SSTI Digest

Even though the total amount invested by venture capitalists (VCs) grew for the fourth straight year to nearly $77.3 invested, Pitchbook analysts contend that 2014/2015 was the peak of the VC industry for the foreseeable future. While high valuations drove up the total amount invested, the number of deals plummeted during the second half of 2015 according to new data from Pitchbook.  In addition to insights from Pitchbook, other analysts contend that the declining trends of 2015 should remain through 2016.

In the days leading up to his final State of the Union Address, President Obama hinted that in lieu of the usual wishlist of policy proposals he would lay out his take on the issues that will define American public life over the next few decades. These issues took the form of four big questions, the first two of which directly relate to the work of tech-based economic development professionals. First, what are the building blocks needed to ensure that all Americans have access to opportunity and security in the new economy? Second, how do the U.S. and the world best employ technology to solve the biggest challenges facing mankind?

As top tech-hubs like California’s Bay Area become increasingly unaffordable, a new Jones Lang LaSalle report finds evidence that secondary markets will continue to experience accelerated industry growth. According to the 2015 Technology Office Outlook report, markets such as New York, San Francisco, and Silicon Valley, had the greatest startup momentum (as measured by access to capital, innovation, and top talent), but were also the most expensive. These prices have made secondary and tertaitry technology markets look considerably more attractive, the report finds.

The report, which is released annually, seeks to understand the locations where the real estate costs are the highest – and where costs are growing the fastest. By analyzing the areas that technology companies are leasing space and expanding, the report also identifies high-opportunity markets where firms can find both value and access to talent.

In late 2015, the U.S. Securities and Exchange Commission (SEC) released two rule changes that may shape the future of equity investments in startups and small businesses. The two new rules directly address issues related to the accreditation of investors – an important element of the angel investment ecosystem that has long driven early stage investments in startups. In December, the SEC released a report on proposed changes to the definition of accredited investors. In November, the SEC released its rules for Title III of the JOBs Act that allows startups to raise equity from both accredited and non-accredited investors through a publicly solicited crowdfunding campaign. The new rules will allow equity crowdfunding to go into effect in May of 2016.

The Indianapolis-based Lilly Endowment announced three grants totaling $42 million to boost regional development efforts in 11 counties located in Southwest-Central Indiana with a focus on research and development, workforce and education, and efforts to enhance quality of life. The recently formed Regional Opportunity Initiatives will receive $25.9 million to implement an education and workforce plan as well as a regional opportunity fund for quality-of-place investments. The Lilly Endowment awarded $16 million to the Central Indiana Corporate Partnership Foundation to establish an Applied Research Institute near the Naval Surface Warfare Center, Crane Division. To address societal challenges faced by rural communities, Indiana University Foundation will receive $126,000. In December, Gov.

Around the world, entrepreneurship education continues to permeate schools, nonprofits, economic development organizations, and college campuses. At the root of this momentum is a belief that entrepreneurship can be taught to anybody, regardless of their innate skills. This Recent Research article presents new conclusions that suggest individuals can learn entrepreneurship by being exposed to other entrepreneurs. In other words, both nature and nurture contribute to the likelihood one becomes an entrepreneur.

Angel group valuations and deals continued to rise through the third quarter of 2015, according to the most recent HALO Report, a publication of the Angel Resource Institute at Willamette University in Oregon. While median angel-only round sizes were $500,000 in both the first and second quarters of 2015, the third quarter saw this amount increase 45 percent to $725,000. Through the third quarter, median seed pre-money valuations increased to $4 million, a 33 percent increase from 2015, and the highest valuation in the Halo Report to date. Other notable findings in the report include:

While many states have begun negotiations on budget plans for FY17 and beyond, Pennsylvania has made some progress on FY16 spending. Gov. Tom Wolf signed a partial budget that funded many agencies and programs related to economic development, but that did not include higher education funding and other operations. In the coming months, SSTI will review gubernatorial addresses and budget proposals related to economic development. This week, we highlight developments in Hawaii, New Mexico, Pennsylvania and Virginia.

Hawaii

Gov. David Ige released his $13 billion proposed fiscal year 2017 supplemental budget in late December, building on the biennial budget passed last year. The governor’s office is touting $729 million in infrastructure and economic development spending and another $248 million for education. The boost for infrastructure spending would support improvements to airports in Kona and Honolulu, and the modernization of Honolulu harbor. Most of the new education funding would support capital improvements, but $4 million is provided for the operating costs of the University of Hawaii’s Cancer Center.

The U.S. Department of Commerce's National Institute of Standards and Technology (NIST) plans to fund up to two new institutes within the National Network for Manufacturing Innovation (NNMI). NIST's solicitation will be the first in which the funding agency has not predetermined the industry of focus for the institute, however, the agency is particularly interested in topics deemed critical by the President's Council of Advisors on Science and Technology (PCAST) Advanced Manufacturing Partnership. These include manufacturing robotics and biopharmaceutical manufacturing. NIST plans to release the solicitation for the institutes in January 2016. Designees will receive up to $70 million total over five to seven years. Learn more at: https://www.commerce.gov/news/press-releases/2015/12/nist-issues-notice-intent-fund-new-manufacturing-innovation-institutes.

As recently reported in the SSTI Digest, Congressional leaders were able to reach an agreement on federal spending that averted a government shutdown. The FY16 omnibus appropriations legislation and an accompanying bill related to tax provisions were signed by President Obama on December 18. After several years of sequestration spending caps and mostly flat funding for TBED-related programs, the new agreement will bolster funding for many science and economic development initiatives, as well as extend a number of tax credits for small and high-tech businesses. In this article, SSTI takes a closer look at the changes for research and entrepreneurship funding delivered by the deal.

The National Telecommunications and Information Administration (NTIA), located within the U.S. Department of Commerce, announced that their closing deadline to submit nominations for the Digital Economy Board of Advisors has been extended to January 12, 2016. The Department of Commerce’s new Digital Economy Agenda was unveiled in November and focuses on four key objectives: promoting a free and open Internet worldwide; promoting trust online; ensuring access for workers, families, and companies; and, promoting innovation.  The board, which will consist of 15-20 members appointed by Secretary of Commerce Penny Pritzker, will serve two-year terms and help to further develop the Digital Economy Agenda.

This week, congressional leaders reached a deal on spending that would prevent a federal government shutdown. The omnibus appropriations bill would fund the Economic Development Administration’s (EDA) Regional Innovation Program at $15 million, an increase of $5 million over the previous year. The Regional Innovation program is SSTI's highest legislative priority because of the flexible funding it provides for regional innovation activities.