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Week of February 20 - 26, 2006

Welcome to the National Dialogue on Entrepreneurship, an initiative of the Public Forum Institute made possible by a grant from the Kauffman Foundation of Kansas City. Through NDE-news, we bring you short summaries and analyses of various trends driving the innovation economy. Subscribe now to receive your weekly copy. Archived issues are available online. Links to the day's entrepreneurship stories from across the nation and around the world are posted each weekday on the NDE main page - bookmark it and stay informed about the latest entrepreneurship news.

Intellectual Capital, University Collaboration Attract Corporate R&D

Contrary to popular belief, it is intellectual capital and university collaboration, not just lower costs, that primarily attract companies to locate R&D activities in locations away from their home country, according to a new study sponsored by the Ewing Marion Kauffman Foundation. The study of more than 200 multinational companies across 15 industries, mostly headquartered in the United States and Western Europe, finds that emerging countries such as China and India will continue to be major beneficiaries of R&D expansion over the next three years as companies seek new market opportunities, access to top scientists and engineers, and collaborative research relationships with leading universities. Among the study’s more surprising findings, according to the researchers, was the role university collaboration plays in the decision-making process for locating R&D facilities. In fact, collaboration with universities was particularly prevalent as a factor for expanding to emerging countries, even though these countries provide lesser degrees of IP protection.

The study, conducted by Marie Thursby, Ph.D., Professor of Strategic Management, Georgia Tech College of Management, and Jerry Thursby, Chair of the Department of Economics, Emory University, can be downloaded at www.kauffman.org/items.cfm?itemID=678.

Innovation Bills Moving Forward

Legislation to enhance America’s competitive posture is gaining momentum in Congress. The latest action comes from the House Science Committee where Rep. Bart Gordon (D-TN), the Committee’s ranking Democrat, has introduced three bills that implement the findings of the National Academy of Sciences’ 2005 report, Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future. This legislative package includes: The 10,000 Teachers, 10 Million Minds Science and Math Scholarship Act (HR 4434), The Advanced Research Projects Agency-Energy (ARPA-E) Act (HR 4435), and the Sowing the Seeds through Science and Engineering Research Act (HR 4596). These bills are similar to the Protecting America’s Competitive Edge (PACE) legislative package (S. 2196, S 2197, and S. 2198) recently introduced by a bipartisan group of Senators. Strong interest in these bills, along with President Bush’s American Competitiveness Initiative, are a positive sign that Congress may soon act to strengthen the US’s science and technology base.

To learn more about these bills, visit the website for the House Science Committee Democrats at http://sciencedems.house.gov/.

Meanwhile, the full House Science Committee heard budget testimony from the Administration’s leading science officials on February 15th. These presentations can be accessed at http://www.house.gov/science/hearings/full06/Feb15/index.htm.

SBA Seeking More Disaster Funding

The Small Business Administration is moving forward in expediting support for residents and businesses hurt by hurricanes Katrina and Rita. To date, SBA has approved 68,000 loans (totaling $4.1 billion) to residents and businesses in the region. More than $1 billion of this total has been provided to 12,455 businesses located in Florida and the Gulf Coast. That’s the good news. The bad news is that SBA is now running out of money, and is asking Congress to appropriate additional funds. Last week, the House of Representatives approved SBA’s request for supplemental appropriations of $712 million. Senate action is still pending. These funds will be used to guarantee additional loans. Overall, SBA officials expect that total loan demand could ultimately reach $11 billion.

To get a status report on the US Small Business Administration’s effort to assist those affected by hurricanes Katrina and Rita, visit http://www.sba.gov/disaster_recov/hurricanes/.

Red Planet Capital

As government agencies begin to work more frequently with entrepreneurial businesses, they have had to change how they do business and begin operating in a more “entrepreneur-friendly” manner. Establishing a government-backed venture capital fund has been one approach used by several agencies such as the CIA (In-Q-Tel) and the US Army’s On-Point Fund. The National Aeronautics and Space Administration (NASA) is the latest entrant into this market. Its proposed Red Planet Capital Fund will serve as an investment vehicle for dual-use technologies that help NASA achieve its various missions. The fund will target early-stage firms, and is slated to receive $11 million in 2006. It is expected to be capitalized at $20 million when fully operational. At present, NASA is soliciting proposals from firms that seek to partner in the management and operation of the proposed fund.

To learn more about NASA’s proposed Red Planet Capital fund, or to apply for consideration as a potential partner in the venture, visit http://procurement.nasa.gov/cgi-bin/eps/synopsis.cgi?acqid=118887.

Scotland’s Growing Risk Capital Markets

Public investments are having a big impact in stimulating the development of equity risk capital markets in Scotland. That’s the main take-away from a new study by Enterprise Scotland, Scotland’s economic development arm. The report tracks all investments in new firms in Scotland since 2000, and finds that the market is growing rapidly. In fact, investments grew by 40% between 2003 and 2004. Overall, 490 Scottish firms received investment between 2000 and 2004. Public funds are a big part of this development. While public funds accounted for only 7% of total monies invested in 2004, public investors had a role in 55% of all deals completed that year. By sharing risk, public investors have been able to leverage significant levels of private investment.

Meanwhile, a recently released Royal Bank of Scotland survey examines the backgrounds of entrepreneurs in Great Britain. The survey asked 615 small business owners to comment on their backgrounds before starting a business. Most start young; 84% worked while still in school (via a paper route or other part-time work). Formal education has little explanatory power. Forty-five percent rejected higher education and left school at age 15 or 16, and only 5% hold a professional qualification. When asked to identify key characteristics for entrepreneurial success, respondents cited energy and determination as their top two factors.

To access the January 2006 Scottish Enterprise report, The Equity Risk Capital Market for Young Companies in Scotland, 200-2004, by Gavin Don and Richard T. Harrison, visit
http://www.scottish-enterprise.com/publications/equitymarketinscotland-2000-2004.pdf.

To view a summary of the Royal Bank of Scotland Living Business Survey 2005, visit http://uk.biz.yahoo.com/060206/250/g322w.html.

British Business Calls for Enhanced Small Business Support Services

While many promising initiatives are underway in Scotland and across the UK, not everyone is happy with the progress to date. A recent report from the Confederation of British Industry, Britain’s leading association of business owners, argues that existing services still suffer from excessive bureaucracy and duplication. The January 2006 report, Improving Small Businesses’ Experience of Government Services, is part of a series of CBI reports that examine how well the British government is doing in terms of support for small businesses and entrepreneurs. It recommends that existing services must be better networked and offer a seamless system of support. In other words, entrepreneurs should be able to easily access the support system and obtain services that are relevant to their specific issues and challenges. The report also recommends more funding and more high-level management attention to providing support for small and medium-sized enterprises.

The January 2006 Confederation of British Industry report, Improving Small Businesses’ Experience of Government Services, is available at: http://www.cbi.org.uk/enterpriserevolution. Other studies in the CBI Enterprise Reports series can also be accessed at the site.

Entrepreneurship on the Farm

In our rush to embrace exciting new entrepreneurial firms like Google and Starbucks, we may risk forgetting the original American entrepreneur: the farmer. Consolidation and the rise of corporate agriculture have created tough times for the family farm, but in many regions, farm-based entrepreneurship is growing. A recently posted report from Iowa State’s Department of Sociology examines the issues around farm-based entrepreneurship. Entrepreneurship has become a critical component in local efforts to preserve family farms. An earlier survey in Iowa found that 21% of farmers operate a second business outside of their farming operation. Most of these businesses are in agriculture-related fields, such as manufacture of farming equipment or other types of food production. The challenges facing these business owners are not a whole lot different from those facing urban entrepreneurs. At the top of their list of challenges was access to outside financing and access to more sophisticated business services—especially in the area of marketing.

The September 2005 Iowa State University Sociology Research Brief, Farmer Entrepreneurship: Problems and Prospects of Growing a Business on the Farm, by Peter Korsching and Carly Jacobs, is available at: http://www.soc.iastate.edu/extension/Publications/SRB2005-2.pdf

Do Entrepreneurs Need Tax Reform?

To what extent do federal taxes serve as a barrier to small business activity? Should the tax code be used to subsidize entrepreneurial ventures? Professor Donald Bruce of the University of Tennessee has coauthored a new paper with Tami Gurley of the General Accounting Office, examining the effects of marginal tax rates on small business start-up and survival. The paper will be the focus of a program at the Hudson Institute this Friday (March 3). Bruce will also discuss the small business implications of the proposals presented by the President's Advisory Panel on Federal Tax Reform.

Download the paper or register for the event

Correction: In last week’s issue, the funding level for the Hollings Manufacturing Extension Partnership program in the President’s FY 2007 budget plan should have read $46.3 million (down from the FY 2006 appropriated funds of $107.5 million). The correction has been made in the NDE-news archives available at www.publicforuminstitute.org/nde.

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All stories © 2006 The Public Forum Institute
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