NVCA: Economic Development 2003 –

I am fortunate to travel all around the country and meet with entrepreneurs, service providers and elected officials who ask the same – but important – question: How do I get more venture capital in my area?

While there are answers to this question, there is not a silver bullet. My first response is not to answer, but to correct the context: Lower your expectations. The venture capital industry will likely invest $15 billion to $20 billion a year going forward. This industry will not see the investing pace or quantity of dollars of 1999 or 2000 for the foreseeable future, if ever.

In order to attract venture capital, communities must embrace the realities of the new economy. Government – local, state and federal – needs to rethink what it does and what it calls economic development.

Education, Education, Education

A skilled workforce is now the most important factor of production, so a region’s pool of skilled workers is a key factor in determining success. Put another way, the most important parts of venture-backed businesses are not the machinery, buildings or other tangible assets, but rather the initiative, intelligence and institutional memory that head home each night – the employees. In the past, workers moved to be near jobs. Today and in the future companies will be formed where those with the skill sets reside.

I have often said that venture capitalists are followers – they follow the entrepreneurs. Thus, the entrepreneur is a critical factor in attracting venture capital dollars to a specific region. Venture-backed entrepreneurs are highly educated and extremely motivated. Therefore, for a geographic region to have a long-term infusion of venture capital, that region’s education system from kindergarten to post-doctoral must be second to none. The National Science Foundation has a program that encourages colleges and universities to increase the number of hard science graduates they turn out; states should undertake similar activities. But it is not enough to focus on post secondary education. Even in times when budgets are tight, schools – elementary, middle and high schools – need to make science, even simple biology and physics, an integral part of the classroom to excite and entice youngsters to these essential subjects.

Making the Pie Bigger

For a long time many states and localities have primarily focused on adding more jobs as their region’s economic stimulus program, luring businesses from other locations through tax abatements and other incentives. Collectively states spend more than $15 billion annually on company-specific incentives. Rather than simply trying to be a cheaper place in which to do business, governments should attempt to be a better place to do business.

Know Your Limits

Currently, more than 40 states have some sort of program to build a biotech corridor or center. While I am very excited about the advances being made in biotechnology there isn’t room for 40-plus biotech centers. It’s just not feasible. States should dedicate themselves to luring technologies and industries that match their region’s academic strengths and geographic uniqueness, balance their high tech prowess and strengthen the bonds with their corporate leaders.

It’s about the Community

It was often the case during the 1990s boom that metropolitan areas saw the most significant growth. However, with the growth of the Internet it will become less important that all workers are at a centralized location. Rural and underdeveloped areas that were left behind can take advantage of the growth of the Internet by aggregating demand and building a market for broadband. That will enable workers and companies to transmit large amounts of data, a key in the new economy and for employees interested in telecommuting.

Workers will focus on finding the characteristics of a desirable place to live and raise their families. Quality of life issues such as parks, community centers, broadband, mass transit and public land use are increasingly important to knowledge workers who are looking for a place to both live and work.

Conclusion

Attracting venture capital for entrepreneurs and communities alike is more difficult today than it was in the late 1990s, as we have returned to realistic and sustainable levels of investments. But states and localities can make significant, concrete steps to both attract and grow aspiring and proficient entrepreneurs and an appealing workforce for venture-backed companies.

Mark Heesen is the president of National Venture Capital Association