SSTI Digest

A new report underscores the shifting position of the United States in the global R&D competition and the continuing rise of China. While two charts from the National Science Board’s The State of U.S. Science and Engineering summarize the changing nature of this international struggle, the underlying data on where the U.S. and China are investing their resources should really grab the attention of policymakers and one would hope motivate action by the U.S.

China’s advance in R&D spending isn’t surprising for anyone that’s interested in science and technology policy, but the report illustrates the sharp increase in R&D spending and how far the Chinese have come in the last 17 years.   From less than 50 billion in purchasing power parity dollars in 2000, Chinese R&D spending increased to roughly 500 billion in purchasing power parity dollars in 2017. While U.S. spending increased over the same time period, it was not nearly at the same rate of increase as China’s.

The IRS has released the “final” rules for Opportunity Zones (OZs). At this point, funds, investors and businesses are able to access all of the incentive information that is likely to be available for the next few years. The OZ structure continues to be simpler to implement for single-purpose real estate investment, but the final round of guidance has provided some additional clarity and support for multi-asset and business investment funds. 

SSTI is providing members with a three-page review of the rules that are most relevant to investing in eligible startups. Members can login or create an account to access the file from the "Member-only Documents" section of the site. Non-members can join today for access.

PitchBook and NVCA’s Venture Monitor for 2019 largely depicts continued trends from 2018: $100 million-plus investments, $2 million-plus average for angel and seed deals, and more than 10,000 investments of more than $100 billion. In a few cases, 2019 data suggests average deal sizes may have peaked in 2018, but more time is needed to clarify the trend. At the state level, California’s lead in VC deals continues to be eaten away by the next 10-15 most active states, while those in the bottom two-thirds of the country by deal volume continue to show limited growth.

Governors are continuing to roll out their state of the state addresses and this week’s SSTI review highlights differences in the states economies: while Arizona is enjoying population growth Vermont is struggling to attract workers. More states are focusing proposals on climate change and clean energy initiatives, with New York proposing a $3 billion bond initiative to build resiliency, and Colorado, New Jersey and Vermont proposing clean energy and climate initiatives as well.  Rural broadband, higher education and workforce initiatives also are throughout the state addresses. SSTI presents excerpts of the governors’ addresses as they relate to the innovation economy below.

Arizona

Gov. Doug Ducey delivered his sixth state of the state address on Jan. 13, and heralded the in-migration the state is experiencing, noting that Arizona is attracting 120,000 new residents a year and touted its diverse economy and growth:

Voters on both coasts may be asked to approve funding this year to help combat the challenges of climate change. Governors in both New York and California are proposing measures to tackle environmental issues, with New York Gov. Andrew Cuomo launching a “Restore Mother Nature Act,” which his office is calling the nation’s most aggressive program for habitat restoration and flood reduction, and California Gov. Gavin Newsom is proposing a climate budget that would invest $12.5 billion over the next five years.

In New York, Cuomo’s $3 billion ‘Restore Mother Nature’ Bond Act would require approval by the voters in November. The program would reduce flood risk and revitalize critical fish and wildlife habitats by among other ways, reclaiming natural floodplains, preserving open space, conserving more forest areas and expanding renewable energy.

While states across the country are focusing more on clean energy and climate change, SSTI is happy to share an opportunity from one of our members. The Vermont Sustainable Jobs Fund, a Vermont based entrepreneurial support organization, announced the launch of the Delta Clime VT Energy 2020 business accelerator. This business accelerator is focused specifically on startup and/or seed stage technology ventures who offer products or services, including smart home and building technologies, aimed at reducing fossil fuel use and greenhouse gas emissions in buildings; enable better integration of distributed resources and smart building technologies; increase resiliency and/or support demand management strategies that avoid peak time energy usage. This program will assist up to 10 innovative energy startups to grow their businesses, connect with mentors and advisors, and gain exposure to customers and investors. Applications are due by Feb. 16. Learn more at www.DeltaClimeVT.com.

The Clean Energy States Alliance (CESA) released a report detailing the benefits, obstacles and importance of working with under-resourced communities to facilitate access to solar energy. The report, Solar with Justice, provides a detailed set of recommendations for successfully providing solar technology to low- and moderate-income areas. CESA's suggestions target six specific stakeholders: state governments, philanthropic foundations, community organizations, municipalities, investors, and the solar industry.

Taking a deeper dive into R&D expenditures at U.S. institutions of higher education, this week’s edition of Useful Stats examines the fields in which this R&D was performed at the metropolitan level in 2018. Expanding on a previous SSTI report showing that R&D activity at universities and colleges is clustered heavily on the coasts, this analysis uses the NSF’s Higher Education R&D (HERD) data on the research expenditures at individual institutions to determine how this funding is distributed among the various fields of study, with life sciences outpacing all other fields.

As shown in the map below, HERD expenditures in the life sciences (primarily the biological, biomedical, and health sciences) accounted for the vast majority of all higher education R&D activity in the U.S. — accounting for 57.8 percent ($45.8 billion) of the total performed in 2018. Engineering R&D was a distant second, accounting for 15.6 of the total.

The governors are beginning their state of the state addresses, which SSTI reviews every year for news from the states’ executives on innovation-related initiatives. Each year we bring you the governors’ own words from their speeches as they pertain to the innovation economy. In this first installment, we see education, workforce, and broadband initiatives from Idaho and Virginia, which is also proposing a new office for wind development, and West Virginia is turning to new uses for coal and a new investment fund.

Idaho

Gov. Brad Little focused on workforce, education, broadband and other economic initiatives:

The Senate confirmed the nomination of Jovita Carranza to become the administrator of the U.S. Small Business Administration (SBA) this week. During her recent confirmation hearing, Carranza was pushed on the committee’s concerns about the leadership of SBA’s Office of Innovation and Investment, which overseas both the Small Business Investment Corporation (SBIC) program and SBA’s SBIR/STTR policy office. In response, Carranza agreed to address those concerns, ensure that the SBIR/STTR office’s staff backlog is addressed, and testify before the committee within 90 days about her solutions to these issues.

Carranza, who most recently served as U.S. treasurer, was deputy administrator for SBA under President George W. Bush and previously had a long tenure with UPS.

In 2019, the administrations and legislatures in many states grappled with if and how to adjust state economic development initiatives to leverage the federal Opportunity Zone (OZ) program. The actions of 12 states that implemented new activities are described below.

Notably, many of these state efforts require applications and reports on OZ projects — unlike the federal OZ incentive. Some created a new requirement specific to OZs and some states placed the OZ benefits within existing initiatives that already require such information sharing. Investor use of state OZ benefits, therefore, may be one means by which the costs and benefits of the federal program will be able to be evaluated.

While the labor force participation rate of prime-age individuals (age 25 to 54) remains below its pre-recession level, it has been increasing since 2015. A recent report from the Federal Reserve Bank of Kansas City found that college-educated women have made the largest contribution to this recovery.

Researchers found that the participation rate has increased 1.7 percentage points to 82.6 percent in 2019, corresponding to 3 million more prime-age individuals in the labor force than in 2015. However the gains were not evenly distributed across all workers.