because if investors are not there to help startups and assist with business plans, then nothing can be achieved.”
ZR: Why shouldn’t each state take a go-it-alone investment policy, a la the Ohio Capital Fund?
FS: “There is room for each state to have their own dedicated fund, but there is a need for an overarching fund to support those state efforts. State efforts simply cannot exist on their own – they will need additional funds! Once again, the goal is to make sure that later stage companies won’t need to go to the coasts for investment dollars.”
ZR: The Great Lakes 21st Century Fund will directly invest in regional venture capital funds. How will the VC funds be chosen?
FS: “In order to ensure fairness of distribution, independent evaluators need to be apart of the decision-making process from the beginning.”
ZR: Your thoughts on how Minnesota in particular can better compete?
FS: “Minnesota has been a real exemplar, especially in med-tech. Angels need to exist to help fund the next round of successful companies. The Great Lakes 21st Century Fund would not displace those efforts, but instead give entrepreneurs another tool.”
*The region includes Minnesota, Wisconsin, Iowa, Missouri, Illinois, Indiana, Michigan, Kentucky, West Virginia, western Pennsylvania and western New York.