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Week of September 18 - 24, 2006

Innovation’s Next Generation

Young researchers are involved in some pretty exciting projects, and the latest edition of Technology Review highlights 35 upcoming innovation stars under the age of 35. As always, the TR 35 is an impressive list with some interesting projects like creating stretchable electronic skin, building disposable AIDS diagnosis kits, and developing methods to reduce energy use by computers. The issue highlights two individuals. Joshua Schachter is this year’s Innovator of the Year, selected for his role in developing the del.icio.us web bookmarking system. This year’s Humanitarian of the Year, Christina Galitsky, was honored for her work in promoting energy efficiency, and, in particular, for her efforts to develop low-cost water filtering technology for use in poor communities around the globe.

The Technology Review TR35 appears in the September 2006 issue of Technology Review and is available on-line at: http://www.technologyreview.com/TR35/.

Corporate Venturing Booms

The common understanding of the venture capital (VC) industry is heavily influenced by the well-known VC partnerships based in Silicon Valley, Boston, or elsewhere. Large corporations are another big piece of the industry, and the scope and importance of the corporate VC funds is growing. A new report from the National Venture Capital Association details these trends. In the 2nd quarter of 2006, corporate venture investments reached their highest level -- $602.5 million -- in four years. This total accounted for 9.2% of all investment dollars and 22% of total deal volume during the quarter. Not surprisingly, these corporate VCs focus on sectors (namely telecommunications, biotechnology, and software) that are also popular with traditional VCs. The surge in corporate VC parallels the growing profitability of Fortune 500 firms. As growing profits allow corporations to assume more long-term risk, we can expect this growth of corporate VC spending to continue.

To view the Price Waterhouse Coopers/National Venture Capital Association MoneyTree Report on “Corporate Venture Capital Activity on the Rise in 2006,” visit http://www.nvca.org/pdf/CorporateVCReleasefinaldraft.pdf.

Women-Owned Business Boom

Entrepreneurship among women is booming. The latest evidence comes from two sources: the Center for Women’s Business Research and from the Small Business Administration’s Office of Advocacy. The reports differ in their final numbers but they do agree on one basic point: women continue to start new businesses at higher rates than the general population. According the Center’s Key Facts about Women-Owned Business-Overall, there are 7.7 million majority women-owned businesses in the US. This number has grown at a rate of 42% over the past five years, while the overall US business start rate has been 24%. These firms are expected to generate nearly $1 trillion in revenue during 2006. SBA’s Office of Advocacy makes somewhat less expansive claims for the overall impact of women owned firms. Their research finds that women own 6.5 million non-farm US firms, accounting for about 28.2% of all such firms in the US and 6.5% of total US employment.

To access the Center for Women’s Business Research report. Key Facts about Women-Owned Business-2006 Update, visit http://www.womensbusinessresearch.org/
To access the 2006 US Small Business Administration Office of Advocacy Research Report, Women in Business: A Demographic Review of Women’s Business Ownership (No. 280), by Ying Lowrey, visit www.sba.gov/advo/research/rs280tot.pdf.

Angel Investing in Need of Woman’s Perspective

While there is a boom in the number of women-owned businesses, it’s unlikely that they are getting any money from women angel investors. According to a new study by the Kauffman Foundation, no more than eight percent of the estimated 225,000 active angels – who invested $23.1 billion in 2005 – are female. However, differences in gender perspectives can be valuable when it comes to evaluating the products, markets, and management teams of new companies. The paper notes that while the number of women angels remains smaller than women’s collective wealth, education, and experience might otherwise suggest, women angel groups tend to be more collaborative and consider a broader range of investment opportunities.

The report, Women and Angel Investing: An Untapped Pool of Equity for Entrepreneurs, can be found at www.kauffman.org and www.angelcapitaleducation.org.

Offshoring Innovation

As more companies move parts of their operations overseas, many observers have downplayed outsourcing fears by arguing that key innovation assets are still being kept here at home. That may no longer be the case, according to a new study from Booz Allen Hamilton and India’s National Association of Software and Service Companies (NASSCOM). The study examines trends in outsourcing of engineering and technical services, and it concludes that outsourcing in these areas is growing much more rapidly than expected. Overall global spending on offshored engineering services has now reached $15 billion and could grow up to $225 billon by 2020. At present, cost cutting is still the primary reason for offshoring, driving 90% of all deals. But, Booz Allen and NASSCOM researchers expect that more strategic priorities, such as market access and increased productivity, will take precedence in future offshoring decisions. They also expect that offshoring will move upstream. Today’s offshored work can be relatively simple---documentation or basic computer-aided design and engineering. In the future, more complex engineering projects will likely be offshored. The report concludes that this new world of offshoring will require new management techniques to develop global talent and to build robust information technology infrastructure to support global networks.

The Special Report, “Innovators without Borders,” by Kevin Dehoff and Vikas Sehgal, appears in the August 2006 issue of Strategy + Business, and is available on-line at:
http://www.strategy-business.com/media/file/sb44_06305.pdf

Promoting Growth in Developing Nations

WDeveloping nations looking to foster economic growth and alleviate the crush of poverty should look beyond the usual approach of subsidizing small and medium-size enterprises (SMEs). Instead, they should focus on improving the overall business climate for all firms while expanding access to finance for SMEs, according to new research by the World Bank. The World Bank has more than $10 billion in support programs approved in the last five years with 80 percent in direct financial assistance to SMEs. The researchers contend that without addressing the fundamental challenges that firms face in realizing their growth potential, subsidies are simply ineffective and may even provide a perverse incentive that retards growth. What should they do? For starters, ease access to finance by implementing innovative lending approaches such as factoring, credit-scoring and leasing. After that? Take a long-term approach and tackle the lack of well-functioning markets and underdeveloped legal systems.

Access the Finance Research featured article.

Promoting Technology Adoption: Effects of Regulation

An interesting new study from the multinational TECH research network examines how regulation and economic incentives affect adoption of new technologies. The researchers, led by economists at Sweden’s Lund University, examined the take-up of new cardiac surgery procedures in seventeen countries over a period of eighteen years. This extensive research confirms some previous speculations about the links between institutional structures, regulation, and new technology adoption. Not surprisingly, the study finds that wealthier societies are likely to adopt the new procedures. Also, technology adoption is faster in countries with competition between health care providers as opposed to a single payer system. The researchers find that use of a centralized national system for financing health care innovation has the effect of slowing technology adoption. When local funding sources are utilized, health care professionals are more likely to adopt new technologies and procedures. Because they do not need to apply elsewhere for funds or regulatory authorization, they are able to move quicker in terms of technology adoption.

To view the 2006 research paper, “How do Economic Incentives and Regulatory Factors Influence the Adoption of New Cardiac Technologies? Results from the TECH Project,” visit http://swopec.hhs.se/lunewp/abs/lunewp2006_015.htm.

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.

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