Over the past 25 years, SSTI has seen a successful model emerge for supporting regional innovation-driven economies that deserves more attention from the TBED community. Successful Venture Development Organizations (VDOs) bring the entrepreneurial mindset of an innovation startup to regional economic growth strategies. VDOs simultaneously deliver multiple value propositions to their target service areas:
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A more vibrant and dynamic local innovation-encouraging culture;
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An increasing number of local scalable science/tech businesses;
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Expansion of public, foundation and private risk-tolerate regional financing options; and
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Improved economic conditions over time for the region through higher-wage jobs, more profitable companies, and returns for founders and investors to create a virtuous circle of future innovation opportunities.
The secret sauce for venture development success with the added focus or mission of economic development is the integrated approach that VDOs undertake; coupling experienced, technological and scientific business development support with return-generating financing that can sustain future client assistance and VDO operations over time.
Importantly, to achieve all four of those bulleted TBED goals above, well designed VDOs provide support for startups that extends beyond their investment portfolio, whether that financing takes the form of royalties, debt, or equity. Providing entrepreneurial assistance for the broader community of innovation-intensive founders, startups, and innovators within the target service area is a critical differentiator from private, return-driven innovation studios. It allows the VDO to create a more dynamic innovation nurturing culture, broadening economic impact for the public support for the VDO, while also providing opportunity for the VDO to optimize the placement of limited smart money toward growing the most scalable businesses in the region.
To understand the opportunities of VDO’s, it helps to examine the four criteria that comprise the VDO model:
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It is a nonprofit or (quasi) government organization.
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It is focused on innovation-centered economic development purpose within a defined geography, which may extend to an entire state to reach a critical mass required to sustain the investment aspect of the success formula.
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It allocates direct financing to innovation-driven businesses.
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It provides innovation-centered entrepreneurial support across the service area. The assistance and financing may be sector-agnostic or may be focused on specific industry sectors of importance for the regional economy (e.g., biotechnology or clean tech).
These four criteria collectively establish a single-mission and return-motivated point of service for the innovation community within a region that addresses the financial, business development, and infrastructure necessary for a thriving tech-based economy. VDOs do not operate in isolation, and companies still need external partners, resources, and networks to succeed. The VDO model is not a one-stop shop for a thriving tech economy, but more the accessible hub within a network and a key driver of success within a region. VDO services should complement existing innovation assets while also working address gaps in the local capital market in a way that encourages growth of private and alternative avenues for growing and keeping innovation startups local as they grow, whenever possible and practical. Recent research has demonstrated the positive impact of public venture capital investment on business outcomes, and while the study did not include non-profit investment, prior original work from SSTI indicates that VDOs are likely to have similar impacts. Going further, VDOs also address one of the challenges identified in the public venture capital study by creating the business development infrastructure and ecosystem lacking outside of many major metropolitan areas.
By covering multiple aspects of startup support, VDOs have multiple strategies available to deploy resources and may be better positioned to capitalize on narrow philanthropic, corporate, or public funding opportunities. The VDO model also offers funders a path to address the companies’ business development and funding needs under one roof.
For SSTI’s audience and the TBED Community of Practice in particular, the VDO model may be an aspirational goal. For organizations that are not currently VDOs, the model may offer an opportunity to proactively and strategically build toward a new way of operating and increasing impact. Mission-based organizations are often steered by changing winds of funding opportunities. Conversely, organizations that already have an operating model and demonstrated success are often better prepared to take advantage of funding opportunities when they arise.
Even with the many benefits of the VDO model, not every organization needs to or should become one. A VDO might become one more tool in a regional TBED arsenal or may provide the means to optimize impact through their leaner, more business-focused approach to economic development.
Please contact us if you are involved with a VDO, are interested in learning more about the model or if you have questions about VDOs and how to combine smart money delivery with intelligent innovation entrepreneurship support. We also invite you to join our TBED Community of Practice to discuss the emerging models, trends, and practices in TBED and to participate in conversations with experts in the field who are innovating and making an impact.