Innovation Report Presentation - Worksource...

Innovation Report Presentation

2030 Group

Presented By: Jonathan Aberman

Research Approach

• Multidisciplinary team.

• University of Maryland, AU and Virginia Tech contributed expertise.

• Team included Ph.D data scientists, economists, tech transfer professionals, MBAs and a venture capitalist.

• Reviewed federal and state data and commercial data bases.

• Reviewed salient studies from universities and respected think tanks.

• Interviewed 100+ individuals:• Millennials and experienced

entrepreneurs.• Tech transfer personnel.• Cyber, life sciences, consumer

software, tech transfer and government contracting focus groups.

3/24/2016 Amplifier Advisors LLC 2

Additional Context on Research• Our Team collected and organized data to match up with the geographic

scope of the Roadmap to help us come up with collective action. We intend the data to be interoperable with Stephen’s work, so that the Roadmap and our Innovation work can inform each other.

• In many instances this required looking at individual transactions, grants and money flows on a granular level to build up into a complete data base.

• Data came from federal sources, respected private data bases and industry think tanks and groups.

• We looked at many academic sources to gather information on technology commercialization best practices and economic development activities supported by innovation businesses.

• Since job statistics don’t easily segregate into company stage of development (small business, that is rapidly growing for example), we had to find data sets that would help us infer where rapid startup company growth was occurring. Looking at M&A, IPO and venture capital data is an important guidepost, which I will explain shortly.


Here are the Specific Areas We Addressed

• Does our region have an entrepreneurial culture?

• Does it have capital to support the creation and expansion of rapidly growing businesses?

• What is the role of the federal government in this sector of the economy?

• Is technology commercialization an area of opportunity for our region?


What Are We Focusing On for Our Research and Why?

• The Kauffman Foundation and others (including the SBA) have asserted that most job growth comes from businesses less than five years old.

• Technology innovation driven businesses (think of Google, or Intel for example) provide 20% of our National Gross Domestic Product.

• New technologies as they come to market drive new industrial waves, which provide the opportunities for high growth businesses. Consider for example, the Internet Boom, or the current Web 2.0 trends.

• In order to create high value added jobs in our region, focusing on technology-driven innovation business is the place to focus.


What Do We Mean by a Technology Innovation Business?

First Type: Using Existing Technologies

• Businesses that provide a new way to consume something that already exists

• For example, Apple Ipod or PinkBerry Yogurt

Second Type: Using New Technologies

• Businesses that provide something truly novel

• For example, Tesla or 23andme


People Have Asked If Our Region is Entrepreneurial?


• The answer is YES.

• But, how we are entrepreneurial is highly important to understand in order to grow new high growth technology businesses.

Did You Know that Our Region Has More Small Business Formation than Boston or Silicon Valley?

• We looked at small business formation data sets and matched up with the geographic bounds of the Roadmap research.

• This chart (and the data behind it) shows us that there is new business formation in our region at a good clip – a key indicator of entrepreneurship.


155,000

160,000

165,000

170,000

175,000

180,000

185,000

190,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Washington Metro Area Silicon Valley Boston

Small Business Formation (2000-2012)

Source: Small Business Administration

Did you Know Our Region is a National Leader in Rapidly Growing Businesses Measured by Revenue?

• Inc. Magazine compiles an annual list of the 500 FASTEST GROWING startup businesses measured by REVENUE GROWTH.

• We looked at EVERY company on their list from 1995 to 2015.

• We learned that our region had by a LARGE MARGIN the largest number of companies on this list.

• We also were able to determine what industry our companies were in. Worth Noting:• In 1999 during the Internet Boom our

companies on the list were in telecom, Internet and Media.

• In 2015 they were more in government services, healthcare services and solutions and consulting.

0

100

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VA CA MD TX FL NY MA IL GA PA NJ OH CO MI DC MN WA NC TN UT

Number of Companies Listed in Inc. 500 Database By State (1995-2015)

Source: 2015 Inc. 500 List of Fastest-Growing Private Companies in America


Our Region Also Compares Very Well as a Place for Public Offerings.

• Public offerings show that businesses have grown to the point that the public markets want them. A key indicator of success.

• Our region’s ability to create public companies is another indication of entrepreneurial success and activity.

• Note the types of companies are concentrated in Biologics/health technology and business and financial services. I will explain why this is important later in the presentation.


Business and Financial Services

30%

Biological and Health

Technology28%

Other18%

Commercial Services

7%

Communications Technology

7%

Computer Harware3%

Software3%

Business and Leisure Travel2%

Media and Information

2%

1999 2007 2014

Total IPOs 527 193 244

Washington Area 53 46 67

Percent of IPOs 10% 24% 27%

Our Region Has Achieved a Surprisingly Large Number of $1bn+ Business Sales

• We looked at every business sale in the Bloomberg data base from 1997 to 2015.

• There were 73 sales of MORE THAN $1 BILLION.

• Note the industries of the purchased company: concentration in communications technology, business and financial services and government contracting.

• As important for our conversation, however, is that 63 of those sales were to buyers OUTSIDE OF OUR REGION.


16

15

11

8

7

5

4 Total, 3

Total, 3

Total, 1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total

Business and Leisure Travel

Software


Computer Harware

Commercial Services

Government Contracting

Biological and HealthTechnology

Other

Business and FinancialServices


Billion Dollar M&A Deals, 1997-2015 (Acquirer External)

Source: Bloomberg

Our M&A Data Also Shows a Disturbing Trend

• We looked at every business sale in the Bloomberg data base from 1995 to 2015.

• Note total number of business sales by industry to buyers from OUTSIDE our region during this period.

• Note the number of Software businesses, Biological and Communications Technology Businesses Sold.

• If you are worrying that outsiders are buying our promising technology innovation companies the data shows that you should be concerned.


Source: Bloomberg

246

194

190

173

159

122

88

70

53 Total, 14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total

Business and Leisure Travel


Government Contracting

Computer Harware

Biological and HealthTechnology

Business and FinancialServices


Software

Other

Commercial Services

All M&A Deals, 1995-2015 (Acquirer External)

What About Venture Capital: Into What Types of Businesses Do They Invest in Our Region?

Internet Software23%

Other21%

Software17%

Application Hosting Services

9%

Healthcare9%

Healthcare Technology

8%

Biotechnology5%

Hotels, Restaurants and Leisure

5%

Communications Equipment

2%

Advertising1%

Business-to-Business

0.4%

2015

Source: Capital IQ


• We looked at every venture capital and angel capital investment reported to CapitalIQ (a leading commercial database for private financings) for 1999, 2007 and 2015. The 2015 distribution of deals is in the chart.

• There were approximately 350 deals.

• $1.5 Billion raised by these companies. This is around 2% of all national venture capital funding nation wide for 2015. This is a very small percentage, and puts us behind places like Silicon Valley, Boston, Southern California and New York, among others.

• Note that the concentration of businesses financed by VCs is in areas that are similar to the M&A sale chart to outside buyers.

Some Additional Important Takeaways on the VC Data


• There is a large ‘funding gap” between seed capital and expansion capital.

• When expansion capital is provided it often comes from outside our region.

• These are businesses that do not grow off revenue, they grow off capital to acquire revenue.

Federal Spending on Innovation in Our Region Dwarfs Venture Capital

Federal expenditures by Innovation and Technology Sectors 2003 – 2015

Source: VT-ARC


• We looked at federal funding flows into innovation described activities into entities in our region.

• You can see clearly how much larger a source of capital the federal government is for both acquisition of technology ($28 billion) and research and development ($4 billion).

• The question is whether this is a “dependency” or an opportunity. This depends largely on what we do with federal R&D and how well we address certain challenges to government technology spending.

US $ (100 M)

The Data We Have Gathered Shows Our Region is Entrepreneurial and Creates Rapidly Growing Businesses

• We are leader in revenue-led businesses.• We are a laggard in growth-led

businesses.• We have concentrations in:

• Government services and technology.• Healthcare and related services.• Software, including cyber, data analytics.• Biotech.• Consumer, media and hospitality.

• We are heavily influenced by federal spending on innovation.

• Our entrepreneurs are “following the money.”


We Also Have Learned That Our Region Has a Disconnect Between Venture Backed Startups and Our Larger Companies

• Concerns about “out of region” buyers moving our startups elsewhere is supported by the data.

• Our concentrations in intra market M&A and IPO do not overlap with venture backed businesses.

• Businesses that are grown in areas of local concentration are more likely to be purchased by local buyers.

• There is a “DC model” of growing an innovation business.


Our Region’s Role as a Leading Source of National Security Innovation is at Risk

• One thing we heard consistently in our conversations with government contracting and cyber innovators: The Federal Government is looking to change how it consumes innovation from entrepreneurs.

• Over the last year the DoD, DHS, the State Department and the Army have all opened offices in California to obtain technology innovation products.

• In August the Pentagon created a consortium based in Silicon Valley of 162 businesses and non-for-profits including Apple, Boeing and Lockheed Martin to create advanced wearable technologies.

• The issue might be is the “government diversifying away from us?”


A Concerning Leading Indicator of Federal Interest in Innovation Elsewhere

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1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Silicon Valley Washington Metro Area Boston Atlanta

SBIR/STTR Awards 1983-2014 (millions)

Source: SBIR.gov (powered by Small Business Administration)


• We looked at the specific grants to companies in our region, in comparison to Boston and Silicon Valley for he Small Business Innovation Research and Small Business Technology Transfer Programs.

• These programs are the primary way the federal government gives startups money to create new innovation.

• The change in grants to Silicon Valley are a troubling trend for our region’s leadership as a source of federally funded technology innovation.

ConversationsOur Innovation Community Has a Lot to Say


Frustration

“I have been frustrated that as a serial entrepreneur, I have all these state and federal resources, but could never get at them. Even Montgomery County, I simply cannot get access to resources. And I am not alone… the desire and need are there, but the opportunity and access are limited.”

- Voices from Tech Transfer sector


We Are Not Understood

“The reputation that our region has is that we do stuffy federal tech. But that’s not true. We are doing stuff that improves people’s lives. But we carry that albatross around because it’s our reputation: people think, "if you want to clock in and be a boring-ass programmer, DC is the place for you.”

- Voices of Millennial tech entrepreneurs


DC is Distinct

“We must play to our strengths and unlock access to the federal government. Procurement officers and lawyers are the problem, but no one wants to take the risk of telling them what to do. We need a way to sell small business products into government — it would be huge for the region.”

- Voices of established DC tech entrepreneurs


Clear Need for Reform

“The conflict-of-interest rules at NIH are impeding commercialization/progress/public access to significant advances in the lab. There was a period from 1993 to 2001 when the rules were interpreted differently, and that was a successful model. We must get NIH to change rules so that scientists can enjoy acknowledgment of their work, and have incentives to step out of the lab.”

- Voices of Life Sciences sector


But, Can We Build 21st Century Companies?Converting Research and Development Into Commercial Technologies


New

Company

New

Company

New

Company

New

Company

The Relationship of

Government R&D to Innovation

Business Growth

Venture

Capital

Government

Funded

R&D


Nationally, Universities Get a Significant Amount of Federal R&D Dollars

Intramural24%

Industry42%

Universities19%

FFRDCs9%

All Other6%

Intramural24%

Industry43%

Universities20%

FFRDCs8%

All Other5%

Intramural25%

Industry40%

Universities21%

FFRDCs8%

All Other6%

Source: National Science Foundation

2015

2007

1999


Our Region’s Universities Get Disproportionately Smaller Amounts

All FFRDCs3%

Federal intramural

33%Industrial firms59%

Other nonprofits

1%

Universities and colleges4% All FFRDCs

13%

Federal intramural

15%Industrial firms60%

Other nonprofits

3%

Universities and colleges9%

NASA R&D funding by recipient 2013

DoD R&D funding by recipient2013

Two Examples:


Source: National Science Foundation

Creating new Innovation Businesses From Technologies Developed in Our Universities Face Significant Headwinds

• According to a Brookings Institute study, no university from our region has been among the top 20 in licensing revenue at any time from 2003 to 2013.

• The same survey estimates that the universities not in the top 20 operate their tech transfer offices at a loss.

• Much of our regional university research is basic research which is MUCH HARDER to turn into new businesses.

• Data show that financially successful tech transfer is more likely to occur in biotech and medical technologies.

• Many studies have shown that the successful regions have a high level of investment between the business community and the university.


There are Also Significant Headwinds Against Benefitting From Our Region’s Federal Labs

• Many of the labs are engaged in basic research.

• National security requirements limit permeability to outsiders.

• Internal governance and conflict rules prevent scientists’ ability to be entrepreneurial.

• Notwithstanding some efforts by current White House, technology transfer is not a funded mandate.

• There is a large cultural disconnect between the national security establishment and entrepreneurs.


What Do the Data Tell Us? To Create and Grow Our Innovation Community There is Work To Do


We Have a Proven Recipe for Innovation Business Success


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Time (years)

Launch

Exploitation

Commoditization

Returns from a

Sustained

Competitive

Advantage

Key Ingredients

• We have powerful concentrations of business activity: business and financial services, commercial services, government contracting (technology), biotech/life sciences, software (cyber and data analytics) and healthcare.

• There is a strong relationship between federal spending and our innovation economy.

• Our region’s entrepreneurial community is demonstrably adaptable.

• The “DC model” of entrepreneurship is unique and successful.


What Do We Recommend?


Tap Into Our Resources

• Identify which technology innovation industries have established companies in our region looking for local innovation.

•Create a regional non-conflicted not-for-profit consortium to foster connections in these verticals.

•Create funding vehicle tied to the consortium that is positioned between seed stage and expansion capital.


Create New Industries Based on Federal R&D

• Create a regional not-for-profit that has a research function to track federal R&D dollars and identify new verticals.

• Identify and break down “governance challenges” that prevent tech transfer.

• Connect business, entrepreneurs and technology creating labs.

• Create funding vehicle tied to company creation that is positioned between seed stage and expansion capital.


Educate Our Workforce for a Rapidly-Changing Economy

• Urge our region’s universities to make entrepreneurial skill development part of a cross-disciplinary curriculum across all academic programs.

• Urge our universities to create certification approaches to denote skill-based accomplishment to help employers find talented potential employees.

• Encourage our region’s business schools to enter into a strategic relationship with a least one federal lab for the purposes of technology commercialization and business creation.

• Encourage our secondary school systems to include at least one course on entrepreneurship and leadership and one course on coding and application as part of its core curriculum.


Jonathan Aberman has been part of the Washington, DC technology community since 1998, when he moved to our region from New York, New York to start the east coast venture capital practice of Pillsbury Winthrop. He has been an active voice for our community’s development as an entrepreneurial center, and has been recognized as a leader of change and influence in print and television media, among other things being recognized by Washingtonian Magazine as a “Tech Titan,” by Washington Business Journal as a member of the “Power 100” and by the Commonwealth of Virginia as one of the “50 Most Influential Entrepreneurs” in the Commonwealth.

He obtained an education in economics and law (with post graduate qualifications in each) from the London School of Economics (MSc. in Economics with Distinction), Cambridge University (BA and MA in law with Honors), New York University (LLM) and George Washington University (BA with Honors and Phi Beta Kappa).

During his subsequent career as a professional advisor, he worked in the financial services industry in London for Daiwa Securities, Goldman Sachs and Donaldson Lufkin Jenrette, and then as a corporate/venture capital lawyer as a partner in technology law firms Fenwick & West, Pillsbury Winthrop and Fish and Richardson. During this time Jonathan’s focus was on opening new business initiatives and offices.


He started Amplifier Ventures in 2004 to help entrepreneurs launch technology businesses, and has since seeded 16 startup technology businesses in internet, nanotechnology, energy conservation, mobile and cybersecurity sectors. An affiliated business, Amplifier Advisors followed in 2009, to allow Jonathan to apply his expertise to entrepreneurial approaches to innovation creation and commercialization, working for a wide range of government, for profit and not-for-profit ventures. In 2012, he launched FounderCorps — a not-for-profit corporation promoting technology mentorship and regional economic development. In 2013 he formed TandemNSI, a public private partnership that has created a large and growing community of entrepreneurs and national security agencies to address advanced technology challenges of national importance.

He is a Professor of Entrepreneurship at the Robert H. Smith School of Business of the University of Maryland, where he teaches a broad range of classes in business formation, strategy and family entrepreneurship. He has been an active policy maker and has served national, state and local governments in many advisory capacities, including currently is a member of the Board of Directors of the Virginia Center for Innovative Technology. He has a weekly column in the Washington Post, and is often quoted in Washington Business Journal and Huffington Post and TheNew York Times. Jonathan hosts Forward Thinking Radio on SiriusXM, and is a regular on-air contributor to Federal News Radio. For further information about Jonathan go to www.jonathanaberman.com

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