Commentary: Making the most of federal funds for regional innovation

At the end of this month, applications are due for two of the federal government’s most notable programs for funding clusters and regional innovation initiatives: the SBA’s Regional Innovation Clusters (RIC) program and the EDA’s Regional Innovation Strategies (RIS) program. As practitioners develop their proposals for these programs, it is worth considering potential lessons learned from the successes of previous awardees and the major challenges they have faced.

Less than 18 months ago, the future of the RIC and RIS programs seemed dim. However, due to the support of bipartisan congressional champions and an all-hands-on deck advocacy effort led by SSTI’s Innovation Advocacy Council, these programs received funding in FY 2017 and FY 2018. Continued support for the programs in future years looks promising, although a likely decrease to the federal budget leaves them less than secure.

This year, the SBA’s RIC program will support an additional seven cluster initiatives to help small businesses in targeted industries access innovation, clients and service providers, and counseling. First-year funding awards may be up to $500,000 with four option years. RIC proposals are due on August 24.

The EDA’s RIS program, which saw a 24 percent increase from FY 2017 to FY 2018, will have $21 million to award through its programs: the i6 Challenge, which funds initiatives that increase the rate of innovation and entrepreneurship successes throughout a region, and the Seed Fund Support Grant Competition, which boosts the development of early-stage risk capital. RIS proposals are due on August 29.

In the past, both programs have exhibited encouraging results. The most recent independent evaluation of the SBA RIC program shows that its cluster initiatives have worked with more than 1,000 small businesses, which have gone on to generate more than $650 million in new economic activity. The two programs that comprise the Regional Innovation Strategies portfolio have yielded similarly strong impacts. Since 2014, the federal government has invested $42 million in 88 projects through the i6 grant program, matched by $54 million in local dollars. i6 grantees have created more than 2,000 jobs and assisted more than 1,400 entrepreneurs through the program’s assistance. Over that same period, the  Seed Fund Support’s $10 million investment in 40 awardees has culminated in a $13 million local match and investments in more than 140 early-stage companies.

Successful awardees have also captured the public’s attention. RIS awardees like mHUB in Chicago and Maritime Blue in Seattle have been featured in major newspapers. An analysis by the Initiative for a Competitive Inner City (ICIC) last year cites the San Diego Regional Innovation Cluster (SDRIC) designee and BioSTL, which has won RIC and RIS awards, as best practices in supporting urban clusters. Likewise, a recent report by Brookings highlights BioSTL’s success alongside the Water Council, a Milwaukee-based dual-award winner, and CU-ICAR in South Carolina, a 2014 RIS awardee.

Traits of successful cluster initiatives, according to Brookings authors, include the importance of a systems-oriented approach, dedicated industry leadership, physical anchors, and big-picture thinking. The authors also recommend that regions do not attempt to create new clusters, and do not focus on too many sectors. This on its own is valuable advice for those interested in pursuing RIS and RIC awards. However, if these prospective or fledgling cluster initiatives only focus on the elements that make a cluster initiative successful, they will miss why so many other CI’s have struggled.

From surveying, interviewing, and convening with cluster initiative leaders, SSTI has found that their organizations face three interrelated challenges: ensuring long-term sustainability and relevance; measuring their success; and, trouble ‘telling the story’ from an economic development perspective. Understanding these challenges is essential to planning, operating, and sustaining a successful cluster initiative.

A principal challenge related to ensuring long-term sustainability of cluster initiatives has to do with their funding. The main “glue” activities of cluster initiatives – fostering connections among participants and providing a platform for discussion – are oftentimes the types of activities that are the hardest to find someone to fund. One advantage of the RIC and RIS programs is that it provides financial support for “glue” activities.

However, in order to be sustainable in the long-term, cluster initiatives will need a combination of financial sources, ranging from user fees, to membership dues, to board seats, to foundational sponsors, to some government funding. They will need to be set up from the get-go to address a specific need, with sector buy-in and industry leadership. In short, government funding should supplement regional innovation activities, not sustain them.

An overreliance on a single source of funding like federal grants can prove to be problematic for cluster initiative and regional innovation program leaders. Nearly three-fifths of cluster initiatives got more than half of their funding from a single source, according to a 2015 survey by SSTI. In interviews and meetings, leaders discussed how this complicated the budget planning process and meant that they had to spend as much time fundraising as they did running their initiative. While some initiatives have been able to scrape together funds in the short-term amid the end of programmatic funding, many others have closed due to ongoing budgetary concerns, political changes, or a lack of relevance.

Another challenge facing cluster initiatives and regional innovation programs is rooted in how they evaluate and measure success. Having strong and reliable impact measures is important in making the case that funds for customized services like these are a sound economic development strategy. This challenge is also related to long-term sustainability: a cluster initiative will have a harder time maintaining its relevance over time without some sense of whether the work they are doing is having an impact. As applicants pursue RIC and RIS awards, they should keep in mind what success looks like and how it should be measured.

A third challenge for cluster initiatives relates to telling the story from an economic development perspective. A common frustration among cluster initiative leaders is that there is a sense that activities like networking and convening, entrepreneurial support, collaborative R&D, and commercialization are viewed as subordinate to activities like tax incentives and business attraction. To overcome challenges related to communications, prospective or young cluster initiatives should ensure they are measuring their results, sharing their success stories, and engaging with stakeholders throughout the economic development and innovation ecosystems to encourage continued interaction.

In order to get the most out of federal funds for regional innovation, prospective awardees should ensure their programs invoke strategies that allow the initiatives to fund themselves, with an eye toward relevant and meaningful work, an ongoing measurement of impacts, and consistent private-sector leadership and engagement. While this may or may not set applicants up to win a government award, it may provide them with a stronger foundation moving forward.