SSTI Digest

Key findings from two independent research projects reveal the pandemic’s corrosive effect on the nation’s innovation commercialization capacity. The projects separately explored how two related innovation financing components — angel investment and venture capital — were reacting to the coronavirus-caused slowdown. Individually, the results might appear simply as yet more interesting curiosities about the pandemic. Considered together, however, and one begins to see the potential unraveling of the broader U.S. innovation tapestry required to support long-term economic prosperity. The impact is likely to be felt most strongly in those states and metropolitan areas with fragile regional innovation systems. The evidence. First, last week’s issue of the Digest included a story presenting the results of the Angel Capital Association’s survey of its members. The survey found responding angel investors were more likely to concentrate any additional investments into their existing portfolios and only 15 percent were considering new deals. Nearly one-third of respondents were disinterested in making any additional investments at this time. The second paper, presenting…

In addition to decreasing enrollment numbers at both two- and four-year institutions of higher education, detailed in an earlier SSTI Digest story, higher ed is facing other threats from looming state budget cuts. While enrollment numbers are still in flux, many universities are already making drastic budget reductions, and that pain will ultimately land on students, which could impact educational attainment and student debt for years.

Personal income levels throughout the country received a boost in the second quarter of 2020 through assistance programs from the federal government designed to combat the economic difficulties brought on by the COVID-19 pandemic. In their recently published report, Pew Charitable Trusts explains that “the surge in federal assistance more than offset record losses in earnings, which counts wages from work and extra compensation such as employer-sponsored health benefits, as well as business profits.” Earnings reflected the largest losses on record, falling by about $860 billion from the prior quarter and $670 billion from a year ago. With the federal aid, total personal income within the United States saw a growth of 9.7 percent. However if the government-provided funding were removed from the equation, Pew found that personal income across the nation had fallen by 4.8 percent, noting that “total personal income would have dropped by more than 5 percent in nearly half of states.” The Pew team also explores how the percentage of total personal income growth varied between states; Connecticut (5.1 percent), Tennessee (5.6 percent), and Alaska (6.6 percent)…

After two years of research on technology and jobs, MIT’s Task Force on the Work of the Future has issued its final report, and the news is hopeful: with better policies in place, more people could enjoy good careers even as new technology transforms workplaces. The report, “The Work of the Future: Building Better Jobs in an Age of Intelligent Machines,” argues that as technology takes jobs away, new opportunities open. The real issue is improving the quality of jobs and ensuring a greater shared prosperity, especially among middle- and lower-wage workers. Lead authors and task force co-chairs David Autor and David Mindell both commented in a press release accompanying the report that the world of work is changing and there should be more discussion around the subject of technology and work. Elisabeth Beck Reynolds, executive director of the task force, said that it’s time to move beyond the hype about technologies and look at what can be done to move things forward for workers. The task force’s final report presents six conclusions and policy recommendations and argues for changes like institutional innovation that complement technological change,…

Contradictory to the prevailing theory that fintech companies — utilizing cutting-edge algorithms and incorporating data beyond the standard credit reports — have better insights into borrower risk profiles than traditional lenders, new research indicates that fintech borrowers are more likely to default on their loans than their counterparts who utilize traditional banks. In their forthcoming article in The Review of Financial Studies, Marco Di Maggio and Vincent Yao find that fintech companies are actually more reliant on “hard information” than traditional banks and typically acquire market share by first lending to higher-risk borrowers and then to safer borrowers. Although their analysis is based entirely on the personal loans market, the research raises another flag, adding to a growing list of fintech issues ripe for regulation.

Criticism of the federal Opportunity Zone program has been directed at individual examples of questionable tracts for inclusion, the process for selecting tracts in each state, and the merits of some of the development projects underway. For example, some question inclusion of lowlands subject to flooding as sea levels rise with climate change and subsidence, while others raise eyebrows at inclusion of greenfield freeway interchanges or tracts already undergoing gentrification in fast growing cities. Complaints have been raised about projects where the end use (e.g. a hotel) will offer low-wage, part-time jobs without benefits for worker or a chance of raising them out of poverty.  Still others question if a decade of forgone public revenues from real estate projects that would have happened anyway is good policy. A new report from the U.S. Government Accountability Office recommends Congress pass legislation granting the Treasury Department the authority to actually evaluate the program to determine if all of the concern is justified.  The economic development linchpin of President Trump’s re-election effort, and further embraced in President-elect Joe Biden’…

The Angel Capital Association has recently released its Angel Funders Report 2020, examining the angel investor landscape through a survey of 76 angel groups and investments made during 2019. While the survey results represent only a portion of the larger angel investment community, the ACA report does provide useful insights into the current trends within the angel funder sphere. The report also provides an in depth look at the current trends and methodology of the participating angel investors while also exploring the changes in investment strategy throughout recent years. In gauging willingness to invest, ACA notes a shift from the spring. When surveyed in April 2020, 2 percent of angel funders were willing to increase investment, 63 percent planned no change in investment level, and 33 percent had a decreased willingness to invest. When revisited in September 2020 however, 19 percent of the surveyed angel groups had a willingness to increase their investments, 49 percent felt no change in their investment level, and 32 percent of funders held a decreased interest in investing. The report also notes a shift in investment type as 34 percent of angel groups…

Amid dwindling hope for a second stimulus package from Congress, the Federal Reserve has widened the terms of its Main Street lending program to better target support for small businesses. According to the new guidelines, the minimum loan size for three Main Street vehicles available to for-profit and non-profit borrowers has been reduced from $250,000 to $100,000. Corresponding fees have also been adjusted to encourage loan dispersal. A new FAQ has also been added clarifying that Paycheck Protection Program (PPP) loans of up to $2 million may be excluded for purposes of determining the maximum loan size under the Main Street lending program. The program is designed to help credit flow to small and medium-sized for-profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 crisis, but now need loans to help maintain their operations until they have recovered from, or adapted to, the impacts of the pandemic. The loans are not grants, and cannot be forgiven. Thus far, the Main Street lending program has made only 400 loans totaling $3.7 billion – far below the $600 billion in total funding the Federal…

The Securities and Exchange Commission (SEC) recently published a final rule clarifying acceptable communications during “demo days” and expanding the accessibility of crowdfunding, among other changes. The new rule establishes guidelines to make “demo day” activities exempt from general solicitation requirements. Exempt events must be sponsored by institutions of higher education, nonprofits, incubators, accelerators, local governments or, added in response to SSTI’s letter on the proposed rule, state governments or state/local instrumentalities. The rules provide guidance on the types of communication allowed during the events and limits on compensation for hosting the event, but, unfortunately, the SEC opted not to include any of the clarifications requested by SSTI and other commenters. The Regulation Crowdfunding rules are largely in line with the SEC’s initial proposal, which was covered in the Digest earlier this year, and include raising the offering limit to $5 million and providing guidance for investment limits on non-accredited investors. Temporary rules relaxing crowdfunding information disclosures have been extended another 18 months (see SSTI's …

The United States is currently ranked tenth in research and development intensity (a measure of R&D investment as a percent of a nation’s Gross Domestic Product) but has continued to lead the pack in total research and development spending, according to the American Association for the Advancement of Science (AAAS) recently published A Snapshot of U.S. R&D Competitiveness: 2020 Update. The report analyzes the role R&D investment plays within the U.S. while also examining research and development trends globally. It notes that while U.S. spending remains high, China’s R&D spending has “seen staggering increases over the past two decades, and remains an undeniable leadership rival to the U.S.” When measuring R&D intensity, AAAS found that the U.S. ranked tenth when combining public and private R&D investment, but is ranked 14th when only factoring in public spending towards R&D. In addition to weighing R&D funding, the AAAS brief explores the growth of the research workforce throughout the world. America’s 1.5 million fulltime research workers ranks behind China and the combined 28 E.U. nations in total research workforce. When adjusted for…

The Senate released its draft appropriations bills for FY 2021 this week. Priorities for SSTI’s Innovation Advocacy Council did well, with increases for Build to Scale ($38.5 million, + $5.5 million from FY 2020) and FAST ($5 million, + $2 million) and level funding for Regional Innovation Clusters ($5 million). Science and innovation highlights within the FY 2021 budget proposal include the following: Economic Development Administration – Build to Scale – $38.5 million (+ $5.5 million) STEM apprenticeships – $2 million (no change) Small Business Administration – Regional Innovation Clusters – $5 million (no change) FAST – $5 million (+ $2 million) Growth Accelerators Challenge – $2 million (no change) National Institute of Standards & Technology – Manufacturing Extension Partnership (MEP) – $149.5 million (+ $3.5 million) Manufacturing USA – $16 million (no change) Defense Manufacturing Communities – $50 million (+ $45 million) Rural Innovation Stronger Economy – $5 million (no change) Appalachian Regional Commission – $180 million (+ $15 million) National Science Foundation – $8.5 billion (+ $200 million) National…

I suspect the whole country woke up Wednesday morning and looked at the half that voted for the other candidate and said, “What were you thinking?!?” Rather than attempting to address the question of what people were thinking, let me attempt to address where we are and what we need to do. The 2016 election of Donald Trump, the rise of Trumpism, the pandemic and George Floyd’s killing have laid bare fundamental crises that face America. The challenge that presumptive President-elect Joe Biden has is how to address the stark divisions we have in the country. The election results are just representative of the divisions we’re facing.