Strategies to Accelerate and Expand Access to the U.S. Innovation Economy

In 2020, we outlined a vision for how the incoming presidential administration could strengthen the nation’s innovation ecosystem, encouraging the development and commercialization of science and technology (S&T) based ventures. This vision entailed closing critical gaps from lab to market, with an emphasis on building a broadly inclusive pipeline of entrepreneurial talent while simultaneously providing key support in venture development. 

During the intervening years, we have seen extraordinary progress, in good part due to ambitious legislation. Today, we propose innovative ways that the federal government can successfully build on this progress and make the most of new programs. With targeted policy interventions, we can efficiently and effectively support the U.S. innovation economy through the translation of breakthrough scientific research from the lab to the market. The action steps we propose are predicated on three core principles: inclusion, relevance, and sustainability. Accelerating our innovation economy and expanding access to it can make our nation more globally competitive, increase economic development, address climate change, and improve health outcomes. A strong innovation economy benefits everyone. 

Challenge

Our Day One 2020 memo began by pitching the importance of innovation and entrepreneurship: “Advances in scientific and technological innovations—and, critically, the ability to efficiently transform breakthroughs into scalable businesses—have contributed enormously to American economic leadership over the past century.” Now, it is widely recognized that innovation and entrepreneurship are key to both global economic leadership and addressing the challenges of changing climate. The question is no longer whether we must innovate but rather how effectively we can stimulate and expand a national innovation economy. 

Since 2020, the global and U.S. economies have gone through massive change and uncertainty.  The Global Innovation Index (GII) 2023 described the challenges involved in its yearly analysis of monitoring global innovation trends amid uncertainty brought on by a sluggish economic recovery from the COVID-19 pandemic, elevated interest rates, and geopolitical tensions. Innovation indicators like scientific publications, research and development (R&D), venture capital (VC) investments, and the number of patents rose to historic levels, but the value of VC investment declined by close to 40%. As a counterweight to this extensive uncertainty, the GII 2023 described the future of S&T innovation and progress as “the promise of Digital Age and Deep Science innovation waves and technological progress.” 

In the face of the pressures of global competitiveness, societal needs, and climate change, the clear way forward is to continue to innovate based on scientific and technical advancements. Meeting the challenges of our moment in history requires a comprehensive and multifaceted effort led by the federal government with many public and private partners.

Grow global competitiveness

Around the world, countries are realizing that investing in innovation is the most efficient way to transform their economies. In 2022, the U.S. had the largest R&D budget internationally, with spending growing by 5.6%, but China’s investment in R&D grew by 9.8%. For the U.S. to remain a global economic leader, we must continue to invest in innovation infrastructure, including the basic research and science, technology, engineering, and math (STEM) education that underpins our leadership, while we grow our investments in translational innovation. This includes reframing how existing resources are used as well as allocating new spending. It will require a systems change orientation and long-term commitments. 

Increase economic development

Supporting and growing an innovation economy is one of our best tools for economic development. From place-based innovation programs to investment in emerging research institutions (ERIs) and Minority-Serving Institutions (MSIs) to training S&T innovators to become entrepreneurs in I-Corps™, these initiatives stimulate local economies, create high-quality jobs, and reinvigorate regions of the country left behind for too long. 

Address climate change

In 2023, for the first time, global warming exceeded 1.5°C for an entire year. It is likely that all 12 months of 2024 will also exceed 1.5°C above pre-industrial temperatures. Nationally and internationally, we are experiencing the effects of climate change; climate mitigation, adaptation, and resilience solutions are urgently needed and will bring outsized economic and social impact.

Improve U.S. health outcomes

The COVID-19 pandemic was devastating, particularly impacting underserved and underrepresented populations, but it spurred unprecedented medical innovation and commercialization of new diagnostics, vaccines, and treatments. We must build on this momentum by applying what we’ve learned about rapid innovation to continue to improve U.S. health outcomes and to ensure that our nation’s health care needs across regions and demographics are addressed. 

Make innovation more inclusive

Representational disparities persist across racial/ethnic and gender lines in both access to and participation in innovation and entrepreneurship. This is a massive loss for our innovation economy. The business case for broader inclusion and diversity is growing even stronger, with compelling data tracking the relationship between leadership diversity and company performance. Inclusive innovation is more effective innovation: a multitude of perspectives and lived experiences are required to fully understand complex problems and create truly useful solutions. To reap the full benefits of innovation and entrepreneurship, we must increase access and pathways for all. 

Opportunity

With the new presidential administration in 2025, the federal government has a renewed opportunity to prioritize policies that will generate and activate a wave of powerful, inclusive innovation and entrepreneurship. Implementing such policies and funding the initiatives that result is crucial if we as a nation are to successfully address urgent problems such as the climate crisis and escalating health disparities. 

Our proposed action steps are predicated on three core principles: inclusion, relevance, and sustainability. 

Inclusion

One of this nation’s greatest and most unique strengths is our heterogeneity. We must leverage our diversity to meet the complexity of the substantial social and economic challenges that we face today. The multiplicity of our people, communities, identities, geographies, and lived experiences gives the U.S. an edge in the global innovation economy: When we bring all of these perspectives to the table, we better understand the challenges that we face, and we are better equipped to innovate to meet them. If we are to harness the fullness of our nation’s capacity for imagination, ingenuity, and creative problem-solving, entrepreneurship pathways must be inclusive, equitable, and accessible to all. Moreover, all innovators must learn to embrace complexity, think expansively and critically, and welcome perspectives beyond their own frame of reference. Collaboration and mutually beneficial partnerships are at the heart of inclusive innovation. 

Relevance

Innovators and entrepreneurs have the greatest likelihood of success—and the greatest potential for impact—when their work is purpose-driven, nimble, responsive to consumer needs, and adaptable to different applications and settings.  Research suggests that “breakthrough innovation” occurs when different actors bring complementary and independent skills to co-create interesting solutions to existing problems. Place-based innovation is one strategy to make certain that technology development is grounded in regional concerns and aspirations, leading to better outcomes for all concerned. 

Sustainability 

Multiple layers of sustainability should be integrated into the innovation and entrepreneurship landscape. First and most salient is supporting the development of innovative technologies that respond to the climate crisis and bolster national resilience. Second is encouraging innovators to incorporate sustainable materials and processes in all stages of research and development so that products benefit the planet and risks to the environment are mitigated through the manufacturing process, whether or not climate change is the focus of the technology. Third, it is vital to prioritize helping ventures develop sustainable business models that will result in long-term viability in the marketplace. Fourth, working with innovators to incorporate the potential impact of climate change into their business planning and projections ensures they are equipped to adapt to changing needs. All of these layers contribute to sustaining America’s social well-being and economic prosperity, ensuring that technological breakthroughs are accessible to all.

Proposed Action

Recommendation 1. Supply and prepare talent.

Continuing to grow the nation’s pipeline of S&T innovators and entrepreneurs is essential. Specifically, creating accessible entrepreneurial pathways in STEM will ensure equitable participation. Incentivizing individuals to become innovators-entrepreneurs, especially those from underrepresented groups, will strengthen national competitiveness by leveraging new, untapped potential across innovation ecosystems.

Expand the I-Corps model

By bringing together experienced industry mentors, commercial experts, research talent, and promising technologies, I-Corps teaches scientific innovators how to evaluate whether their innovation can be commercialized and how to take the first practical steps of bringing their product to market. Ten new I-Corps Hubs, launched in 2022, have expanded the network of engaged universities and collaborators, an important step toward growing an inclusive innovation ecosystem across the U.S. 

Interest in I-Corps far outpaces current capacity, and increasing access will create more expansive pathways for underrepresented entrepreneurs. New federal initiatives to support place-based innovation and to grow investment at ERIs and MSIs will be more successful if they also include lab-to-market training programs such as I-Corps. Federal entities should institute policies and programs that increase awareness about and access to sequenced venture support opportunities for S&T innovators. These opportunities should include intentional “de-risking” strategies through training, advising, and mentoring.

Specifically, we recommend expanding I-Corps capacity so that all interested participants can be accommodated. We should also strive to increase access to I-Corps so that programs reach diverse students and researchers. This is essential given the U.S. culture of entrepreneurship that remains insufficiently inclusive of women, people of color, and those from low-income backgrounds, as well as international students and researchers, who often face barriers such as visa issues or a lack of institutional support needed to remain in the U.S. to develop their innovations. Finally, we should expand the scope of what I-Corps offers, so that programs provide follow-on support, funding, and access to mentor and investor networks even beyond the conclusion of initial entrepreneurial training. 

I-Corps has already expanded beyond the National Science Foundation (NSF) to I-Corps at National Institutes of Health (NIH), to empower biomedical entrepreneurs, and Energy I-Corps, established by the Department of Energy (DOE) to accelerate the deployment of energy technologies. We see the opportunity to grow I-Corps further by building on this existing infrastructure and creating cohorts funded by additional science agencies so that more basic research is translated into commercially viable businesses. 

Close opportunity gaps by supporting emerging research institutions (ERIs) and Minority-Serving Institutions (MSIs)

ERIs and MSIs provide pathways to S&T innovation and entrepreneurship, especially for individuals from underrepresented groups. In particular, a VentureWell-commissioned report identified that “MSIs are centers of research that address the unique challenges and opportunities faced by BIPOC communities. The research that takes place at MSIs offers solutions that benefit a broad and diverse audience; it contributes to a deeper understanding of societal issues and drives innovation that addresses these issues.”

The recent codification of ERIs in the 2022 CHIPS and Science Act pulls this category into focus. Defining this group, which comprises thousands of higher education institutions,  was the first step in addressing the inequitable distribution of federal research funding. That imbalance has perpetuated regional disparities and impacted students from underrepresented groups, low-income students, and rural students in particular. Further investment in ERIs will result in more STEM-trained students, who can become innovators and entrepreneurs with training and engagement. Additional support that could be provided to ERIs includes increased research funding, access to capital/investment, capacity building (faculty development, student support services), industry partnerships, access to networks, data collection/benchmarking, and implementing effective translation policies, incentives, and curricula. 

Supporting these institutions—many of which are located in underserved rural or urban communities that experience underinvestment—provides an anchor for sustained talent development and economic growth. 

Recommendation 2. Support place-based innovation.

Place-based innovation not only spurs innovation but also builds resilience in vulnerable communities, enhancing both U.S. economic and national security. Communities that are underserved and underinvested in present vulnerabilities that hostile actors outside of the U.S. can exploit. Place-based innovation builds resilience: innovation creates high-quality jobs and brings energy and hope to communities that have been left behind, leveraging the unique strengths, ecosystems, assets, and needs of specific regions to drive economic growth and address local challenges.  

Evaluate and learn from transformative new investments

There have been historic levels of government investment in place-based innovation, funding the NSF’s Regional Innovation Engines awards and two U.S. Department of Commerce Economic Development Administration (EDA) programs: the Build Back Better Regional Challenge and Regional Technology and Innovation Hubs awards. The next steps are to refine, improve, and evaluate these initiatives as we move forward. 

Unify the evaluation framework, paired with local solutions

Currently, evaluating the effectiveness and outcomes of place-based initiatives is challenging, as benchmarks and metrics can vary by region. We propose a unified framework paired with solutions locally identified by and tailored to the specific needs of the regional innovation ecosystem. A functioning ecosystem cannot be simply overlaid upon a community but must be built by and for that community. The success of these initiatives requires active evaluation and incorporation of these learnings into effective solutions, as well as deep strategic collaboration at the local level, with support and time built into processes.   

Recommendation 3. Increase access to financing and capital.

Funding is the lifeblood of innovation. S&T innovation requires more investment and more time to bring to market than other types of ventures, and early-stage investments in S&T startups are often perceived as risky by those who seek a financial return. Bringing large quantities of early-stage S&T innovations to the point in the commercialization process where substantial private capital takes an interest requires nondilutive and patient government support. The return on investment that the federal government seeks is measured in companies successfully launched, jobs created, and useful technologies brought to market.

Disparities in access to capital by companies owned by women and underrepresented minority founders are well documented. The federal government has an interest in funding innovators and entrepreneurs from many backgrounds: they bring deep and varied knowledge and a multitude of perspectives to their innovations and to their ventures. This results in improved solutions and better products at a cheaper price for consumers. Increasing access to financing and capital is essential to our national economic well-being and to our efforts to build climate resilience. 

Expand SBIR/STTR access and commercial impact

The SBIR and STTR programs spur innovation, bolster U.S. economic competitiveness, and strengthen the small business sector, but barriers persist. In a recent third-party assessment of the SBIR/STTR program at NIH, the second largest administrator of SBIR/STTR funds, the committee found outreach from the SBIR/STTR programs to underserved groups is not coordinated, and there has been little improvement in the share of applications from or awards to these groups in the past 20 years. Further, NIH follows the same processes used for awarding R01 research grants, using the same review criteria and typically the same reviewers, omitting important commercialization considerations. 

To expand access and increase the commercialization potential of the SBIR/STTR program, funding agencies should foster partnerships with a broader group of organizations, conduct targeted outreach to potential applicants, offer additional application assistance to potential applicants, work with partners to develop mentorship and entrepreneur training programs, and increase the percentage of private-sector reviewers with entrepreneurial experience. Successful example programs of SBIR/STTR support programs include the NSF Beat-The-Odds Boot Camp, Michigan’s Emerging Technologies Fund, and the SBIR/STTR Innovation Summit. 

Provide entrepreneurship education and training

Initiatives like NSF Engines, Tech Hubs, Build-Back-Better Regional Challenge, the Minority Business Development Agency (MBDA) Capital Challenge, and the Small Business Administration (SBA) Growth Accelerator Fund expansion will all achieve more substantial results with supplemental training for participants in how to develop and launch a technology-based business. As an example of the potential impact, more than 2,500 teams have participated in I-Corps since the program’s inception in 2012. More than half of these teams, nearly 1,400, have launched startups that have cumulatively raised $3.16 billion in subsequent funding, creating over 11,000 jobs. Now is an opportune moment to widely apply similarly effective approaches. 

Launch a local investment education initiative

Angel investors are typically providing the first private funding available to S&T innovators and entrepreneurs. These very early-stage funders give innovators access to needed capital, networks, and advice to get their ventures off the ground. We recommend that the federal government expand the definition of an accredited investor and incentivize regionally focused initiatives to educate policymakers and other regional stakeholders about best practices to foster more diverse and inclusive angel investment networks. With the right approach and support, there is the potential to engage thousands more high-net-worth individuals in early-stage investing, contributing their expertise and networks as well as their wealth.

Encourage investment in climate solutions

Extreme climate-change-attributed weather events such as floods, hurricanes, drought, wildfire, and heat waves cost the global economy an average of $143 billion annually. S&T innovations have the potential to help address the impacts of climate change at every level:

Given the global scope of the problem and the shared resources of affected communities, the federal government can be a leader in prioritizing, collaborating, and investing in solutions to direct and encourage S&T innovation for climate solutions. There is no question whether climate adaptation technologies will be needed, but we must ensure that these solutions are technologies that create economic opportunity in the U.S. We encourage the expansion and regular appropriations of funding for successful climate programs across federal agencies, including the DoE Office of Technology Transitions’ Energy Program for Innovation Clusters, the National Oceanic and Atmospheric Administration’s (NOAA) Ocean-Based Climate Resilience Accelerators program, and the U.S. Department of Agriculture’s Climate Hubs. 

Recommendation 4. Shift to a systems change orientation.

To truly stimulate a national innovation economy, we need long-term commitments in policy, practice, and regulations. Leadership and coordination from the executive branch of the federal government are essential to continue the positive actions already begun by the Biden-Harris Administration.  

These initiatives include: 

Policy

Signature initiatives like the CHIPS and Science Act, Infrastructure Investment and Jobs Act, and the National Quantum Initiative Act are already threatened by looming appropriations shortfalls. We need to fully fund existing legislation, with a focus on innovative and translational R&D. According to a report by PricewaterhouseCoopers, if the U.S. increased federal R&D spending to 1% of GDP by 2030, the nation could support 3.4 million jobs and add $301 billion in labor income, $478 billion in economic value, and $81 billion in tax revenue. Beyond funding, we propose supporting innovative policies to bolster U.S. innovation capacity at the local and national levels. This includes providing R&D tax credits to spur research collaboration between industry and universities and labs, providing federal matching funds for state and regional technology transfer and commercialization efforts, and revising the tax code to support innovation by research-intensive, pre-revenue companies.

Practice

The University and Small Business Patent Procedures Act of 1980, commonly known as the Bayh-Dole Act, allows recipients of federal research funding to retain rights to inventions conceived or developed with that funding. The academic tech transfer system created by the Bayh-Dole Act (codified as amended at 35 U.S.C. §§ 200-212) generated nearly $1.3 trillion in economic output, supported over 4.2 million jobs, and launched over 11,000 startups. We should preserve the Bayh-Dole Act as a means to promote commercialization and prohibit the consideration of specific factors, such as price, in march-in determinations. 

In addition to the continual practice and implementation of successful laws such as Bayh-Dole, we must repurpose resources to support innovation and the high-value jobs that result from S&T innovation. We believe the new administration should allocate a share of federal funding to promote technology transfer and commercialization and better incentivize commercialization activities at federal labs and research institutes. This could include new programs such as mentoring programs for researcher entrepreneurs and student entrepreneurship training programs. Incentives include evaluating the economic impact of lab-developed technology by measuring commercialization outcomes in the annual Performance Evaluation and Management Plans of federal labs, establishing stronger university entrepreneurship reporting requirements to track and reward universities that create new businesses and startups, and incentivizing universities to focus more on commercialization activities as part of promotion and tenure of faculty, 

Regulations

A common cause of lab-to-market failure is the inability to secure regulatory approval, particularly for novel technologies in nascent industries. Regulation can limit potentially innovative paths, increase innovation costs, and create a compliance burden on businesses that stifle innovation. Regulation can also spur innovation by enabling the management of risk. In 1976 the Cambridge (Massachusetts) City Council became the first jurisdiction to regulate recombinant DNA, issuing the first genetic engineering license and creating the first biotech company. Now Boston/Cambridge is the world’s largest biotech hub: home to over 1,000 biotech companies, 21% of all VC biotech investments, and 15% of the U.S. drug development pipeline.

To advance innovation, we propose two specific regulatory actions:

Conclusion

To maintain its global leadership role, the United States must invest in the individuals, institutions, and ecosystems critical to a thriving, inclusive innovation economy. This includes mobilizing access, inclusion, and talent through novel entrepreneurship training programs; investing, incentivizing, and building the capacity of our research institutions; and enabling innovation pathways by increasing access to capital, networks, and resources.

Fortunately, there are  several important pieces of legislation recommitting the U.S. leadership to bold S&T goals, although much of the necessary resources are yet to be committed to those efforts. As a society, we benefit when federally supported innovation efforts tackle big problems that are beyond the scope of single ventures; notably, the many challenges arising from climate change. A stronger, more inclusive innovation economy benefits the users of S&T-based innovations, individual innovators, and the nation as a whole.

When we intentionally create pathways to innovation and entrepreneurship for underrepresented individuals, we build on our strengths. In the United States, our strength has always been our people, who bring problem-solving abilities from a multitude of perspectives and settings. We must unleash their entrepreneurial power and become, even more, a country of innovators.. 

Earlier memo contributors Heath Naquin and Shaheen Mamawala (2020) were not involved with this 2024 memo.

This action-ready policy memo is part of Day One 2025 — our effort to bring forward bold policy ideas, grounded in science and evidence, that can tackle the country’s biggest challenges and bring us closer to the prosperous, equitable and safe future that we all hope for whoever takes office in 2025 and beyond.

PLEASE NOTE (February 2025): Since publication several government websites have been taken offline. We apologize for any broken links to once accessible public data.

Policy Experiment Stations to Accelerate State and Local Government Innovation

The federal government transfers approximately $1.1 trillion dollars every year to state and local governments. Yet most states and localities are not evaluating whether the programs deploying these funds are increasing community well-being. Similarly, achieving important national goals like increasing clean energy production and transmission often requires not only congressional but also state and local policy reform. Yet many states and localities are not implementing the evidence-based policy reforms necessary to achieve these goals.

State and local government innovation is a problem not only of politics but also of capacity. State and local governments generally lack the technical capacity to conduct rigorous evaluations of the efficacy of their programs, search for reliable evidence about programs evaluated in other contexts, and implement the evidence-based programs with the highest chances of improving outcomes in their jurisdictions. This lack of capacity severely constrains the ability of state and local governments to use federal funds effectively and to adopt more effective ways of delivering important public goods and services. To date, efforts to increase the use of evaluation evidence in federal agencies (including the passage of the Evidence Act) have not meaningfully supported the production and use of evidence by state and local governments.

Despite an emerging awareness of the importance of state and local government innovation capacity, there is a shortage of plausible strategies to build that capacity. In the words of journalist Ezra Klein, we spend “too much time and energy imagining the policies that a capable government could execute and not nearly enough time imagining how to make a government capable of executing them.”

Yet an emerging body of research is revealing that an effective strategy to build government innovation capacity is to partner government agencies with local universities on scientifically rigorous evaluations of the efficacy of their programs, curated syntheses of reliable evaluation evidence from other contexts, and implementation of evidence-based programs with the best chances of success. Leveraging these findings, along with recent evidence of the striking efficacy of the national network of university-based “Agriculture Experiment Stations” established by the Hatch Act of 1887, we propose a national network of university-based “Policy Experiment Stations” or policy innovation labs in each state, supported by continuing federal and state appropriations and tasked with accelerating state and local government innovation.  

Challenge

Advocates of abundance have identified “failed public policy” as an increasingly significant barrier to economic growth and community flourishing. Of particular concern are state and local policies and programs, including those powered by federal funds, that do not effectively deliver critically important public goods and services like health, education, safety, clean air and water, and growth-oriented infrastructure.

Part of the challenge is that state and local governments lack capacity to conduct rigorous evaluations of the efficacy of their policies and programs. For example, the American Rescue Plan, the largest one-time federal investment in state and local governments in the last century, provided $350 billion in State and Local Fiscal Recovery Funds to state, territorial, local, and Tribal governments to accelerate post-pandemic economic recovery. Yet very few of those investments are being evaluated for efficacy. In a recent survey of state policymakers, 59% of those surveyed cited “lack of time for rigorous evaluations” as a key obstacle to innovation. State and local governments also typically lack the time, resources, and technical capacity to canvass evaluation evidence from other settings and assess whether a program proven to improve outcomes elsewhere might also improve outcomes locally. Finally, state and local governments often don’t adopt more effective programs even when they have rigorous evidence that these programs are more effective than the status quo, because implementing new programs disrupts existing workflows. 

If state and local policymakers don’t know what works and what doesn’t, and/or aren’t able to overcome even relatively minor implementation challenges when they do know what works, they won’t be able to spend federal dollars more effectively, or more generally to deliver critical public goods and services.

Opportunity

A growing body of research on government innovation is documenting factors that reliably increase the likelihood that governments will implement evidence-based policy reform. First, government decision makers are more likely to adopt evidence-based policy reforms when they are grounded in local evidence and/or recommended by local researchers. Boston-based researchers sharing a Boston-based study showing that relaxing density restrictions reduces rents and house prices will do less to convince San Francisco decision makers than either a San Francisco-based study, or San Francisco-based researchers endorsing the evidence from Boston. Proximity matters for government innovation.

Second, government decision makers are more likely to adopt evidence-based policy reforms when they are engaged as partners in the research projects that produce the evidence of efficacy, helping to define the set of feasible policy alternatives and design new policy interventions. Research partnerships matter for government innovation.

Third, evidence-based policies are significantly more likely to be adopted when the policy innovation is part of an existing implementation infrastructure, or when agencies receive dedicated implementation support. This means that moving beyond incremental policy reforms will require that state and local governments receive more technical support in overcoming implementation challenges. Implementation matters for government innovation. 

We know that the implementation of evidence-based policy reform produces returns for communities that have been estimated to be on the order of 17:1. Our partners in government have voiced their direct experience of these returns. In Puerto Rico, for example, decision makers in the Department of Education have attributed the success of evidence-based efforts to help students learn to the “constant communication and effective collaboration” with researchers who possessed a “strong understanding of the culture and social behavior of the government and people of Puerto Rico.” Carrie S. Cihak, the evidence and impact officer for King County, Washington, likewise observes, 

“It is critical to understand whether the programs we’re implementing are actually making a difference in the communities we serve. Throughout my career in King County, I’ve worked with  County teams and researchers on evaluations across multiple policy areas, including transportation access, housing stability, and climate change. Working in close partnership with researchers has guided our policymaking related to individual projects, identified the next set of questions for continual learning, and has enabled us to better apply existing knowledge from other contexts to our own. In this work, it is essential to have researchers who are committed to valuing local knowledge and experience–including that of the community and government staff–as a central part of their research, and who are committed to supporting us in getting better outcomes for our communities.” 

The emerging body of evidence on the determinants of government innovation can help us define a plan of action that galvanizes the state and local government innovation necessary to accelerate regional economic growth and community flourishing. 

Plan of Action 

An evidence-based plan to increase state and local government innovation needs to facilitate and sustain durable partnerships between state and local governments and neighboring universities to produce scientifically rigorous policy evaluations, adapt evaluation evidence from other contexts, and develop effective implementation strategies. Over a century ago, the Hatch Act of 1887 created a remarkably effective and durable R&D infrastructure aimed at agricultural innovation, establishing university-based Agricultural Experiment Stations (AES) in each state tasked with developing, testing, and translating innovations designed to increase agricultural productivity. 

Locating university-based AES in every state ensured the production and implementation of locally-relevant evidence by researchers working in partnership with local stakeholders. Federal oversight of the state AES by an Office of Experiment Stations in the US Department of Agriculture ensured that work was conducted with scientific rigor and that local evidence was shared across sites. Finally, providing stable annual federal appropriations for the AES, with required matching state appropriations, ensured the durability and financial sustainability of the R&D infrastructure. This infrastructure worked: agricultural productivity near the experiment stations increased by 6% after the stations were established.

Congress should develop new legislation to create and fund a network of state-based “Policy Experiment Stations.”

 The 119th Congress that will convene on January 3, 2025 can adapt the core elements of the proven-effective network of state-based Agricultural Experiment Stations to accelerate state and local government innovation. Mimicking the structure of 7 USC 14, federal grants to states would support university-based “Policy Experiment Stations” or policy innovation labs in each state, tasked with partnering with state and local governments on (1) scientifically rigorous evaluations of the efficacy of state and local policies and programs; (2) translations of evaluation evidence from other settings; and (3) overcoming implementation challenges. 

As in 7 USC 14, grants to support state policy innovation labs would be overseen by a federal office charged with ensuring that work was conducted with scientific rigor and that local evidence was shared across sites. We see two potential paths for this oversight function, paths that in turn would influence legislative strategy.

Pathway 1: This oversight function could be located in the Office of Evaluation Sciences (OES) in the General Services Administration (GSA). In this case, the congressional committees overseeing GSA, namely the House Committee on Oversight and Responsibility and the Senate Committee on Homeland Security and Governmental Affairs, would craft legislation providing for an appropriation to GSA to support a new OES grants program for university-based policy innovation labs in each state. The advantage of this structure is that OES is a highly respected locus of program and policy evaluation expertise. 

Pathway 2: Oversight could instead be located in the Directorate of Technology, Innovation, and Partnerships in the National Science Foundation (NSF TIP). In this case, the House Committee on Science, Space, and Technology and the Senate Committee on Commerce, Science, and Transportation would craft legislation providing for a new grants program within NSF TIP to support university-based policy innovation labs in each state. The advantage of this structure is that NSF is a highly respected grant-making agency. 

Either of these paths is feasible with bipartisan political will. Alternatively, there are unilateral steps that could be taken by the incoming administration to advance state and local government innovation. For example, the Office of Management and Budget (OMB) recently released updated Uniform Grants Guidance clarifying that federal grants may be used to support recipients’ evaluation costs, including “conducting evaluations, sharing evaluation results, and other personnel or materials costs related to the effective building and use of evidence and evaluation for program design, administration, or improvement.” The Uniform Grants Guidance also requires federal agencies to assess the performance of grant recipients, and further allows federal agencies to require that recipients use federal grant funds to conduct program evaluations. The incoming administration could further update the Uniform Grants Guidance to direct federal agencies to require that state and local government grant recipients set aside grant funds for impact evaluations of the efficacy of any programs supported by federal funds, and further clarify the allowability of subgrants to universities to support these impact evaluations.

Conclusion

Establishing a national network of university-based “Policy Experiment Stations” or policy innovation labs in each state, supported by continuing federal and state appropriations, is an evidence-based plan to facilitate abundance-oriented state and local government innovation. We already have impressive examples of what these policy labs might be able to accomplish. At MIT’s Abdul Latif Jameel Poverty Action Lab North America, the University of Chicago’s Crime Lab and Education Lab, the University of California’s California Policy Lab, and Harvard University’s The People Lab, to name just a few, leading researchers partner with state and local governments on scientifically rigorous evaluations of the efficacy of public policies and programs, the translation of evidence from other settings, and overcoming implementation challenges, leading in several cases to evidence-based policy reform. Yet effective as these initiatives are, they are largely supported by philanthropic funds, an infeasible strategy for national scaling.

In recent years we’ve made massive investments in communities through federal grants to state and local governments. We’ve also initiated ambitious efforts at growth-oriented regulatory reform which require not only federal but also state and local action. Now it’s time to invest in building state and local capacity to deploy federal investments effectively and to galvanize regional economic growth. Emerging research findings about the determinants of government innovation, and about the efficacy of the R&D infrastructure for agricultural innovation established over a century ago, give us an evidence-based roadmap for state and local government innovation.

This action-ready policy memo is part of Day One 2025 — our effort to bring forward bold policy ideas, grounded in science and evidence, that can tackle the country’s biggest challenges and bring us closer to the prosperous, equitable and safe future that we all hope for whoever takes office in 2025 and beyond.

PLEASE NOTE (February 2025): Since publication several government websites have been taken offline. We apologize for any broken links to once accessible public data.

Promoting American Resilience Through a Strategic Investment Fund

Critical minerals, robotics, advanced energy systems, quantum computing, biotechnology, shipbuilding, and space are some of the resources and technologies that will define the economic and security climate of the 21st century. However, the United States is at risk of losing its edge in these technologies of the future. For instance, China processes the vast majority of the world’s batteries and critical metals and has successfully launched a quantum communications satellite. The implications are enormous: the U.S. relies on its qualitative technological edge to fuel productivity growth, improve living standards, and maintain the existing global order. Indeed, the Inflation Reduction Act (IRA) and CHIPS Act were largely reactionary moves to shore up atrophied manufacturing capabilities in the American battery and semiconductor industries, requiring hundreds of billions in outlays to catch up. In an ideal world, critical industries would be sufficiently funded well in advance to avoid economically costly catch-up spending.

However, many of these technologies are characterized by long timelines, significant capital expenditures, and low and uncertain profit margins, presenting major challenges for private-sector investors who are required by their limited partners (capital providers such as pension funds, university endowments, and insurance companies) to underwrite to a certain risk-adjusted return threshold. This stands in contrast to technologies like artificial intelligence and pharmaceuticals: While both are also characterized by large upfront investments and lengthy research and development timelines, the financial payoffs are far clearer, incentivizing private sectors to play a leading role in commercialization. This issue for technologies in economically and geopolitically vital industries such as lithium processing and chips is most acute in the “valley of death,” when companies require scale-up capital for an early commercialization effort: the capital required is too large for traditional venture capital, yet too risky for traditional project finance.

The United States needs a strategic investment fund (SIF) to shepherd promising technologies in nationally vital sectors through the valley of death. An American SIF is not intended to provide subsidies, pick political winners or losers, or subvert the role of private capital markets. On the contrary, its role would be to “crowd in” capital by uniquely managing risk that no private or philanthropic entities have the capacity to do. In doing so, an SIF would ensure that the U.S. maintains an edge in critical technologies, promoting economic dynamism and national security in an agile, cost-efficient manner. 

Challenges

The Need for Private Investment 

A handful of resources and technologies, some of which have yet to be fully characterized, have the potential to play an outsized role in the future economy. Most of these key technologies have meaningful national security implications.

Since ChatGPT’s release in November 2022, artificial intelligence (AI) has experienced a commercial renaissance that has captured the public’s imagination and huge sums of venture dollars, as evidenced by OpenAI’s October 2024 $6.5 billion round at a $150 billion pre-money valuation. However, AI is not the only critical resource or technology that will power the future economy, and many of those critical resources and technologies may struggle to attract the same level of private investment. Consider the following:

Few sectors receive the level of consistent venture attention that software technology, most recently in AI, has gotten in the last 18 months. However, this does not make them unbackable or unimportant; on the contrary, technologies that increase mineral recovery yields or make drone engines cheaper should receive sufficient support to get to scale. While private-sector capital markets have supported the development of many important industries, they are not perfect and may miss important opportunities due to information asymmetries and externalities.

Overcoming the Valley of Death

Many strategically important technologies are characterized by high upfront costs and low or uncertain margins, which tends to dissuade investment by private-sector organizations at key inflection points, namely, the “valley of death.”

By their nature, innovative technologies are complex and highly uncertain. However, some factors make future economic value—and therefore financeability—more difficult to ascertain than others. For example, innovative battery technologies that enable long-term storage of energy generated from renewables would greatly improve the economics of utility-scale solar and wind projects. However, this requires production at scale in the face of potential competition from low-cost incumbents. In addition, there is the element of scientific risk itself, as well as the question of customer adoption and integration. There are many good reasons why technologies and companies that seem feasible, economical, and societally valuable do not succeed.

These dynamics result in lopsided investment allocations. In the early stages of innovation, venture capital is available to fund startups with the promise of outsized return driven partially by technological hype and partially by the opportunity to take large equity stakes in young companies. At the other end of the barbell, private equity and infrastructure capital are available to mature companies seeking an acquisition or project financing based on predictable cash flows and known technologies. 

However, gaps appear in the middle as capital requirements increase (often by an order of magnitude) to support the transition to early commercialization. This phenomenon is called the “valley of death” as companies struggle to raise the capital they need to get to scale given the uncertainties they face.

Figure 1. The “valley of death” describes the mismatch between existing financial structures and capital requirements in the crucial early commercialization phase. (Source: Maryland Energy Innovation Accelerator)

Shortcoming of Federal Subsidies

While the federal government has provided loans and subsidies in the past, its programs remain highly reactive and require large amounts of funding.

Aside from asking investors to take on greater risk and lower returns, there are several tools in place to ameliorate the valley of death. The IRA one such example: It appropriated some $370 billion for climate-related spending with a range of instruments, including tax subsidies for renewable energy production, low-cost loans through organizations such as the Department of Energy’s Loan Program Office (LPO), and discretionary grants.

On the other hand, there are major issues with this approach. First, funding is spread out across many calls for funding that tend to be slow, opaque, and costly. Indeed, it is difficult to keep track of available resources, funding announcements, and key requirements—just try searching for a comprehensive, easy-to-understand list of opportunities.

More importantly, these funding mechanisms are simply expensive. The U.S. does not have the financial capacity to support an IRA or CHIPS Act for every industry, nor should it go down that route. While one could argue that these bills reflect the true cost of achieving the stated policy aims of energy transition or securing the semiconductor supply chain, it is also the case that there both knowledge (engineering expertise) and capital (manufacturing facility) capabilities underpin these technologies. Allowing these networks to atrophy created greater costs down the road, which could have been prevented by targeted investments at the right points of development.

The Future Is Dynamic

The future is not perfectly knowable, and new technological needs may arise that change priorities or solve previous problems. Therefore, agility and constant re-evaluation are essential.

Technological progress is not static. Take the concept of peak oil: For decades, many of the world’s most intelligent geologists and energy forecasters believed that the world would quickly run out of oil reserves as the easiest to extract resources were extracted. In reality, technological advances in chemistry, surveying, and drilling enabled hydraulic fracturing (fracking) and horizontal drilling, creating access to “unconventional reserves” that substantially increased fossil fuel supply.

Figure 2. In 1956, M.K. Hubbert created “peak oil” theory, projecting that reserves would be exhausted around the turn of the millennium.

Fracking greatly expanded fossil fuel production in the U.S., increasing resource supply, securing greater energy independence, and facilitating the transition from coal to natural gas, whose expansion has proved to be a helpful bridge towards renewable energy generation. This transition would not have been possible without a series of technological innovations—and highly motivated entrepreneurs—that arose to meet the challenge of energy costs.

To meet the challenges of tomorrow, policymakers need tools that provide them with flexible and targeted options as well as sufficient scale to make an impact on technologies that might need to get through the valley of death. However, they need to remain sufficiently agile so as not to distort well-functioning market forces. This balance is challenging to achieve and requires an organizational structure, authorizations, and funding mechanisms that are sufficiently nimble to adapt to changing technologies and markets.

Opportunity

Given these challenges, it seems unlikely that solutions that rely solely on the private sector will bridge the commercialization gap in a number of capital-intensive strategic industries. On the other hand, existing public-sector tools, such as grants and subsidies, are too costly to implement at scale for every possible externality and are generally too retrospective in nature rather than forward-looking. The government can be an impactful player in bridging the innovation gap, but it needs to do so cost-efficiently.

An SIF is a promising potential solution to the challenges posed above. By its nature, an SIF would have a public mission focused on strategic technologies crossing the valley of death by using targeted interventions and creative financing structures that crowd in private investors. This would enable the government to more sustainably fund innovation, maintain a light touch on private companies, and support key industries and technologies that will define the future global economic and security outlook.

Plan of Action

Recommendation 1. Shepherd technologies through the valley of death. 

While the SIF’s investment managers are expected to make the best possible returns, this is secondary to the overarching public policy goal of ensuring that strategically and economically vital technologies have an opportunity to get to commercial scale.

The SIF is meant to crowd in capital such that we achieve broader societal gains—and eventually, market-rate returns—enabled by technologies that would not have survived without timely and well-structured funding. This creates tension between two competing goals: The SIF needs to act as if it will intend to make returns, or else there is the potential for moral hazard and complacency. However, it also has to be willing to not make market-rate returns, or even lose some of its principal, in the service of broader market and ecosystem development. 

Thus, it needs to be made explicitly clear from the beginning that an SIF has the intent of achieving market rate returns by catalyzing strategic industries but is not mandated to do so. One way to do this is to adopt a 501(c)(3) structure that has a loose affiliation to a department or agency, similar to that of In-Q-Tel. Excess returns could either be recycled to the fund or distributed to taxpayers.

The SIF should adapt the practices, structures, and procedures of established private-sector funds. It should have a standing investment committee made up of senior stakeholders across various agencies and departments (expanded upon below). Its day-to-day operations should be conducted by professionals who provide a range of experiences, including investing, engineering and technology, and public policy across a spectrum of issue areas. 

In addition, the SIF should develop clear underwriting criteria and outputs for each investment. These include, but are not limited to, identifying the broader market and investment thesis, projecting product penetration, and developing potential return scenarios based on different permutations of outcomes. More critically, each investment needs to create a compelling case for why the private sector cannot fund commercialization on its own and why public catalytic funding is essential.

Recommendation 2. The SIF should have a permanent authorization to support innovation under the Department of Commerce. 

The SIF should be affiliated with the Department of Commerce but work closely with other departments and agencies, including the Department of Energy, Department of Treasury, Department of Defense, Department of Health and Human Services, National Science Foundation, and National Economic Council.

Strategic technologies do not fall neatly into one sector and cut across many customers. Siloing funding in different departments misses the opportunity to capture funding synergies and, more importantly, develop priorities that are built through information sharing and consensus. Enter the Department of Commerce. In addition to administering the National Institute of Standards and Technology, they have a strong history of working across agencies, such as with the CHIPS Act.

Similar arguments can also be made for the Treasury, and it may even be possible to have Treasury and Commerce work together to manage an SIF. They would be responsible for bringing in subject matter experts (for example, from the Department of Energy or National Science Foundation) to provide specific inputs and arguments for why specific technologies need government-based commercialization funding and at what point such funding is appropriate, acting as an honest broker to allocate strategic capital.

To be clear: The SIF is not intended to supersede any existing funding programs (e.g., the Department of Energy’s Loan Program Office or the National Institute of Health’s ARPA-H) that provide fit-for-purpose funding to specific sectors. Rather, an SIF is intended to fill in the gaps and coordinate with existing programs while providing more creative financing structures than are typically available from government programs.

Recommendation 3. Create a clear innovation roadmap.

Every two years, the SIF should develop or update a roadmap of strategically important industries, working closely with private, nonprofit, and academic experts to define key technological and capability gaps that merit public sector investment. 

The SIF’s leaders should be empowered to make decisions on areas to prioritize but have the ability to change and adapt as the economic environment evolves. Although there is a long list of industries that an SIF could potentially support, resources are not infinite. However, a critical mass of investment is required to ensure adequate resourcing. One acute challenge is that this is not perfectly known in advance and changes depending on the technology and sector. However, this is precisely what the strategic investment roadmap is supposed to solve for: It should provide an even-handed assessment of the likely capital requirements and where the SIF is best suited to provide funding compared to other agencies or the private sector.

Moreover, given the ever-changing nature of technology, the SIF should frequently reassess its understanding of key use cases and their broader economic and strategic importance. Thus, after initial development of the SIF, it should be updated every two years to ensure that its takeaways and priorities remain relevant. This is no different than documents such as the National Security Strategy, which are updated every two to four years; in fact, the SIF’s planning documents should flow seamlessly into the National Security Strategy. 

To provide a sufficiently broad set of perspectives, the government should include the expertise and insights of outside experts to develop its plan. Existing bodies, such as the President’s Council of Advisors on Science and Technology and the National Quantum Initiative, provide some of the consultative expertise required. However, the SIF should also stand up subject matter specific advisory bodies where a need arises (for example, on critical minerals and mining) and work internally to set specific investment areas and priorities.

Recommendation 4. Limit the SIF to financing.

The government should not be an outsized player in capital markets. As such, the SIF should receive no governance rights (e.g., voting or board seats) in the companies that it invests in.

Although the SIF aims to catalyze technological and ecosystem development, it should be careful not to dictate the future of specific companies. Thus, the SIF should avoid information rights beyond financial reporting. Typical board decks and stockholder updates include updates on customers, technologies, personnel matters, and other highly confidential and specific pieces of information that, if made public through government channels, would play a highly distortionary role in markets. Given that the SIF is primarily focused on supporting innovation through a particularly tricky stage to navigate, the SIF should receive the least amount of information possible to avoid disrupting markets.

Recommendation 5. Focus on providing first-loss capital.

First-loss capital should be the primary mechanism by which the SIF supports new technologies, providing greater incentives for private-sector funders to support early commercialization while providing a means for taxpayers to directly participate in the economic upside of SIF-supported technologies.

Consider the following stylized example to demonstrate a key issue in the valley of death. A promising clean technology company, such as a carbon-free cement or long-duration energy storage firm, is raising $100mm of capital for facility expansion and first commercial deployment. To date, the company has likely raised $30 – $50mm of venture capital to enable tech development, pilot the product, and grow the team’s engineering, R&D, and sales departments.

However, this company faces a fundraising dilemma. Its funding requirements are now too big for all but the largest venture capital firms, who may or may not want to invest in projects and companies like these. On the other hand, this hypothetical company is not mature enough for private equity buyouts nor is it a good candidate for typical project-based debt, which typically require several commercial proof points in order to provide sufficient risk reduction for an investor whose upside is relatively limited. Hence, the “valley of death.”

First-loss capital is an elegant solution to this issue: A prospective funder could commit to equal (pro rata) terms as other investors, except that this first-loss funder is willing to use its investment to make other investors whole (or at least partially offset losses) in the event that the project or company does not succeed. In this example, a first-loss funder would commit to $33.5 million of equity funding (roughly one-third of the company’s capital requirement). If the company succeeds, the first-loss funder makes the same returns as the other investors. However, if the company is unable to fully meet these obligations, the first-loss funder’s $33.5 million would be used to pay the other investors back (the other $66.5 million that was committed). This creates a floor on losses for the non-first-loss investors: Rather than being at risk of losing 100% of their principal, they are at risk of losing 50% of their principal.

The creation of a first-loss layer has a meaningful impact on the risk-reward profile for non-first-loss investors, who now have a floor on returns (in the case above, half their investment). By expanding the acceptable potential loss ratio, growth equity capital (or another appropriate instrument, such as project finance) can fill the rest, thereby crowding in capital. 

From a risk-adjusted returns standpoint, this is not a free lunch for the government or taxpayers. Rather, it is intended to be a capital-efficient way of supporting the private-sector ecosystem in developing strategically and economically vital technologies. In other words, it leverages the power of the private sector to solve externalities while providing just enough support to get them to the starting line in the first place.

Conclusion

Many of tomorrow’s strategically important technologies face critical funding challenges in the valley of death. Due to their capital intensity and uncertain outcomes, existing financing tools are largely falling short in the critical early commercialization phases. However, a nimble, properly funded SIF could bridge key gaps while allowing the private sector to do most of the heavy lifting. The SIF would require buy-in from many stakeholders and well-defined sources of funding, but these can be solved with the right mandates, structures, and pay-fors. Indeed, the stakes are too high, and the consequences too dire, to not get strategic innovation right in the 21st century.

This action-ready policy memo is part of Day One 2025 — our effort to bring forward bold policy ideas, grounded in science and evidence, that can tackle the country’s biggest challenges and bring us closer to the prosperous, equitable and safe future that we all hope for whoever takes office in 2025 and beyond.

PLEASE NOTE (February 2025): Since publication several government websites have been taken offline. We apologize for any broken links to once accessible public data.

Frequently Asked Questions
If first-loss capital is such a powerful mechanism, why doesn’t the market already provide it?

Put simply, there needs to be an entity that is actually willing and able to absorb lower returns, or even lose some of its principal, in the service of building an ecosystem. Even if the “median” outcome is a market-rate return of capital, the risk-adjusted returns are in effect far lower because the probability of a zero outcome for first-loss providers is substantially nonzero. Moreover, it’s not clear exactly what the right probability estimate should be; therefore, it requires a leap of faith that no economically self-interested private market actor would be willing to take. While some quasi-social-sector organizations can play this role (for example, Bill Gates’s Breakthrough Energy Ventures for climate tech), their capacity is finite, nor is there a guarantee that such a vehicle will appear for every sector of interest. Therefore, a publicly funded SIF is an integral solution to bridging the valley of death.

Does the SIF always have to use first-loss structures?

No, the SIF would not always have to use first-loss structures. However, it is the most differentiated structure that is available to the U.S. government; otherwise, a private-sector player is likely able—and better positioned—to provide funding.

What type of financial instruments (e.g., debt, equity) would the SIF use?

The SIF should be able to use the full range of instruments, including project finance, corporate debt, convertible loans, and equity capital, and all combinations thereof. The instrument of choice should be up to the judgment of the applicant and SIF investment team. This is distinct from providing first-loss capital: Regardless of the financial instrument used, the SIF’s investment would be used to buffer other investors against potential losses.

What is the target rate of return?

The target return rate should be commensurate with that of the instrument used. For example, mezzanine debt should target 13–18% IRR, while equity investments should aim for 20–25% IRR. However, because of the increased risk of capital loss to the SIF given its first loss position, the effective blended return should be expected to be lower. 


The SIF should be prepared to lose capital on each individual investment and, as a blended portfolio, to have negative returns. While it should underwrite such that it will achieve market-rate returns if successful in crowding in other capital that improves the commercial prospects of technologies and companies in the valley of death, the SIF has a public goal of ecosystem development for strategic domains. Therefore, lower-than-market-rate returns, and even some principal degradation, is acceptable but should be avoided as much as possible through the prudence of the investment committee.

What protections will the SIF be offered, if they do not get board seats or representation?

By and large, the necessary public protections are granted through CFIUS, which requires regulatory approval for export or foreign ownership stakes with voting rights above 25% of critical technologies. The SIF can also enact controls around information rights (e.g., customer lists, revenue, product roadmaps) such that they have a veto on parties that can receive such information. However, given its catalytic mission, the SIF does not need board seats or representation and should focus on ensuring that critical technologies and assets are properly protected.

What is the overall investment committee composition, and what are the processes for approval?

In most private investment firms, the investment committee is made up of the most senior individuals in the fund. These individuals can cross asset classes, sectors of expertise, and even functional backgrounds. However, the investment committee represents a wide breadth of expertise and experiences that, when brought together, enable intellectual honesty and the application of collective wisdom and judgment to the opportunity at hand.


Similarly, the SIF’s investment committee could include the head of the fund and representatives from various departments and agencies in alignment with its strategic priorities. The exact size of the investment committee should be defined by these priorities, but approval should be driven by consensus, and unanimity (or near unanimity) should be expected for investments that are approved.


Given the fluid nature of investment opportunities, the committee should be called upon whenever needed to evaluate a potential opportunity. However, given the generally long process times for investments discussed above (6–12 months), the investment committee should have been briefed multiple times before a formal decision is made.

What check size is envisioned? Is there a strict cutoff for the amount of funding that can be disbursed?

Check sizes can be flexible to the needs of the investment opportunity. However, as an initial guiding principle, first loss capital should likely make up 20–35% of capital invested so as to require private-sector investors to have meaningful skin in the game. Depending on the fundraise size, this could imply investments of $25 million to $100 million.


Target funding amounts should be set over multiyear timeframes, but the annual appropriations process implies that there will likely be a set cap in any given year. In order to meet the needs of the market, there should be mechanisms that enable emergency draws, up to a cap (e.g., 10% of the annual target funding amount, which will need to be “paid for” by reducing future outlays). 

How will the SIF be funded?

An economically efficient way to fund a government program in support of a positive externality is a Pigouvian tax on negative externalities (such as carbon). However, carbon taxes are as politically unappealing as they are economically sensible and need to be packaged into other policy goals that could potentially support such legislation. Notwithstanding the questionable economic wisdom of tariffs in general, some 56% of voters support a 10% tax on all imports and 60% tariffs on China. Rather than using tariffs harmfully, they could be used more productively. One such proposal is a carbon import tariff that taxes imports on the carbon emitted in the production and transportation of goods into the U.S.


The U.S. would not be a first mover: in fact, the European Union has already implemented a similar mechanism called the Carbon Border Adjustment Mechanism (CBAM), which is focused on heavy industry, including cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen, with chemicals and polymers potentially to be included after 2026. At full rollout in 2030, the CBAM is expected to generate roughly €10–15 billion of tax revenue. Tax receipts of a similar size could be used to fund an SIF or, if Congress authorizes an upfront amount, could be used to nullify the incremental deficit over time.

If the carbon innovation fee is implemented, how would levies be assessed and exemptions provided?

The EU’s CBAM phased in its reporting requirements over several years. Through July 2024, companies were allowed to use default amounts per unit of production without an explanation as to why actual data was not used. Until January 1, 2026, companies can make estimates for up to 20% of goods; thereafter, the CBAM requires reporting of actual quantities and embedded greenhouse gas emissions.


The U.S. could use a similar phase-in, although given the challenges of carbon reporting, could allow companies to use the lower of actual, verified emissions or per-unit estimates. Under a carbon innovation fee regime, exporters and countries could apply for exemption on a case-by-case basis to the Department of Commerce, which they could approve in line with other goals (e.g., economic development in a region).

Besides a carbon innovation fee, what are other ways to fund the SIF?

The SIF could also be funded by repurposing other funding and elevating their strategic importance. Potential candidates include the Small Business Innovation Research (SBIR) and Small State Business Credit Initiative (SSBCI), which could play a bigger role if moved into the SIF umbrella. For example, the SBIR program, whose latest reporting data is as of FY2019, awarded $3.3 billion in funding that year and $54.6 billion over its lifespan. Moreover, the SSBCI, a $10 billion fund that already provides loan guarantees and other instruments similar to those described above, can be used to support technologies that fall into the purview of the SIF.

What funding options are available if reallocation of existing funds isn’t an option?

Congress could also assess reallocating dollars towards an SIF from spending reforms that are likely inevitable given the country’s fiscal position. In 2023, the Congressional Budget Office (CBO) published a report highlighting potential solutions for reducing the budget deficit. Some potential solutions, like establishing caps on Medicaid federal spending, while fiscally promising, seem unlikely to pass in the near future. However, others are more palatable, especially those that eliminate loopholes or ask higher-income individuals to pay their fair share.


For instance, increasing the amount subject to Social Security taxes above the $250,000 threshold has the potential to raise up to $1.2 trillion over 10 years; while this can be calibrated, an SIF would take only a small fraction of the taxes raised. In addition, the CBO found that federal matching funds for Medicaid frequently ended up getting back to healthcare providers in the form of higher reimbursement rates; eliminating what are effectively kickbacks could reduce the deficit by up to $525 billion over 10 years.

What Works in Boston, Won’t Necessarily Work in Birmingham: 4 Pragmatic Principles for Building Commercialization Capacity in Innovation Ecosystems

Just like crop tops, flannel, and some truly unfortunate JNCO jeans that one of these authors wore in junior high, the trends of the 90’s are upon us again. In the innovation world, this means an outsized focus on tech-based economic development, the hottest new idea in economic development, circa 1995. This takes us back in time to fifteen years after the passage of the Bayh Dole Act, the federal legislation that granted ownership of federally funded research to universities. It was a time when the economy was expanding, dot-com growth was a boom, not a bubble, and we spent more time watching Saved by the Bell than thinking about economic impact. 

After the creation of tech transfer offices across the country and the benefit of time, universities were just starting to understand how much the changes wrought by Bayh-Dole would impact them (or not). A raft of optimistic investments in venture development organizations and state public-private partnerships swept the country, some of which (like Ben Franklin Technology Partners and BioSTL) are still with us today, and some of which (like the Kansas Technology Enterprise Center) have flamed out in spectacular fashion. All of a sudden, research seemed like a process to be harnessed for economic impact. Out of this era came the focus on “technology commercialization” that has captured the economic development imagination to this day. 

Commercialization, in the context of this piece, describes the process through which universities (or national labs) and the private sector collaborate to bring to the market technologies that were developed using federal funding. Unlike sponsored research and development, in which industry engages with universities from the beginning to fund and set a research agenda, commercialization brings in the private sector after the technology has been conceptualized. Successful commercialization efforts have now grown across the country, and we believe they can be described by four practical principles: 

Principle 1: A strong research enterprise is a necessary precondition to building a strong commercialization pipeline.

The first condition necessary to developing a commercialization pipeline is a reasonably advanced research enterprise. While not every region in the U.S. has access to a top-tier research university, there are pockets of excellent research at most major U.S. R1 and R2 institutions. However, because there is natural attrition at each stage of the commercialization process (much like the startup process) a critical mass of novel, leading, and relevant research activity must exist in a given University. If that bar is assumed to be the ability to attract $10 million in research funding (the equivalent of winning 20-25 SBIR Phase 1 grants annually), that limits the number of schools that can run a fruitful commercialization pipeline to approximately 350 institutions, based on data from the NSF NCSES. A metro area should have at least one research institution that meets this bar in order to secure federal funding for the development of lab-to-market programs, though given the co-location of many universities, it is possible for some metro areas to have several such research institutions or none at all.

Principle 2: Commercialization via established businesses creates different economic impacts than commercialization via startups; each pathway requires fundamentally different support.

When talking about commercialization, it is also important to differentiate between whether a new technology is brought to market by a large, incumbent company or start-up. The first half of the commercialization process is the same for both: technology is transferred out of universities, national labs, and other research institutions through the process of registering, patenting, and licensing new intellectual property (IP). Once licensed, though, the commercialization pathway branches into two. 

With an incumbent company, whether or not it successfully brings new technology to the market is largely dependent on the company’s internal goals and willingness to commit resources to commercializing that IP. Often, incumbent companies will license patents as a defensive strategy in order to prevent competition with their existing product lines. As a result, license of a technology by an incumbent company cannot be assumed to represent a guarantee of commercial use or value creation.

The alternative pathway is for universities to license their IP to start-ups, which may be spun out of university labs. Though success is not guaranteed, licensing to these new companies is where new programs and better policies can actually make an impact. Start-ups are dependent upon successful commercialization and require a lot of support to do so. Policies and programs that help meet their core needs can play a significant role in whether or not a start-up succeeds. These core needs include independent space for demonstrating and scaling their product, capital for that work and commercialization activities (e.g. scouting customers and conducting sales), and support through mentorship programs, accelerators, and in-kind help navigating regulatory processes (especially in deep tech fields). 

Principle 3: Local context matters; what works in Boston won’t necessarily work in Birmingham. 

Unfortunately, many universities approach their tech transfer programs with the goal of licensing their technology to large companies almost exclusively. This arises because university technology transfer offices (TTOs) are often understaffed, and it is easier to license multiple technologies to the same large company under an established partnership than to scout new buyers and negotiate new contracts for each patent. The Bayh-Dole Act, which established the current tech transfer system, was never intended to subsidize the R&D expenditures of our nation’s largest and most profitable companies, nor was it intended to allow incumbents to weaponize IP to repel new market entrants. Yet, that is how it is being used today in practical application.

Universities are not necessarily to blame for the lack of resources, though. Universities spend on average 0.6% of their research expenditures on their tech transfer programs. However, there is a large difference in research expenditures between top universities that can attract over a billion in research funding and the average research university, and thus a large difference in the staffing and support of TTOs. State government funding for the majority of public research universities have been declining since 2008, though there has been a slight upswing since the pandemic, while R&D funding at top universities continues to increase. Only a small minority of TTOs bring in enough income from licensing in order to be self-sustaining, often from a single “blockbuster” patent, while the majority operate at a loss to the institution. 

To successfully develop innovation capacity in ecosystems around the country through increased commercialization activity, one must recognize that communities have dramatically different levels of resources dedicated to these activities, and thus, “best practices” developed at leading universities are seldom replicable in smaller markets. 

Principle 4: Successful commercialization pipelines include interventions at the individual, institutional, and ecosystem level.

As we’ve discussed at length in our FAS “systems-thinking” blog series, which includes a post on innovation ecosystems, a systems lens is fundamental to how we see the world. Thinking in terms of systems helps us understand the structural changes that are needed to change the conditions that we see playing out around us every day. When thinking about the structure of commercialization processes, we believe that intervention at various structural levels of a system is necessary to create progres on challenges that seem insurmountable at first—such as changing the cultural expectations of “success” that are so influential in the academic systems. Below we have identified some good practices and programs for supporting commercialization at the individual, institutional, and ecosystem level, with an emphasis on pathways to start-ups and entrepreneurship.

Practices and Programs Targeted at Individuals

University tech transfer programs are often reliant on individuals taking the initiative to register new IP with their TTOs. This requires individuals to be both interested enough in commercialization and knowledgeable enough about the commercialization potential of their research to pursue registration. Universities can encourage faculty to be proactive in pursuing commercialization through recognizing entrepreneurial activities in their hiring, promotion and tenure guidelines and encouraging faculty to use their sabbaticals to pursue entrepreneurial activities. An analog to the latter at national laboratories are Entrepreneurial Leave Programs that allow staff scientists to take a leave of up to three years to start or join a start-up before returning to their position at the national lab.

Faculty and staff scientists are not the only source of IP though; graduate students and postdoctoral researchers produce much of the actual research behind new intellectual property. Whether or not these early-career researchers pursue commercialization activities is correlated with whether they have had research advisors who were engaged in commercialization. For this reason, in 2007, the National Research Foundation of Singapore established a joint research center with the Massachusetts Institute of Technology (MIT) such that by working with entrepreneurial MIT faculty members, researchers at major Singaporean universities would also develop a culture of entrepreneurship. Most universities likely can’t establish programs of this scale, but some type of mentorship program for early-career scientists pre-IP generation can help create a broader culture of translational research and technology transfer. Universities should also actively support graduate students and postdoctoral researchers in putting forward IP to their TTO. Some universities have even gone so far as to create funds to buy back the time of graduate students and postdocs from their labs and direct that time to entrepreneurial activities, such as participating in an iCorps program or conducting primary market research.  

Student at work in the NOAA CIGLR Lab at the University of Michigan School for Environment and Sustainability

Some universities have even gone so far as to create funds to buy back the time of graduate students and postdocs from their labs and direct that time to entrepreneurial activities, such as participating in an iCorps program or conducting primary market research.

Once IP has been generated and licensed, many universities offer mentorship programs for new entrepreneurs, such as MIT’s Venture Mentorship Services. Outside of universities, incubators and accelerators provide mentorship along with funding and/or co-working spaces for start-ups to grow their operation. Hardware-focused start-ups especially benefit from having a local incubator or accelerator, since hard-tech start-ups attract significantly less venture capital funding and support than digital technology start-ups, but require larger capital expenditures as they scale. Shared research facilities and testbeds are also crucial for providing hard-tech start-ups with the lab space and equipment to refine and scale their technologies.

For internationally-born entrepreneurs, an additional consideration is visa sponsorship. International graduate students and postdocs that launch start-ups need visa sponsors in order to stay in the United States as they transition out of academia. Universities that participate in the Global Entrepreneur in Residence program help provide H-1B visas for international entrepreneurs to work on their start-ups in affiliation with universities. The university benefits in return by attracting start-ups to their local community that then generate economic opportunities and help create an entrepreneurial ecosystem.

Practices and Programs Targeted at Institutions

As mentioned in the beginning, one of the biggest challenges for university tech transfer programs is understaffed TTOs and small patent budgets. On average, TTOs have only four people on staff, who can each file a handful of patents a year, and budgets for the legal fees on even fewer patents. Fully staffing TTOs can help universities ensure that new IP doesn’t slip through the cracks due to a lack of capacity for patenting or licensing activities. Developing standard term sheets for licensing agreements can also reduce administrative burden and make it easier for TTOs to establish new partnerships.

Instead of TTOs, some universities have established affiliated technology intermediaries, which are organizations that take on the business aspects of technology commercialization. For example, the Wisconsin Alumni Research Foundation (WARF) was launched as an independent, nonprofit corporation to manage the University of Wisconsin–Madison’s vitamin D patents and invest the resulting revenue into future research at the university. Since its inception 90 years ago, WARF has provided $2.3 billion in grants to the university and helped establish 60 start-up companies. 

In general, universities need to be more consistent about collecting and reporting key performance indicators for TTOs outside of the AUTM framework, such as the number of unlicensed patents and the number of products brought to the market using licensed technologies. In particular, universities should disaggregate metrics for licensing and partnerships between companies less than five years old and those greater than five years old so that stakeholders can see whether there is a difference in commercialization outcomes between incumbent and start-up licensees.

Practices and Programs Targeted at Innovation Ecosystems

Innovation ecosystems are made up of researchers, entrepreneurs, corporations, the workforce, government, and sources of capital. Geographic proximity through co-locating universities, corporations, start-ups, government research facilities, and other stakeholder institutions can help foster both formal and informal collaboration and result in significant technology-driven economic growth and benefits. Co-location may arise organically over time or result from the intentional development of research parks, such as the NASA Research Park. When done properly, the work of each stakeholder should advance a shared vision. This can create a virtuous cycle that attracts additional talent and stakeholders to the shared vision and can integrate with more traditional attraction and retention efforts. One such example is the co-location of the National Bio- and Agro-Defense Facility in Manhattan, KS, near the campus of Kansas State University. After securing that national lab, the university made investments in additional BSL-2, 3 and 3+ research facilities including the Biosecurity Research Institute and its Business Development Module. The construction and maintenance of those facilities required the creation of new workforce development programs to train HVAC technicians that manage the independent air handling capabilities of the labs and train biomanufacturing workers, which was then one of the selling points for the successful campaign for the relocation of corporation Scorpius Biologics to the region. At best, all elements of an innovation ecosystem are fueled by a research focus and the commercialization activity that it provides. 

For regions that find themselves short of the talent they need, soft-landing initiatives can help attract domestic and international entrepreneurs, start-ups, and early-stage firms to establish part of their business in a new region or to relocate entirely. This process can be daunting for early-stage companies, so soft-landing initiatives aim to provide the support and resources that will help an early-stage company acclimatize and thrive in a new place. These initiatives help to expand the reach of a community, create a talent base, and foster the conditions for future economic growth and benefits.

Alongside the creation of innovation ecosystems should be the establishment of “scale-up ecosystems” focused on developing and scaling new manufacturing processes necessary to mass produce the new technologies being developed. This is often an overlooked aspect of technology development in the United States, and supply chain shocks over the past few years have shone a light on the need to develop more local manufacturing supply chains. Fostering the growth of manufacturing alongside technology innovation can (1) reduce the time cycling between product and process development in the commercialization process, (2) capture the “learning by doing” benefits from scaling the production of new technologies, and (3) replenish the number of middle-income jobs that have been outsourced over the past few decades. 

Any way you slice it, commercialization capacity is one clear and critical input to a successful innovation ecosystem. However, it’s not the only element that’s important. A strong startup commercialization effort, standing alone, without the corporate, workforce, or government support that it needs to build a vibrant ecosystem around its entrepreneurs, might wane with time or simply be very successful at shipping spinouts off to a coastal hotspot. Building a commercialization pipeline is not, nor has it ever been, a one-size-fits-all solution for ecosystem building. 

It may even be something we’ve over-indexed on, given the widespread adoption of tech-based economic development strategies. One significant reason for this is the fact that entrepreneurship via commercialization is most open to those who already have access to a great deal of privilege–who have attained, or are on the path to, graduate degrees in STEM fields critical to our national competitiveness. If you’ve already earned a Ph.D. in machine learning, chances are your future is looking pretty bright—with or without entrepreneurial opportunity involved. To truly reap the economic benefits of commercialization activity (and the startups it creates), we need to aggressively implement programs, training, and models that change the demographics of who gets to commercialize technology, not just how they do it. To shape this, we’ll need to change the conditions for success for early-career researchers and reconsider the established model of how we mentor and train the next generation of scientists and engineers–you’ll hear more from us on these topics in future posts!

Buying in Bulk: Electrifying Fleets Across the Country

The Electrification Coalition (EC) is a nonpartisan, nonprofit organization that develops and implements a broad set of strategies to facilitate the widespread adoption of electric vehicles (EVs) to overcome the economic, public health, and national security challenges that stem from America’s dependence on oil. They provided technical support to the Climate Mayors initiative to help cities, counties, school districts, and other public entities leverage their collective buying power and accelerate the conversion of public fleets to EVs. 

Sarah Reed is the EC’s Director of Programs, managing EV innovation projects including the Climate Mayors Electric Vehicle Purchasing Collaborative program. Matthew Stephens-Rich is the Director of Technical Services for the EC’s programs.

This interview is part of an FAS series on innovative procurement.

Ryan Buscaglia: Could you give a broad overview of what the Climate Mayor’s EV purchasing collaborative was and what the role of the electrification coalition was within that?

Sarah: This project, the climate mayor’s purchasing collaborative, was launched in 2018 by then Mayor Eric Garcetti of Los Angeles and a couple of other partners. It was an unprecedented effort to create a one stop shop for local governments and schools and universities to reduce some of those upfront challenges that exist with fleet electrification. This project is really focused on providing technical assistance to all of these types of nonprofit local government/public entities, as they look to purchase EVs. 

We ask, ‘how can we make sure that every vehicle that’s being bought within the next year is electric? How can we provide that support, knowledge, and information on the fleetside to make that shift?’ So we pair that information and guidance from the electrification coalition with an easy option to buy this equipment.

You can buy all types of vehicles including school buses, garbage trucks, street sweepers, EV charging stations, and the EVs that we all pretty much know at this point (Chevy Bolt, the Nissan LEAF, etc.) through Sourcewell, which is a purchasing platform that sells all kinds of things. 

Many local governments are familiar with Sourcewell from buying equipment for playgrounds, pens, chairs or anything that schools and local governments purchase. This initiative brought together us, that purchasing mechanism, and the climate mayors who were saying ‘we need to transition our fleet’. That’s how we looked at that approach, especially in 2018, when there weren’t quite as many EVs out there. Our role is the overall organization as well as that technical support.

Why are public fleets an important leverage point in advancing electrification?

Sarah: The EC’s mission is focused on improving economic and national security challenges and reducing dependence on oil. We have this history of working with communities and cities on EV adoption and knew that fleets were a sweet spot for several reasons. Fleets have predictable routes. So in general, most fleet vehicles drive within the city or they drive to and from different facilities. They have higher mileage than a vehicle you or I might drive, which increases the cost savings of an electric vehicle. And they also usually go home to one spot at night where they can charge. So they’re really good candidates to make electric. And we can help show some of the cost savings and the total cost of ownership. Matt can share more about that part.

Matt: 2018 doesn’t sound like that long ago, but where we were in the market at that point there were barriers that needed better solutions. First and foremost was market growth. Consumer adoption was going on in 2018, but definitely not at the clip it is right now.

We saw an immediate opportunity to bring public fleets as a leader in proving EVs and where they can be a best fit in fleet deployment. When you think about a fleet—average people don’t think about fleets often—you’re thinking about dump trucks, step vans, Amazon delivery, that type of thing. But it turns out public fleets have a significantly large light duty deployment: sedans, pickup trucks, etc. It’s everything from a parking enforcement vehicle, to courier vehicles, a whole slew of things that are running around town. 

This made them a really good fit for electrification. It’s also a great way for cities to communicate their sustainability priorities and demonstrate what EVs look like in the wild. To this day we have a number of partners that signed on to the initial commitments with climate mayors that still send us back pictures. It just gives that demonstration of what EVs do look like in the wild. So that it’s not just a hypothetical, but something that’s real right in front of you. 

While we had a lot of initial municipalities that were excited to go electric, they didn’t have reliable access. Typically you have to go through usual procurement—you have to go through a publicly bid RFP process, you have to get three vendors responding back, and go through a whole criteria set. It takes time, effort, and energy. The biggest critics of RFPs will be quick to point out you often end up with an inferior product to what you originally were hoping for.

Working with Sourcewell and our procurement partners we were able to use pre-bid contracts to eliminate the need for that and instantly go and purchase those vehicles that you wanted. We heard and still l hear stories of somebody saying “I’m looking for a Chevy Bolt or a Kia Niro or something like that and my local dealer didn’t respond to my RFP, so I can’t buy the vehicle I’m looking for. What do I do?” So that was a specific opportunity.

But as fleet options have grown between electric school buses, electric street sweepers, charging infrastructure, transit buses—we’ve continued to grow the offering in the EV purchasing collaborative. For instance, with the F150 Lightning and the E-Transit, the Ford options, those are amazing utility applications, big top requests right now for a lot of folks, which has been a really helpful key asset to that. 

As Sarah also mentioned, in terms of the technical support we’re here to help usher folks through that procurement process. Pre IRA [Inflation Reduction Act] and Bipartisan Infrastructure Law [BIL] there was an opportunity to use the earlier EV tax credits through leasing. And then by leasing the vehicle from a leasing company or maybe a dealer or your procurement partner, you’re able to claim a pass through portion of the tax credit. A lot of municipalities never lease so this was the first time they were ever leasing a product. Often you just buy it outright using bonded money or something to that effect. So there was a lot of technical support in terms of procurement. 

We also provide fleet analysis support through our free to use Drive tool—Dashboard for Rapid Vehicle Electrification (DRVE)—which you can download from our website. Anyone can use it. It’s designed to provide a quick analysis. A lot of fleet managers are bought into electrification, they don’t need the whole proofing of “what is an EV? where do I charge it?” They have a lot of that figured out. It’s really just the question of “okay, what is the exact model that I should be thinking about? Or what would a Total Cost of Ownership (TCO) look like?” They’re pretty bought in but just need some of those final touches to gut check it.

That brings up so many follow up questions from me, the first is why do electric street sweepers have such high demand?

Matt: Street sweepers were really popular in part because what’s one thing that every city has? It is a street sweeper or a refuse truck. At that moment, it was kind of a cool thing we had an electric street sweeper and said let’s do an informational webinar and get the word out on it. That was the most attended webinar we had hosted to date. And it was because there were a lot of good use applications and a lot of city fleet vendors were really excited to hear about that. Definitely a great example of finding vehicle options ripe for electrification.

We’ve grown like Sarah mentioned with nonprofits and we have done a lot of work with universities. State fleets as well. While city fleets are a great place to start, we work with all public entities big and small. We’ve had the chance to work with and help them through the process, especially again to the market growth. One thing we really emphasize is you are not expected to use our procurement partner, it’s just one of many options. So above all else, we’re here to help you find the most cost effective, most time efficient way to get your vehicles deployed. In those moments, we’re really just really on hand to help out folks through any specific part of the process. 

How did the Climate Mayors’ collaborative that you all are a part of come together? And what were some of the challenges of putting together such an aggregated purchasing vehicle rather than working with people in a one-off fashion?

Sarah: Mayor Garcetti had a really strong sustainability platform and he did a ton of really exciting things in the city of Los Angeles. One of those things was around electric vehicles at the community / fleet level across the city and he was a cofounder of the climate mayor’s organization. 

There are a group of cities that put together a request for information out to automakers to say, “We’re a couple of really large cities (Seattle, LA, etc.) and we want to buy this many fleet vehicles, we want to electrify them, and you need to make vehicles for us to buy.” This was a market indicator from all these large cities that the demand is there. The EC had a history with Sourcewell and built up some of those other relationships to turn that initial action into a project that could provide the support [for cities].

To make sure I’m understanding it right—there were three main entities involved here. You have the Climate Mayors that came together issuing a call and committing to purchasing a certain number of electric vehicles that they thought would meet their goals as cities and locales. You have the Electrification Coalition functioning as an overarching organization and technical support provider, working through details and analysis. And then you have Sourcewell, who’s the actual vehicle point provider who they can go to as an “easy button”. Once cities determine something meets their needs they can procure it quickly from them. Is that right?

Sarah: Yes, perfect! And you did ask about initial commitments. So there was that RFI, and then when we launched this program, there were about 20 cities and counties committing to a couple hundred EVs. This project has been focused on immediate action. So we didn’t care about saying, “Oh, by 2030 we’re gonna electrify our whole fleet.” That wasn’t what this was about. This was about next year—what vehicles are already turning over and how we can make them electric?

The peak of commitments was over 6,000 vehicles that fleets were looking at purchasing. Several thousand were purchased. And so that initial commitment grew from 20 or so folks, when we launched this program in 2018, to several hundred local governments that are a part of this effort.

Besides the thousands of vehicles, are there any other impact or success measures that you have from this specific program that you’d like to talk about?

Sarah: So it’s about 450 cities and counties and the actual commitments to purchasing vehicles has the potential to reduce over 2 million annual gasoline gallons, as well as 46 million annual tons of CO2 emissions. We’ve also written some case studies and provided other reports and resources.

Matt: A big key to success too, especially in those early days, we focused on investing into the relationships we were building with cities. The biggest thing about procurement is it’s always happening. So you’re always planning for that next one, two, or three rounds, forecasting procurement planning across a number of years. So we focused on those initial quick hits, and then focused on how we can grow those purchase orders over time with partners. Having all the analysis set really helped. We also did a lot of work with cities on setting up what we call “EV first” procurement policies. So essentially taking the city’s own internal procurement policy and kind of flipping it on its head. 

Traditionally, the assumption is you’re going to buy a gasoline or diesel vehicle, not anything that you have to defend. We flip it and say EV is actually the assumed norm and if it’s not going to be that they have to work down to the decision tree to get to buying a regular gasoline or diesel vehicle. Now, we are still working with a lot of those original cities. Many of them are staying on target for broader 2030 goals, like Sarah mentioned, but even then, there’s all types of barriers that can crop up along the way. 

Do you do any work around planning for the end of life asset problem with localities so those vehicles are gonna break down, they’re gonna need to replace those on a timeline eventually. How do you manage that transition and handle scrapping or selling to a secondary market?

Matt: To be honest, it doesn’t just start with EVs. Very few fleets can just outright scrap and replace vehicles. Often you have something in a primary use and then you’re putting it into a secondary use. It’s quite literally in the back, we’re going to use it on an as needed basis. Indeed, should a vehicle have to go in the shop, we have the backup that can come into deployment. So we actually started into that with those first EV purchases. Often those gasoline vehicles were not being immediately retired or sold off or sent to a scrapyard, but put in a secondary use on hand as needed. Very rarely driven, to be honest, but just still there. 

That asset management is a critical piece to it. Going back to the leasing structure—that creates a whole new world for secondary life and addressing how do you deal with the end of life for that vehicle? Those public fleets that were going down the leasing route, often that was in a closed ended lease or with an option to buy it out at a later date. 

So that was a way to hedge a bet because electric vehicles in general really are taking a shape and arc of evolution more similar to your smartphone than a traditional vehicle. The range only gets better, charging speeds get better. So that was one way folks were a little more comfortable with committing to procuring. With a closed ended lease, they knew they were giving it back to the dealer and not just going to have the vehicle on their hands and working out what do we do with it?

In sending to scrapyards, it’s interesting because there is actually a lot of asset value. There are so many rare and critical minerals in the vehicles and battery packs. It’s a growing industry—Redwood Materials is a growing recycler who I heard speak once. They put it saliently describing how all the material of a battery is there from day one to the last day. There are a lot of amazing efforts on materials reclamation. We actually have a Critical Minerals Center that is a sister program and effort that goes upstream and thinks about how to bring mineral security onshore. That’s all to say that public fleets will be a part of that flow. Fleets are a really good test case because fleet managers take their jobs very seriously when retiring an asset, whether that’s selling, recycling, or taking it to auction.

Are there any other ways to de-risk the end of life problems for public procurement?

Matt: Another example is EV transit buses. There are a number of transit bus companies with great EV options, and clever leasing options to lease the bus and the battery as separate assets. It addresses the questions about how battery life will fare. That’s been an option too, decoupling the battery from the vehicle and thinking about them as two separate assets that work together. It creates fascinating procurement options. There were terms, for instance, where you lease a bus for a ten year period but you have a five year term on the battery and you get a fresh battery at the five year mark. Assuming you’re keeping up with other things—suspensions, tires, etc.—that just need inspection and upkeep you can keep it on the road for a while.

Sarah: I’ll clarify that while we do work on transit buses and have helped many cities with them, they are not a part of this program because there are very strict FTA rules about how you can sell them.

Could you talk more about the DRVE tool and how important that information is when it comes to helping cities with their planning?

Matt: Call it right place right time. As we were launching the EV purchasing collaborative we were talking with friends at Atlas Public Policy who do a lot of market research and tool creation. We were grabbing a drink at a conference talking about how all of the total cost of ownership calculators out there are clunky and hard to use. From that, the DRVE tool was born.

We wanted to focus on what’s the tool for the masses, not the folks that can dedicate a lot of resources and time. We want people to be in and out in an hour and have a good assessment of where EVs could be a good fit. We wanted it to be open-source and free to use, something that anybody could download and run with—it’s Excel based. We designed it so that it talks to a variety of federal source databases like fueleconomy.gov, the Alternative Fuel Data Center, etc. The vehicles in it update automatically. If you run it in a couple months you’ll start to see 2024 model year vehicles start to populate it.

It was something we needed for our own practice, but realized it was effective and that we could release it publicly. You can upload any fleet data tracking that you use— we’ve worked with folks who have had to fax us their data sets. We saw a need to work with a wide variety of file formats.

How has the IRA affected what you’re trying to do with the electrification coalition and what is your vision for the next couple years that you’re excited to work on?

Matt: Our vision is we’re not going to sleep!

We have continually added to the DRIVE tool adding new features. We added more forward, navigating EV incentives and charging procurement incentives too. Between the BIL and IRA there are a lot of new provisions. Specific to the IRA, the commercial clean vehicle tax credit is going to be most relevant for public fleets. We’re reloading the site daily now on what was formerly called “direct pay” now called “elective pay”. Everything we described to you about pass-through working with dealers, leasing has changed now because public fleets can file for these tax credits directly and claim the entire benefit. Now the challenge is on us to make sure we’re digesting that information and getting out to the masses and being sure folks are understanding of the steps it will take to get this set up. Another implication of this new funding is the focus on charging infrastructure. The charging and fueling infrastructure round that just became available as part of the $7.5 billion provided by BIL—we supported 50 applications to that, did countless webinars and phone calls.

Any last thoughts from you, Sarah?

Sarah: This program has helped a lot of folks get ready to take advantage of these incentives and become more familiar with electric vehicles. We’re focused on helping cities of all sizes (not just the usual suspects). We helped 50 cities and many of those were very small, or rural, or didn’t have a fleet sustainability person. We’re trying to expand who has access to these vehicles on the city side of things. Also creating wholesale tools—while our individual support is great there’s only a few of us. 

This is the way the market is going. I don’t know if you could say that five years ago you could have had everybody saying that, but I doubt there are that many folks out there in cities unsure that this is what the future is going to look like. Taking advantage now while there are incentives, tax credits, and state programs that provide incentives for this transformation is critical. If you don’t act now you’ll be behind, there will be less resources out there. Now is the time to act and have more buy in. 

Developing a Mentor-Protégé Program for Fintech SBLC Lenders

Summary

The Biden Administration has recognized that small businesses, particularly minority-owned small businesses lack adequate access to capital. While SBA has operated its 7(a) Loan Program for multiple decades the program has historically shown poor results reaching minority-owned businesses and those in low- and moderate-income communities. Recently, the SBA has leveraged innovative fintech lenders to help fill this gap. 

While the agency has finalized a rule that would allow fintech companies to participate in the 7(a) Loan Program, there are significant concerns that new entrants would put the program at risk due to a lack of internal controls and transparent evaluation. To help increase lending to low- and moderate-income communities while not increasing the overall risk to the 7(a) Loan Program, SBA should establish a mentor-protégé program and conditional certification regime for innovative financial technology companies to participate responsibly in the SBA’s 7(a) Loan Program and ensure that SBA adequately preserves the safety and soundness of the program.

The Challenge

The Biden Administration has recognized that small businesses, particularly minority-owned small businesses lack adequate access to capital. While SBA has operated its 7(a) Loan Program for multiple decades, the program has historically shown poor results in reaching minority-owned businesses and those in low- and moderate-income communities. According to a 2022 Congressional Research Service report, “[i]n FY2021, 30.1% of 7(a) loan approvals ($10.98 billion of $36.54 billion) were [made] to minority-owned businesses (20.8% Asian, 6.0% Hispanic, 2.6% African American, and 0.7% American Indian)”. 

SBA has made a concerted effort previously to increase 7(a) small business lending to underserved communities by establishing the Community Advantage (CA) 7(a) loan initiative. Launched as a pilot program in 2011 and subsequently reauthorized, the CA loan initiative has been successful in encouraging mission-driven nonprofit lenders to underserved communities; however, the impact has been relatively small when compared to the traditional 7(a) loan program. In FY 2022, the CA Pilot Program approved just 722 loans totaling $114,804; whereas the general SBA 7(a) Loan Program approved 3,501 loans totaling $3,498,234,800–an order of magnitude of difference. 

The COVID-19 pandemic created an unprecedented demand for assistance to the country’s small businesses, as they were forced to close their doors and saw their revenues dwindle. Congress responded to this demand by passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which established one of the largest government-backed lending programs ever, the Paycheck Protection Program (PPP). During the PPP, fintech lenders, which for this policy memo includes technology-savvy banks and nonbank financial institutions that operate online and through mobile applications, proved uniquely adept at serving small businesses in traditionally underserved communities, even without specific guidance to do so from the SBA. 

Many of the borrowers assisted by fintech lenders did not have pre-existing borrowing relationships with a financial institution and were therefore deprioritized by traditional financial institutions offering PPP loans, who favored lending to small businesses with existing relationships. Previously published research showed that not only did fintech lenders receive more applications from businesses from Black and Hispanic-owned businesses, but also extended a significant amount of lending to these businesses. Fintech lenders therefore expanded the impact of the PPP to underserved borrowers and successfully bolstered the efforts of mission-driven lenders, such as Community Development Financial Institutions and Minority Depository Institutions. For example, Unity National Bank of Houston, a Minority Depository Institution partnered with Cross River, a tech-focused bank that partners with fintech companies, to increase its lending from 500 loans to nearly 200,000 loans by leveraging Cross River’s lending technology.  Similarly, Accion Opportunity Fund, a large Community Development Financial Institution, partnered with Lending Club, another tech-focused lender, to improve both entities’ lending operations to borrowers that were underserved during the first round of the PPP. However, Community Development Financial Institutions and Minority Depository Institutions often face challenges procuring and implementing the technology needed to help scale their nontraditional lending activities, which limits the efficacy of their mission-driven lending in an increasingly internet-based lending environment. 

In an effort to increase access to capital and build on the efforts of fintech companies that successfully provided capital to small businesses in the Paycheck Protection Program, SBA has proposed lifting its moratorium on non-depository lenders participating in the program. SBA and the Biden Administration have shown real progress in removing the moratorium on Small Business Lending Company (SBLC) licenses to include fintech companies, which would expand the eligible participants in the program for the first time in 40 years. 

Expanding access to capital and support for small businesses is a key priority for the Biden Administration. Specifically, the Administration noted the importance of expanding underserved small business’ access to capital.  They recommended expanding the SBA’s 7(a) program by extending SBLC licenses to nonbank lenders, which include fintech companies, as one promising strategy. To this end, SBA has established a strategy of expanding its lending network by leveraging fintech companies. The SBA previously issued a proposed rulemaking to remove the moratorium on SBLC licenses and add three new categories of SBLC licenses.

However, policymakers and some industry participants have cast serious doubts on fintech companies’ participation in SBA’s 7(a) Loan Program, due to weak internal controls of unpartnered fintech companies and subsequent fraud issues experienced during the Paycheck Protection Program. Further, these critics have cited concerns with the agency’s ability to properly oversee these fintech companies due to a lack of ability to manage the fraud risks associated with developing or expanding a lending program that includes unpartnered fintech companies. Overall, the agency has shown that both it and fintech companies should improve their engagement together to ensure that the many program requirements are adhered to, and that SBA improves its abilities to mitigate potentially new or unique risks to the 7(a) Loan Program.

The Plan of Action

To solve the aforementioned issues, SBA should establish a mentor-protégé program and conditional certification regime for innovative nonbank financial technology companies to participate responsibly in the SBA’s 7(a) Loan Program. By creating a mentor-protégé program and conditional certification regime, SBA can continue to encourage the expansion of the 7(a) Loan Program to lenders that have shown their willingness and ability to lend to traditionally underserved small business borrowers, while ensuring that the agency adequately preserves the safety and soundness of the 7(a) Loan Program.

In the proposed mentor-protégé program, SBA would conduct an initial assessment of the fintech applicant and provide a conditional certification contingent on the fintech’s participation in the mentor-protégé program. To ensure that only the most well-suited fintech companies are allowed to engage in the 7(a) program, SBA should conduct a fair lending assessment. This would include a gap analysis of the company’s lending processes, akin to the existing interagency fair lending examinations conducted by the federal banking regulators. Further, SBA should require fintech companies to complete a “Community Lending Plan” detailing the specific small business lending activities the fintech company intends to complete in traditionally underserved areas. SBA would conduct a review of applications it receives and match them with banks that are established 7(a) lenders. 

To help ensure that both mentors and protégés develop throughout the program, SBA would need to create program criteria for both mentor banks and protégé fintech companies. Mentor criteria should focus on ensuring that mentor banks assist and grow the knowledge of their fintech proteges. Thus, both mentors and protégés should be required to complete periodic progress reports. Further, mentors should conduct their own periodic assessments of the fintech protégé’s compliance and lending processes to ensure that the fintech is able to comply with existing 7(a) Loan Program requirements and not create an undue risk to the program. These criteria should be determined based on the expertise of the Office of Capital Access and Office of Credit Risk Management with advice from SBA’s 8(a) Business Development Program staff. Lastly, to ensure that mentors and protégés can speak candidly about their experience with the other participant, SBA would need to create communication portals for both entities that are walled-off review by either participant. 

Recognizing the potential apprehension existing 7(a) lenders might have to eventually increasing competition to the 7(a) lending market, the SBA would need to incentivize banks to provide mentorship services to fintech companies by providing participating mentor banks with Community Reinvestment Act (CRA) credit and an increased SBA guarantee threshold for the bank’s 7(a) loans. By pursuing these two incentives, the SBA would provide banks with clear business and regulatory benefits from participating in the mentor-protégé program.

Based on a review of the SBA’s 2023 Congressional Budget Justification, SBA has accounted for much of the increased cost that would stem from expanding the 7(a) Lending Program to additional SBLCs. SBA noted that part of its $93.6 million request for fiscal year 2023 was to attract new lenders that participated in the Paycheck Protection Program. Similarly, SBA identified the need to continue building its oversight of Paycheck Protection Program and Community Advantage lenders. To this end, SBA requested an additional $13.9 million in small business lender oversight. Establishing the 7(a) mentor-protégé program would likely require only a small amount of additional funds relative to the 2023 requested amount. To account for the additional programmatic and administrative requirements needed to establish the 7(a) mentor-protégé program, SBA should include an additional $500 thousand to $1 million to its future Congressional Budget Justifications.

Success of the mentor-protégé program depends on robust program requirements and continuous monitoring to ensure the participants are adhering to the goal of responsibly expanding capital access to underserved small businesses. To accomplish this endeavor, SBA should leverage the internal expertise of its Office of Capital Access and Office of Credit Risk Management, while also coordinating with prudential and state financial services regulators to adequately understand the novel business models of fintech companies applying to and participating in the program. Interagency coordination between state and federal regulators will ensure that the 7(a) program’s integrity is maintained at the macro and micro levels.

Conclusion

Expanding small business lending to low- and moderate- income communities is an especially important endeavor. Few opportunities for real social and economic growth exist in these traditionally underserved communities without robust access to small business credit. While the importance of expanding access is clear, SBA has a responsibility to ensure that its flagship 7(a) Loan Program remains safe, sound, and available for the benefit of all small businesses. The recent decision to finalize rulemaking that would expand allowable lenders to the 7(a) Loan Program must come with careful consideration of which lenders should be able to participate. Incorporating fintech lenders presents an opportunity to solve the issues of small business lending to traditionally underserved communities. However, given the concerns identified throughout the rulemaking process and after its finalization, SBA should work diligently to ensure that only the best-suited entities are allowed to become 7(a) lenders. To help ensure that this occurs, they should create a mentor-protégé program that will afford fintech companies the best opportunity to succeed in the program while maintaining the safety and soundness that is so important to the overall success of the 7(a) Loan Program.

Frequently Asked Questions
How might your proposed action fit in within the broader priorities of the administration or relative agencies?

Expanding access to capital and support for small businesses is a key priority for the Biden Administration. Specifically, the Administration noted the importance of expanding underserved small business’ access to capital by expanding the SBA’s 7(a) program through extending SBLC licenses to nonbank lenders, which include fintech companies. To this end, SBA established a strategy of expanding its lending network by leveraging fintech companies. The SBA previously issued and finalized a rulemaking process to remove the moratorium on SBLC licenses and add three new categories of SBLC licenses.

What government agency, office, or body will lead this effort?

Success of the mentor-protégé program depends on robust program requirements and continuous monitoring to ensure the participants are adhering to the goal of responsibly expanding capital access to underserved small businesses. To accomplish this endeavor, SBA should leverage the internal expertise of its Office of Capital Access and Office of Credit Risk Management, while also coordinating with prudential and state financial services regulators to adequately understand the novel business models of fintech companies applying to and participating in the program.

What are the parameters of the program (establishment, oversight, etc.)?

The SBA can conduct an initial assessment of the fintech applicant and provide a conditional certification contingent on the fintech’s participation in the mentor-protégé program. Further, the SBA should develop program criteria for both mentor banks and protégé fintech companies and application portals for both entities. SBA would conduct a review of applications it receives. The SBA would incentivize banks to provide mentorship services to fintech companies seeking to gain SBLC certification by providing CRA credit banks and an increased SBA guarantee threshold for the bank’s 7(a) loans.

Why should we rely on for-profit fintech lenders, rather than non-profit or mission-led lenders to expand funding to underserved communities?

Providing equitable access to capital for underserved communities in our country will require actions beyond the scope of this policy recommendation, including changes to the regulations that govern community banks, fintech lenders, CDFIs, and other mission-driven lenders. Fintech lenders have a proven ability to contribute to this expansion of capital access, given their collective performance as PPP lenders. In addition, fintech lenders have an ability to scale the solutions that they provide quickly, something that CDFIs and other mission-led lenders have traditionally struggled to do well.

Why reform 7(a) as opposed to creating a new, fintech-specific lending program at the SBA?

Fintech lenders compete with conventional lenders for market share; the SBA should take care not to create programs that give one competing group an advantage over another. Creating a bespoke program, tailored to the needs of fintech lenders, would run the risk of creating more than an incidental competitive advantage. Instead, this program proposal advocates for utilizing a mentorship model that helps build strategic partnerships to accelerate access to capital for underserved groups, without creating separate rules or carve-outs.

The Future of Mobility in Michigan

The Detroit Regional Partnership (DRP) will use $52 million from the EDA to transition legacy automotive industry into a globally competitive advanced mobility cluster. The Global Epicenter of Mobility (GEM) coalition will do this through a new Supply Chain Transformation Center and Mobility Accelerator Innovation Network that will bolster existing pillars of support in their ecosystem.

Maureen Krauss is the President and Chief Executive Officer of the Detroit Regional Partnership. In December, 2022 Maureen testified at a House Science, Space, and Technology subcommittee hearing on Building Regional Innovation Economies. You can find her testimony here. Christine Roeder is the Executive Vice President of the GEM coalition and has over 20 years of experience with economic development and the automotive industry across Michigan. She previously held various senior leadership roles at the Michigan Economic Development Corporation (MEDC).

This interview is part of an FAS series on Unleashing Regional Innovation where we talk to leaders building the next wave of innovative clusters and ecosystems in communities across the United States. We aim to spotlight their work and help other communities learn by example. Our first round of interviews are with finalists of the Build Back Better Regional Challenge run by the Economic Development Administration as part of the American Rescue Plan.

Ryan Buscaglia: Could you tell me a little bit about the history of your coalition and how it came together in Detroit?

Maureen Krauss:  We represent a region of five and a half million people. That is not a federal formula region or state formula region. It is a self chosen region where people/communities have decided they want to work together. So that always makes things a little easier. We’ve been doing this for a long time in economic development. And when you look at our seven clusters that we focus on, the mobility cluster—advanced mobility—right now is responsible for about 70% of our workload. So it’s one that we’re immersed in. Everyone knows Detroit as the auto town, the auto region. Michigan—the auto state. We have been seeing this transformation everyday from ICE to EV (internal combustion engine to electric vehicle) but it’s really more than auto right? It has to do with aerospace and defense and a lot of other industries that are here on how the mobility industry is changing.

So it was interesting when we first convened regional partners who work in this space. We actually didn’t pick mobility. We said: ‘What should it be? What topics should it be?’ And we were really pleased when people got back to us on that: 19 out of 20 said mobility. So that was a clear sign that this was a space we needed to really focus on. 

The one other thing I will say, Christine and I worked together back in 2009 and 2010 when our auto economy imploded, and we learned a lot from that. We did not want that to happen again. Our global epicenter of mobility approach is to proactively embrace this change and ensure that our talent and our small and medium sized companies and our entrepreneurs can keep pace with the global shift, with the big original equipment manufacturers (OEMs), with the huge tier-one suppliers, and make sure they have access to the resources and the research that they need to make the transition. At one point I said to the EDA: we don’t want to ever come back to the federal government for a bailout. We want to show that we’re proactively recognizing this change and doing something about it. Christine, I don’t know if you want to share any other insight around that on how people got involved in it [the coalition].

Christine Roeder: My prior work for 20 plus years was with the state level economic development group doing business development. And so a lot of my time—if not 90 plus percent of my time over that couple of decades—was spent on automotive projects in Southeast Michigan.

Knowing this ecosystem of players of workforce development and entrepreneurs and the different incubators we have, the work we have with these research institutions like University of Michigan and Wayne State— we’re really fortunate in this region. To the DRPS credit, when they were pulling this application together. It was not a situation of “well this is the group we have and this is how we’re moving forward.” It was “how can we make the table bigger?” I’ve heard Maureen say that a number of times, how can we make the table bigger? And who else is missing and how can we bring them to the table? 

Old image of Dodge automobile factory, circa 1916. Workers are finishing chassis.
Dodge Factory, 1916

Everyone knows Detroit as the auto town, the auto region – but it’s really much more than auto.

So I’m really thrilled about the work we’re doing within these different pillars of projects for the EDA, because they have brought together groups that never have even worked together their whole time doing workforce development or economic development in the Detroit metro region. We’re building trust across different organizations and educating these organizations about what the capabilities they each have.

You mentioned the historic roots of this coalition coming out of the incredibly tough period of 2009 and 2010. Could you talk about the lessons from that period and how that informed the projects and coalition that you’re working on today?

Maureen: There were some really significant programs that came out of that period of time. Some did not work out. They didn’t pan out, they weren’t needed. But we had to really take a look and say— okay, we’re very grateful for this auto industry here, what would we be without it? It provides great jobs, great quality of life, and jobs across the spectrum from manufacturing to technical research and development. We have these assets, what else can we do with them? 

So what happened as this coalition was building: we saw the different components be created to address very specific needs, and our approach on this EDA grant was we don’t want to invent something new. It was funny how the EDA asked us in all the meetings, well, is there a construction project? Or are we building a new thing? No, we have some existing pillars that are quite strong! We want the funds to accelerate their work, and make sure that historically excluded communities (HECs) will be able to have access. 

We looked at a very broad definition of HECs not just from a racial lens, but for instance, our region is very urban and suburban and rural. So how do we ensure that a successful program in Ann Arbor or Detroit can reach companies and people in the rural areas of our region too? So it was really, as Christine said, expanding that table and not creating yet another program.

And then we looked at what are shared components that we can all benefit from. That’s the strength of one of our components called GEM-Central and the whole research piece. Entrepreneurs, small-medium sized companies—they can’t hire high end McKinsey or Boston Consulting Group firms to do their research, but there’s a lot of shared information there. So we wanted to strengthen that and have that available to all. 

And then very importantly in the DEI space, we’re a very diverse region, and it’s very authentic here. But we want to ensure that our small and medium sized companies also understand how to be more diverse, how to really embrace all of the cultures that are here in the Detroit area. You know, a lot of these smaller firms barely have an HR person, let alone a DEI officer. So that’s one of our activities. We want to make sure that small and medium sized companies understand how to incorporate DEI into their companies to provide greater opportunities for all because we do believe that we have a great talent pool here. Sometimes you just have to look in different places than the traditional sources. And that really encompasses a lot of our DEI work and allowing access to those findings and those paths for companies that might just have a part time HR person doing payroll.

How are you bringing people to the table trying to be inclusive in the process of developing this future oriented cluster? Did it look like weekly meetings or did it look like town halls? Did you go to people in the community?

Maureen: Our diversity here is very authentic. So it’s not like we had to one day say, who can we call that represents black entrepreneurs or whatever. We work with these people every day. It was really as Christine said. We met every week for I don’t know how many weeks we typically had about 80 people on each call. We never met in person, either. Remember, this all started during COVID. We never met in person. But we had these meetings and we invited a big group of everyone we knew. Who was who was the black business Chamber of Commerce here? Get them in. Detroit Future City? Get them in. Our rural areas’ economic development partners and others? Get them in. It never seemed that it was forced, but it was just making sure they were in the conversations and there was that representation. It was the weekly mantra—who’s not here? Tell your friend, tell us who we can include on an invite. 

We have the second largest Arab population outside the Middle East in the Detroit area. There’s a very strong Hispanic Chamber of Commerce here. So Ernst and Young (EY) helped us bring all those people together and have those conversations. We did two sessions with them to really listen to what their thoughts and ideas and approaches would be to make sure that we were inclusive. I don’t think any of us feel comfortable that we’ve solved this issue. Right? But we’re gonna work super hard to be better and more inclusive in everything we do. And then Christine, if you want to talk about the global initiative as well and how they were engaged?

Christine: As this project came together we split it up into different pillars of activities. The talent pillar includes Global Detroit, which is an organization that works day in and day out bringing immigrants and the world community to Michigan, and specifically Southeast Michigan for job opportunities, entrepreneurship opportunities, and to become part of our ecosystem. As well as standing up for those groups that are already here in Detroit. As Maureen mentioned, we have a very strong Arab American presence here. We have a growing Bangladeshi population in Hamtramck. It’s wonderful to see and the integration of that into our community is really important, especially with the need to help them to build businesses and hire people.

The entrepreneurship program at Global Detroit is one of the funded partners of the EDA under our umbrella of GEM. Whether it’s with that group or, for example, yesterday and the day before here in downtown Detroit at our large convention center the Michigan Minority Business Development Council had their annual minority procurement conference. So they had hundreds of companies and hundreds of exhibits on the floor and we had two of our partners that had exhibited there. One of them being the group that’s reaching out to the legacy companies, the ICE companies that Maureen mentioned, as well as our talent and workforce pillar. So we had two of our pillars represented there, reaching out into the minority business community and talking about GEM. We’re looking to do things differently and dig way deeper into these historically excluded communities to make sure that they’re part of the solution.

I know that a conversation people are having is around the struggle of trying to link up a series of small and mid sized manufacturers who may or may not be able to plug into different OEM supply chains at different places. So hearing that you’ve connected that with the talent piece is wonderful, hopefully creating a value chain that is inclusive, and meets all the needs of a globally competitive market at the end of the day. Is that initiative connected with the new supply chain transformation center that is a critical part of your project?

Christine: The Supply Chain Transformation Center is the legacy company component, and they were there yesterday. So yes, it’s tied into that and working with those companies, particularly new companies that they’ve never worked with before in more rural areas and/or minority owned. All of those companies have components and products that are at risk of being extinct in the next 20 years. One of the lessons that Maureen and I learned back in 2008 and 2009 was that when companies that only made one part for one or two customers, when those customers filed bankruptcy, they suddenly had no idea what they were going to do.

Diversifying those companies into other products is what the supply chain transformation pillar is really doing. It is identifying those companies working with them on what is the product, where else could it be applied? What’s your machinery like? What else could it make? What’s your talent like? What can we upskill them into doing? And then how do we make sure that company continues to be a company as the product line that they’re currently making is shrunk into a handful of suppliers that will continue to build those or produce those parts. ICE is not going away, it’s going to take decades for those all to come off the roads, right? But we’re not going to have as many of them, there’s not going to be as many produced at the large scale. So how do we help those companies to find other customers to build their parts?

Maureen: We’re trying to create a path for the customer journey, and connect all the different components of GEM to ensure that all of these really strong pillars that we have—we do hate to call them pillars, but ‘co-recipient’ sounds very government-like, so we haven’t found the perfect phrase—but you know, we have six of them. How do we make sure that they are aligned? So it’s almost like a handoff. So your company’s going to make a new part at your legacy company and you’re going to transition but then we have to talk about the talent and what do we do with your existing talent so they don’t just get left behind, but that they have the skills to make that. We really are trying to be thoughtful about making sure these programs are also connected, talking to one another and sharing this customer journey. And in the end our customer is our people, right? Whether they represent individual talent or small or medium sized companies. We just need to ensure that all the pieces flow together nicely.

Mural reading
“Nothing stops Detroit”

From Ryan Doyle via Flickr

How have you been navigating this transition from people thinking of Detroit as the auto town, and Michigan the auto state, and moving from that vision to the next 10-20 years as people make this transition from ICE to EV? I’m wondering how you tell the story of that transition to people and if you ever get pushback from people who might want to double down on the historic focus on ICE automobiles. 

Maureen: You’re always going to have naysayers. I never got my late parents to use a cellphone properly, and that was frustrating. Bless them, but it just didn’t work. I do think our people are very resilient. We’ve learned about change before and we learned what happens when you don’t embrace that change in the right way. There’s still going to be the naysayers “oh we will never have enough charging stations, oh who is going to supply all the hydrogen?” Those things are going to be a part of the conversation.

That’s why our research component is so important so we have the right data to show it’s not either or. There’s not going to be one date in the future where we switch from ICE to EV. We have to transition. It’s happening very quickly. We just had a big announcement in DC this week with Secretary Raimondo about a project that’s coming to Michigan with 600 jobs in the hydrogen electrolyzer space, they’re called NEL. So this is happening in a big way, but we want to be sensitive to the fact that change is hard.

Christine: I would just add that what’s going on with the government, federal regulations coming down that the companies need to meet in a short amount of time doesn’t leave any chance that this transition is happening. We are going to do what we can to save as many jobs and save as many companies as we can. And continue to attract companies in this new supply chain as maureen just mentioned this week’s announcement in the hydrogen space. It’s not just electric vehicles that run on batteries, it is hydrogen too. There are many other ways that our mobility companies are going to wean us from fossil fuels and move us towards more renewable choices. There’s going to be naysayers but we need to follow where the puck is going, not just follow the puck. 

Maureen, you testified to the House Science, Space, and Technology Committee Research and Technology Subcommittee last December. How did it feel to stand up on such a stage and speak up for your region like that?

Maureen: I’m extraordinarily proud. I grew up here, it’s my home. Five years ago they wouldn’t have asked Detroit to testify for this. It meant so much that they were asking us. I had Congress people from around the country asking me “how did you do this?  How did you work together and avoid somebody going rogue?” I’m proud our region realized the strength of working together. Five years ago we would have had five different applications from this region and none of them would have been strong enough to be successful. It was interesting when you saw who called us initially to tell us DRP needed to lead this. It was our council of governments, SEMCOG, somebody from Ann Arbor, from Automation Alley, these were all mature organizations who recognized: “why would we apply individually? Let’s do this together.” 

Those of us who are here know the great innovation that happens here. We tour the facilities and it’s a marvel. For a long time our story got overshadowed by other issues: bankruptcy or crime or vacant buildings. Now to be recognized as an example of innovation is, not to be sappy, but it made me very proud to tell that story on a national scale.

If you’re successful in doing what you proposed, what’s your hopeful vision for what Detroit will look like in 10-15 years?

Maureen: You’ve probably seen a shirt somewhere that says ‘Detroit vs Everybody’. It was done a few years ago when the city got beat up quite a bit. Really where we’re at today is so different, it’s such a different place. But it takes a while for a community to go down. Takes a while for it to get back. When I tell my future grandchildren what grandma did I want to show them the amazing people and companies that chose to come here because they saw it as an opportunity to be innovative and to be their best selves and be successful. People from all over the country and the world.

Christine: Ten years from now the seeds we are planting will grow into a recognized entrepreneurial ecosystem. That’s an area where Southeast Michigan—because of the jobs available in the auto industry—has not been an area nurturing entrepreneurship and bringing new ideas to market. Ten years from now I hope we’re seeing headlines of incubators bustling and companies that we put into the funnel as an idea raising their series A in venture capital to grow jobs and keep them in Michigan. Use our talent that will be training through GEM. Working with universities to make sure commercialization is happening here and we are able to grow. Again these new business owners. We adore and support our automakers and all the supply chains through it. For my daughters who are teenagers right now I would love for my children to be able to have that choice of coming out of school, and if they have an idea for something they want to create they can do it here in Detroit, they don’t have to go to a coast to do it. The GEM coalition, the entrepreneurship startup piece especially, I would like to see the work we’re doing in that area have a real impact.

One Ocean, One Blue Economy with Maritime Blue Coalition

Washington Maritime Blue aims to scale its blue economy innovation cluster in the Pacific Northwest Region. The coalition is supporting an invigorated and resilient regional blue economy by connecting clean energy production and storage technologies to maritime and ocean economies. They are working across the innovation spectrum, incubating early-stage ventures and advancing large-scale technologies being deployed in the region. Including projects related to hydrogen production and storage.

Joshua Berger is the President/CEO of Washington Maritime Blue, an organization committed to the development of maritime business, technology, and practices that promote a sustainable future contributing to economic growth, ecological health, and thriving communities.

This interview is part of an FAS series on Unleashing Regional Innovation where we talk to leaders building the next wave of innovative clusters and ecosystems in communities across the United States. We aim to spotlight their work and help other communities learn by example. Our first round of interviews are with finalists of the Build Back Better Regional Challenge run by the Economic Development Administration as part of the American Rescue Plan.

Ryan: Could you tell us a little bit about how your build back blue coalition started, and the history of your organization as an overview?

Joshua: Our origin story is not wholly unique, but certainly pretty specific to the success of growing out an innovation cluster organization and the breadth of the relationships and concentric circles that build out from that. In my former role I was working for our Governor Jay Inslee. I was both policy and economic development lead on all things related to our Maritime and Ocean industries. We recognized that we had a $40 billion maritime industry here. That’s been a legacy sector here in the state but closely nestled—literally and figuratively—with a booming and growing tech sector, certainly one of the most advanced and comprehensive manufacturing sectors that’s tied to Boeing and aerospace more broadly, and a significant amount of capital and a growing startup ecosystem in this region.

And all that was growing and being recognized alongside a major transition happening in maritime, oceans and fisheries and the growth of this term: the ‘blue economy.’ And so the governor put together a high level advisory committee and asked for us to create a stakeholder driven statewide strategy for the blue economy. How could Washington State Lead nationally, if not globally on the growth of the blue economy? This was about eight years ago now at this point.

So we spent 18 months gathering up hundreds of stakeholders in formal and informal facilitated discussions and meetings. And as we were doing that, recognizing where all our all our assets were and where we had some real significant opportunity to compete and grow.

We went around the globe to places like Norway and Portugal and Hamburg and Singapore, and asked, ‘Okay, how are you leading in this innovation economy? How are you driving capital? How are you helping corporates work with research facilities, institutions, community partners, and public partners’? They all had these things called ‘Innovation Cluster’ organizations—formally organized clusters, but in a way where you very deliberately tied your industry partners with research institutions, university, public agencies (everything from federal state agencies, ports, municipalities, transit authorities), with other NGOs and community based organizations.

Add that together very intentionally and we could drive forward and lead in the blue economy. So we raised our hand and said ‘yes, we would like one of those.’ And we formed it and spun it out of our state Department of Commerce. And so that organization has been running Washington Maritime Blue for five years now. We have multiple program areas, have grown to 130 plus members, with 12 full time staff, supporting demonstration projects, supporting the entrepreneurial and startup ecosystem, working on career pipeline, workforce development efforts, as well as being a conduit for delegations and knowledge sharing and business development opportunities all broadly focused on the blue economy. It’s really about profitability, sustainability, and equity as the core focus areas of maritime and oceans.

That’s a great overview, thank you. So you had a coalition forming for several years before the EDA came out with their Build Back Better Regional Challenge award? How did you approach that given that you already had a partnership and had an innovation cluster that was in development?

Well, we’ve already been running on our second round of EDA support as well as state support, local ports and municipalities. It was an EDA regional innovation strategy grant that supported the state, the development of the strategy and the formation of the cluster organization. We were then awarded an EDA build to scale award which we’re still engaged in. It helps us operationalize and take the cluster organization and its goal is to the next level. And when the build back better process came along, we sort of said okay, how do we shape what’s now already a rich and effective cluster—which is itself a coalition of partners focused on innovation—and broaden that out, so that we are very intentionally helping build and focused on the intersection of the blue economy and the green economy on the energy transition side of the house. Our organization will work on everything from kelp, to digital drayage truck solutions to the future of fuels. And this was a real attempt to support the innovation happening in those multiple sectors in concentric circles around the blue economy.

How did you decide to focus on the intersection of energy projects, specifically clean and green energy, with the blue economy? And when you were making that decision, who was at the table/ who informed that choice?

We have close partners around these multiple spaces. If we just look at maritime decarbonization, which has been a heavy focus for us, we continue to recognize one of the more challenging aspects is to actually make that transition across maritime (for example ferry electrification and future fuels). I mean ships, drayage trucks, port operations. It’s one thing to have the technology on board vessels so that a vessel could run low to zero emissions. It’s another thing to have the infrastructure across the community that supports an entire system of those vessels.

We have hundreds of different types of vessels, thousands of different vessels that are part of the maritime economy that works here. What we recognized quickly was utilities have a strong role to play. Certainly the future of fuel has a role to play. At the same time, we’re seeing that transition in the EV and transportation markets, we’re seeing that transition happening in the aerospace markets with sustainable aerospace fuel and the like. A lot of this infrastructure is shared. So if we’re going to truly be able to make this transition and move beyond demonstration projects we need a larger ecosystem and infrastructure to support it.

And so, we’ve worked closely with other organizations like the Clean Tech Alliance, the newly forming CHARGE consortium which is focused on electrically generated e-fuels, and the aerospace industry and others. So we recognize if we can form this larger coalition focused on the clean energy transition, and we take it through a blue economy lens, we can support an ecosystem that supports all of this. Whether it’s the actual fuel production and infrastructure to get it to a working waterfront, as well as the startup ecosystem and workforce ecosystems that ultimately help that help that continue to grow.

So this was this stuff we were already working on with partners and as the opportunity came along we as an organization have the operational infrastructure in place, coordination infrastructure in place, already have all the industry and research partners at the table. And if we can bring in our partners in those adjacent sectors, then we felt we had a strong coalition to build.

What are a few of the main projects that you proposed to work on and are you still working on them, even though you didn’t wind up winning the full phase two award?

The projects are all still ongoing. Some we have a lead on some others have leads on. The actual infrastructure capital projects that are moved forward are fuel production, a tribal facility on the border of Washington and Oregon, another is a transition from the final coal plant in Washington State on the fuel production side. On the demonstration side is a demonstration of being able to utilize formic acid as a liquid hydrogen carrier that supports port and terminal operations. And another is building out the infrastructure to support a connected maritime and manufacturing area of our state. So the Tacoma tide flats— the Port of Tacoma and many other manufacturing facilities including a fuel production site is there. What we are proposing and are continuing to build is a 5G and edge-enabled area that could support the efficient flow of fuel, chips, manufacturing, and the like.

And then another innovation center on the east side of our state, which is more of a hub around where fuel production is happening: electrically generated hydrogen for the most part. So we’re building out the hydrogen infrastructure and demonstrations of where that would be able to be used. We also had programmatic projects which continue to enable our organizations to work together to have a pipeline of new projects into that ecosystem. How do we support them and build out new demonstration projects, the startup ecosystem, and then the workforce development to support it. So there were capital and programmatic projects as well.

You’ve talked a little bit about entrepreneurs, you mentioned how you have startups in house. And you’ve talked about how you work with more established players like utilities. You started out of a state level commerce program. That’s several of the stakeholders that are important in an innovation ecosystem, but two that I haven’t heard as much about that I would love to know how you interact with are research institutions and sources of risk capital.

They are all part of the quintuple helix of how we do innovation for sure. We have close working relationships with multiple different research institutions that are actually members of our organization. So our membership is made up of that quintuple helix as well.

The research institutions we engage are our national lab here, the Pacific Northwest National Lab (PNNL), multiple centers at the University of Washington include the Applied Physics Lab, Pacific Marine Energy Center, Washington State University’s CHARGE Consortium and JC Dream Consortium, which are really focused on new fuels. Then other research institutions outside of our area, including the Middlebury Institute for the blue economy. And then, actually through the pandemic, we did a lot of work with the Institute of Health Metrics and Evaluation at the University of Washington as we were helping our maritime and fishing industry work through the pandemic. So they are a core part of this.

One example which is a capital project that was proposed in our build back better application and is continuing on with various funding was the ability to capture carbon to store high density hydrogen in a safe, transportable manner and the ability to extract that hydrogen out of it and utilize it for multiple different purposes. For us, a maritime use case is to be able to run and support basically a one megawatt generator, zero energy generator. And so a startup that’s part of our ecosystem figured out the way to essentially have a single carbon capture moment. Capture some carbon, shoot it full of electricity and create formic acid with high density hydrogen inside of it. The Pacific Northwest National Lab had the reformer on the other side to then pull the hydrogen out of the formic acid and utilize it in multiple different ways. So this was a partnership between the startup, the national lab, the utility who’s going to own and operate it, and two different maritime operators in the port that we’re going to actually utilize the energy. And then a global engineering firm to do some wraparound support services.

That’s a quintessential joint innovation project where our role is to help layer public private capital, bring the value chain of partners, we have the relationship with the terminal operators and the truck drivers, the labs, the startups, the utilities, etc. So that’s a critical way in which one example of how the national labs and research institutions broadly play a part. We do a lot of work to bring those research institutions together. We’re working now to essentially create a charter between the research institutions involved in our organization, and how they’re gonna work together to focus on ocean based climate solutions: Oregon State University, University of Alaska-Fairbanks, University of Washington, WSU, and others to have some formality across some of that too. The research institutions, like the rest of that quintuple helix, are critical.

On the capital side, it’s all about getting capital to get this stuff moving. We believe that there’s an important role for layering public and private capital. On the private side we have growing relationships with all the different flavors of capital, whether it’s debt equity, risk, others. And they’re mostly relationships who are interested in the projects and looking at different ways to finance them. That started with a capital landscape study—we were looking across our region and across the country asking who’s funding things in the blue economy and at what stages and what levels and what mechanisms. Certainly we have a pipeline of venture risk capital interested in the startups that come through our programs. So we’ve done a lot of work to energize that pipeline, as well as educate that pipeline on the opportunities in the blue economy and oceans. And we’re now forming our own early stage investment fund. So we’ve now partnered with a longtime impact venture capital managing partner and collectively created a new fund that will invest directly into our marquee accelerator program, which are all venture scale companies.

You mentioned that you did a roadshow across the globe at the start—Norway and other port facilities across Europe. What are those relationships like today and do you still keep in touch? Whether that’s with colleagues in the US, like the Port of LA, or the Pacific, or globally?

This is critical. There is one ocean and so therefore there is one blue economy, right? We’re intricately tied. Norway in particular, primarily because of the leadership they have in maritime electrification and offshore wind development. As we were developing this work and in my former role I helped negotiate an MOU (Memorandum of Understanding) between Norway and the state of Washington, which we continue to build off of and update. We also have one with Finland, Singapore and Korea and a number of others that we’re engaged with- France, Portugal. We look at opportunities, through the clusters and then into their state run economic development and innovation agencies. My friend from Norway is here this week. I’ll be in Iceland next week. Through the startup community we run a program called the One Ocean accelerator, which is specifically designed for international startups who are a little further along and looking for a soft entry landing point into the US market. So we run a 12-week program dedicated to international startups. We’ve had them from Korea and Finland and Norway and Portugal. And then we’ll be expanding this year as well. We have international delegations that come and go through this region and that we also bring across the globe. So those relationships are integral, absolutely.

If you’re successful with the projects that you’re working on, what is your end vision for what Washington state looks like in 10-15 years? How would you like to see it look different because of your impact?

Washington State has probably the most aggressive climate goals in the country, and have made some significant strides to set up the incentives and infrastructure and investments to be able to do that here. One of those things is we have the cleanest and cheapest electrons in the country. And so if you’re going to make a business model work for this clean energy transition, whether it’s fuel production or operations or use, you can make it work here first. And so if we are able to effectively couple our climate incentives, the capital landscape that’s here, and the infrastructure to support this work we’re going to see significant innovation coming to this region. Whether it’s to support it or build it from the inside up. We see it as being an aggressively welcoming home for innovation across the clean energy transition, which is going to allow us to meet our climate goals here by 2025 – 2030 and beyond. Active growing legacy sectors that are doing it in new, clean, equitable and sustainable fashions and continued growth across this region. That’s certainly our goal.

Smart Manufacturing Taking Flight in Wichita

The South Kansas Coalition, led by Wichita State University (WSU), will receive $51 million to strengthen U.S. aerospace production. Their award will help stand up a Hub for Advanced Manufacturing and Research to support the adoption of new production methods by small- and mid-sized manufacturers, as well as supporting the buildout of a workforce training facility and a complementary Smart Manufacturing Adoption Program.

Debra Franklin is the Associate Vice President for Strategic Initiatives at Wichita State University.

This interview is part of an FAS series on Unleashing Regional Innovation where we talk to leaders building the next wave of innovative clusters and ecosystems in communities across the United States. We aim to spotlight their work and help other communities learn by example. Our first round of interviews are with finalists of the Build Back Better Regional Challenge run by the Economic Development Administration as part of the American Rescue Plan.

Ryan: Hi, Debra. Could you tell us a little bit about how this coalition came together and the history of your partnership in Wichita?

Debra Franklin: For more than a decade, the South Kansas Coalition has been working together on various projects. The Wichita region leverages a strategic plan titled the Regional Growth Plan that is regularly updated, and advanced manufacturing is a targeted industry sector. The coalition has identified regionally important priorities, and we look for funding opportunities that help to support or enhance the targeted industry sectors. Coalition stakeholders have previously worked together on several different projects with a variety of federal and state agencies.

So, you were planning these projects and had the strategic plan going well before the EDA announced their challenge, is that correct?

Yes, that is correct. One of the ways that we approach industry-driven initiatives in our area is to ask industry what kind of public sector investments would be helpful for private sector profitability and competitiveness in global markets. There are clearly some investments, workforce, technology and innovation elements that need to be kept within their firm for competitive reasons. But there are things that the public sector can do to advance innovation, expand workforce skills, and increase private sector productivity, profitability, and sustainability. And those are the activities and investments that the coalition prioritizes. These industry-driven strategies and tactics are included in the regional strategic plan. When competitive funding opportunities are published, such as the EDA Build Back Better opportunity, we can look at the strategic focus area and the priority activities that best fit a particular funding mechanism.

In both the strategic plan and your build back better narrative that you submitted, why did you decide to focus on an aerospace cluster, and how did you make that decision?

When we wrote the application, we initially wrote it focused on advanced manufacturing anchored in aerospace. Because the aerospace industry is so large – concentrated in Wichita – the proposal ended up getting dubbed as an aerospace project. So, if you go back and look at the Phase One winners and the sector icons that EDA used at that particular point in time, you will notice that the Wichita proposal was categorized as an advanced manufacturing project. As we moved into the Phase Two challenge, the EDA chose the aerospace icon for our award and classified the South Kansas/Wichita proposal as an aerospace project.

Wichita is known as the air capital of the world because of the concentration of aerospace manufacturers in the region. But we also know that aerospace is very cyclical, and we have other industrial concentrations or regional specializations in other manufacturing industries. Wichita has advanced manufacturing with high precision, low volume, highly regulated types of production. The South Kansas region has an overall manufacturing location quotient that is twice the national average, one of the highest manufacturing concentrations of the largest United States metropolitan areas.

Additionally, global economic and geopolitical trends in the aerospace market are of strategic national importance. So, when we were asked, ‘what is your north star? What is the imperative for the United States to fund the South Kansas proposal?’, we leaned into what is going on in global markets – and the future growth of aerospace.

One of the things I would love to follow up on is the role of small and mid-sized manufacturers (SMMs). I saw a number thrown out that there are 450 plus different independent manufacturers in the area. Could you talk more about Wichita’s manufacturing landscape in general and how you heard from those communities?

We have a strong regional manufacturers association that is convened by the chamber of commerce. That is one of the primary places where our SMMs lean in and work together on coordinating collaborative efforts. They have an executive board of 20+ leaders and have more than 200 members from various manufacturing and manufacturing-related companies throughout the area. When the coalition is looking for a sounding board and a manufacturing group to help prioritize these public sector investments, the Wichita Manufactures Association provides an essential market perspective. It is also vital to highlight labor because it is especially important to understand the tolerance for innovation adoption and the enthusiasm of workers for new production processes that are commercialized through these investments.

Several years ago, we were working on a project for autonomous vehicles. Many people find autonomous technologies interesting, but some workers are concerned about these innovative technologies disrupting their careers and do not enthusiastically support them. When looking at how to prioritize federal investments into a regional economy, you need to look at all groups and how the innovative technologies are perceived. As a region aspires to implement automation or manufacturing elements for commercial adoption, if manufacturers want workers training, or if leaders aspire to help companies go from design to manufacturing in increasingly compressed development cycles with ecologically and economically sustainable technologies, it is essential to know how these activities are going to be received not only by the leadership and the ownership of these particular firms, large, medium or small, but the technicians and frontline workers who are manufacturing the products or delivering the services.

The coalition worked with Deloitte on a future of work study. One of the subgroups engaged was frontline workers. The study did not identify the participants as unionized or not unionized. Frontline workers were asked about their willingness to accommodate, tolerate, or enthusiastically support adopting these newer technologies. And the numbers were approaching 70% who were affirmative in wanting to move forward. Regional frontline workers supported the idea of assistive technologies in manufacturing; they understand that labor shortages are a global economic challenge. We believe workforce shortages were pivotal in evolving the worker’s perspective on technology adoption. Kansas has savvy people who know global markets well – in our agricultural markets as well as in our manufacturing markets.

When you talk about assisted manufacturing, what are some of the actual technologies or things that you think people are particularly excited to get moving?

The coalition focused on two technologies in the Build Back Better proposal: additive manufacturing and high-velocity subtractive manufacturing. These technologies impact the entire life cycle of a product: design, production, sustainment, and recycling. These two technologies impact the speed to market, production productivity, mass customization, and sustainability elements.

The coalition approaches economic development by prioritizing investments that help manufacturers compete in global markets. What public sector investments are required to compete in global markets? What do manufacturers need from the public sector? What do manufacturers require for their next-generation factory? Or what is necessary to fit the existing manufacturing assets, and how will companies integrate key technologies to modernize? Robotics and automation are a big part of the conversation. Workers, leadership, and owners are predominantly driven by safety and environmental concerns, and access to talent.

I think that a really critical and important part that you mentioned was not responding to a single public opportunity but looking at how to become globally competitive from the get-go. And then you could not rely on a single federal opportunity, but if one happened to come along, you wanted to put your best foot forward. Following up on that, what does your engagement with industry look like? Had you not won this award, would you still have moved forward with many of the plans?

Even in this situation, the coalition always makes decisions based on limited resources. You have a lengthy list of prioritized activities and investments. We move them forward as strategically as possible; what needs to be done first and second? Who else can pick up an activity or training and move it forward? Are long-term sustainability elements always a part of what we are doing? Yes. Could we be where we are today without this award? Absolutely not. 

The Build Back Better award has given us an opportunity to add to our public sector capital stack as well as a new Hub for Advanced Manufacturing and Research. With this expanded capacity, the region can now develop and deliver curricula and provide an industrial common. This would not have happened without this award. And being that we are in a heavily concentrated manufacturing sector and have multiple manufacturing firms, the multiplier effect on this investment is powerful.

Thinking through some of the different stakeholders who are either a part of this coalition formally or informally: how are research institutions part of this coalition in Wichita?

Remember that this proposal operates within a larger ecosystem; we have multiple programs where we collaborate on deliverables that are of strategic national importance. Howard University is a new collaborative research institution we are working with in this initiative. Howard just received the recent UARC award from the Air Force. We collaborated with Howard because a Deloitte consultant from The Smart Factory @ Wichita introduced Wichita State to the leaders of Howard’s Center for Excellence in Supply Chain Management. They are also working on supply chain efficiencies and smart technologies for manufacturing.

In the early 2000s, as advanced composite adoption was accelerating in multiple industries, we found it important for policymakers and economic development experts who collaborate with policymakers to more fully understand composites and what challenges the adoption of these new materials involves. Howard has become especially important because they are focused on supply chain synergies and are in the District of Columbia. They work in proximity to policymakers, and we work with manufacturers, materials experts, and other kinds of engineering and production processes. By working together, the coalition will be better able to maximize this award. Collaborating and learning from our colleagues at Howard has been a privilege. Again, this is an ecosystem program. We are very honored to accelerate activities important to the regional strategic plan and the United States. The updated national strategy for advanced manufacturing is one resource that sits on my desk all the time

And what about workforce development?

We must train existing workers with a deep knowledge of the legacy and current manufacturing best practices. We cannot snap our fingers and create multi-billion-dollar factories that replace aging ones. We work into, leverage, and build on capabilities and capacities that the U.S. manufacturing is so very proud of and successful in operating, making them more successful and more productive. Higher throughput, higher quality, and mass customization are the elements that help to make the U.S. more competitive in global markets. Recently we were at the future ready center with leaders from across the state that included different stakeholders: pipeline technologies, K-12, the Workforce Board, the largest school district in the state, etc. Clearly, we are concerned about our next generation of manufacturers, but we also have mid-career workers with this legacy knowledge that need to add to their capabilities, capacity, and knowledge of next-generation technologies; they will be the first adopters.

One of the things you spoke about in your application was focusing on recruiting diverse talent. Could you speak to what exactly you plan to do when it comes to recruiting and retaining diverse talent?

Wichita is in the Midwest, and recruiting diverse talent looks a little different in the Midwest. We recruit nationally to our region and intentionally and explicitly support and recruit all people in our area. The fastest-growing population demographic group in our region is the Hispanic population. Wichita State University is the most diverse public higher education institution in Kansas, and we are an emerging Hispanic-Serving Institution. In addition to a growing Hispanic population, the region has a very vibrant and growing Vietnamese population. We add language adaptations for workers and families to support these populations and others. We reach out to all communities and work with the schools and minority chambers of commerce.

Think ten years in the future, how will Wichita look different if you are successful in what you proposed to do?

That is the best question; that is why we write these applications and prioritize investments and why disparate people who might not benefit directly come together and support these programs and projects – because of the long-run vision. The knowledge that our regional manufacturing environment is a unique national asset that produces essential economic value and national security outcomes. We operate in a high-precision, highly regulated unique environment; there is a respect for excellence and pride in the manufacturing culture. How does Wichita look in ten years? We are more precise, more effective, more efficient, and we are going to be able to operate in global economies meaningfully across the country.

A Generational Model for Inclusive Clusters in St. Louis’ Tech Triangle

The St. Louis Tech Triangle coalition will receive approximately $25 million to support the region’s advanced manufacturing cluster – which will support and grow the existing biosciences and geospatial clusters. One of their primary projects is the Advanced Manufacturing Innovation Center (AMIC), which will be the hub of an inclusive ecosystem and bring investment to a historically excluded area of STL.

Tracy Henke is the Chief Policy Officer/President of ChamberSTL with Greater St. Louis Inc., lead of the region’s Build Back Better Coalition. GSL was founded on January 1, 2021 as a result of combining the strengths of five legacy civic organizations into one with a unified focus around a common vision and strategy for fostering inclusive economic growth. Ben Johnson is Senior Vice President, Programs at BioSTL. Since 2001, BioSTL has laid the foundation for St. Louis’ biosciences innovation economy with a comprehensive set of transformational programs leveraging the region’s medical and plant science strengths. 

This interview is part of an FAS series on Unleashing Regional Innovation where we talk to leaders building the next wave of innovative clusters and ecosystems in communities across the United States. We aim to spotlight their work and help other communities learn by example. Our first round of interviews are with finalists of the Build Back Better Regional Challenge run by the Economic Development Administration as part of the American Rescue Plan.

Ryan Buscaglia: Could you tell us how your coalition came together and the history of your partnership between organizations? Were you working on elements of this project before the EDA even announced their process?

Tracy Henke: The whole concept for the hub of our proposal originated back in 2015. Some workforce training and items related to innovation and entrepreneurship were already going on. But they were going on separately. The St. Louis Tech Triangle and the partners came together through identifying synergies that existed that could be built upon and leveraged. This [Build Back Better Regional Challenge] was an opportunity to identify those synergies and bring them together more cohesively with the support of federal funding to accelerate that work to make certain that we could move together instead of in isolation.

So, Ben, on the Bio side that you work on, had you been working on individual projects related to advancing the bioeconomy in St. Louis, which maybe hadn’t had as much connection to the other two legs of the triangle before this partnership came up? 

Ben Johnson: I would echo Tracy in that this was an opportunity to grow existing, and find new, synergies across the industry cluster. For the biosciences, over 20 years in St. Louis, we’ve been working as a coalition of academic institutions, corporate partners, entrepreneurs, support organizations, philanthropy and civic organizations, to build our bioscience economy. With the success of that collaboration in building innovation infrastructure, we now feel like we’re just at the starting line of realizing the economic potential in some respects. These were existing partnerships and projects and collaborations that were in the works. In some ways, Tracy and her organization gave us a bit of a framework to knit that together with other emerging clusters in a way that some of the other clusters hadn’t really been positioned to organize in the past. I think a critical piece there is that we didn’t come together exclusively for the purposes of ‘here’s Build Back Better, let’s react to it.’ We had a foundation, we had coalition partnerships. We were able to come together around an organized thesis that really drives inclusive growth for the region. From there, projects knit together well. It wasn’t like, ‘Okay, here’s the NOFO. Let’s figure out what exists in the world.’ There was an existing framework for that discussion, including the STL 2030 Jobs Plan, stewarded through Tracy and Greater St. Louis Inc. 

Could you talk about why you decided to focus on three distinct fields (advanced manufacturing, geospatial, and biosciences) in your project?

Tracy: Understand that while it is the St. Louis Tech Triangle, the driver of our submission is advanced manufacturing. Advanced manufacturing supports biosciences, it supports geospatial and it leverages the history and existing strength of our region. Metro St. Louis has always been a leader in manufacturing and so that question, ‘why focus on all three?’ It’s a focus on advanced manufacturing that supports our biosciences, energy and our geospatial, and more. Also, we call it the tech triangle because when you look at an overview map of the region, you can literally create a triangle that links the placemaking hubs of the three clusters. 

Growing the advanced manufacturing cluster supports our existing bioscience and geospatial activities, but also helps grow and further grow, for instance, our aerospace and other opportunities that might exist, and that’s leveraging our past and present history in the region.

With all of these different projects ongoing, which coalition actually took the lead on writing and submitting the application?

Tracy: Greater St. Louis, Inc. did. Why was it Greater St. Louis? Partially because we’re not an implementer of any of these programs in particular. We are a convener, we are an entity that works with all of them. Hopefully they all see GSL as a partner in this effort. And because you can’t have 20 writers, it doesn’t work well. If you have 20 people doing these interviews and you try to put it together in one cohesive document, you have 20 different voices. And so for the overarching narrative it needs to be in one voice to make sense for those reviewing.  We shared it, and we ensured that partners offered feedback. We incorporated as able, but of course, had the limitations put on us by EDA on page numbers, numerous requirements, etc. Individual partners wrote their individual submissions; it doesn’t mean partners didn’t provide edits and guidance, and I did as well to ensure linkage with the overarching narrative, but they all wrote their own. We met on a regular basis, but there always has to be one person with the pen.

I’m glad you took the pen for St. Louis! Could you talk a bit about the Advanced Manufacturing Innovation Center (AMIC-STL) and why that is the hub of this proposal?

Tracy: The Advanced Manufacturing Innovation Center, which is referred to as AMIC-STL, was identified in 2015. The St. Louis Economic Development Partnership is a partner in our specific submission, not just the overarching narrative, but our specific submission on cluster growth. They received a grant back in 2014, I believe, when it looked like there was going to be significant downsizing in the aerospace industry here in the St. Louis metro, specifically Boeing. And so that’s when a defense readjustment grant was provided to help the region think about what does this region need to do, how do all those people get trained for other employment, and they looked at once again, this region’s strength in manufacturing.

AMICSTL is modeled off of the AMRC in Sheffield, England. The Advanced Manufacturing Research Center in Sheffield, England, was initially a Boeing funded entity. There are other manufacturing centers in Europe, I believe there’s also one in Japan now, they’re all a little different. But in our opinion, and what we have studied here within the United States, there isn’t anything like we’re talking about here in the United States. The Advanced Manufacturing Innovation Center will be an opportunity to do the research and development. It will be an opportunity to do prototyping and small batch manufacturing, but also an opportunity to create what we call verticals in different spaces. So an aerospace vertical, a bioscience vertical, an energy storage vertical. Something that brings not just a prime entity like hypothetically, aerospace and Boeing, but then all their other suppliers, all the entities that feed into Boeing and what Boeing does and the research that goes along with it. By co-locating, it allows cross pollination of ideas and also cross pollination of how to use things in other ways.

The Advanced Manufacturing Research Center in Sheffield, England, was initially a Boeing funded entity.

So something that might be used as relates to technology on a drone to look under the canopy of trees might have some technology applicable to the healthcare space. Or researchers might be able to take something that they learned from the development of a specific technology and apply it in a completely different field. Having these researchers and developers and the ability to prototype etc, allows for cross pollination of ideas and that growth, which then spurs additional development and additional growth. 

If you look at what happened in AMRC and Sheffield, they started with a handful of R&D individuals, they now have over 500. And they now have over 400 units of housing built. They started with one building, they now have multiple buildings.

Ben: Another point I think that was critical, particularly for our regional strategy and commitments but also for Build Back Better and EDA is the physical geographic location in a significantly disinvested historically excluded community. It really gives an opportunity to bring some of this new manufacturing innovation, bridging the biosciences and geospatial, as sort of a beachhead into a neighborhood and community where that type of investment has not occurred in a significant amount of years.

Tracy: When you look at the history of St. Louis, and you look at how communities were built up, a lot of them were built up within the urban core around manufacturing. Unfortunately, we lost a lot of that and then saw out-flight. Even early in 2015-2016 with the conversation about the establishment of this Advanced Manufacturing Innovation Center, they talked then about how its location should be in a historically disinvested community. And so this is a strategic location in the heart of the city where the land currently exists, right next to a technical school and in close location to multiple education institutions as well that can help on the workforce side, strategically located near NGA West, near our cortex and biosciences partners, as well as surrounded by other workforce partners.

Recognizing that this is a tough challenge, how are you making sure that AMIC-STL has a constructive and growth minded and equitable result for the community rather than continuing a trend of either pushing people out of homes / businesses or making it difficult for existing residents and existing community members to stay there?

Tracy: Almost every week GSL brings our AMIC-STL partner and our city partners and our neighborhood partners where AMIC-STL will be located to the table. 

Once again, this is purposeful on its location. There is nothing currently on the site. Most of the surrounding community, quite honestly, has suffered from disinvestment. There are vacant homes and boarded up buildings because of the outflight and more. And so we are working to ensure AMICSTL, being that centerpiece, sort of like AMRC and Sheffield, will create this domino effect. But to do that, we also have to make sure that partners are at the table. In addition we must have community engagement and will use BBBRC funding to help with this. We’re also drafting an RFP on establishing the baseline of metrics as it relates to the manufacturing ecosystem in the region, as well as the spokes of that and how far they reach. 

We’re looking at this holistically. We’re not just looking at building a building.

Also, our workforce partners are looking at what gaps exist in workforce training, and not creating new workforce programs necessarily, but how do our existing workforce entities fill those gaps. We’re looking at this holistically. We’re not just looking at building a building. I think that’s the important thing.

How will St. Louis look different in ten years if you’re successful in doing what you proposed?

Tracy: In ten years: AMIC is built and the dominoes have started resulting in growth. Our workforce training, our innovation entrepreneurship, our community engagement, our cluster growth is working. Can I say this is going to be overnight? No, I cannot. Is this going to be easy? No, it is not. In ten years is it our hope that we’ve seen progress? Yes. Can we say that it is our hope to continue seeing AMIC growing with verticals with benefits to different areas and lines? Yes. We are doing this deliberately and with intention to ensure a higher probability of success.

Ben: Ten years from now, I believe through Build Back Better and the collaboration to form it—with AMIC as its embodiment—will be a longitudinal and generational model, even if it is a model still in progress. It will be a model for how we do intentional, inclusive economic growth with increased permeability between innovation districts and underserved neighborhoods. A new model for STL and beyond for lessons learned and successes. Ten years, we will still be getting better and continuously improving in that work, but AMIC will be a significant mile post in that journey of St. Louis doing things differently.

Packaging Semiconductors at the Doorstep to Disney

This interview is part of an FAS series on Unleashing Regional Innovation where we talk to leaders building the next wave of innovative clusters and ecosystems in communities across the United States. We aim to spotlight their work and help other communities learn by example. Our first round of interviews are with finalists of the Build Back Better Regional Challenge run by the Economic Development Administration as part of the American Rescue Plan.

BRIDG is not-for-profit public-private partnership located in Osceola County, Florida providing semiconductor R&D and production capabilities to industry and government, enabled by a versatile 200mm microelectronics fabrication facility (or ‘fab’). As the anchor tenant of an emerging 500-acre technology district known as NeoCity, BRIDG operates the fab with a focus on heterogeneous integration and advanced packaging process technologies, and the development of a secure manufacturing methodology leveraging digital twins and other Industry 4.0 concepts. 

Supported by Osceola County, Florida High Tech Corridor Council, imec, SkyWater Technology (Center for Neovation operator) and others, BRIDG connects challenges and opportunities with solutions. They are “Bridging the Innovation Development Gap” (BRIDG) making commercialization possible. Their coalition, led by Osceola County Board of Commissioners, won $50.8 million in September, 2022 as part of the challenge. 

Jim Vandevere is the President of BRIDG. His career spans over 30 years of C-level experience with telecom companies, medical devices, and startups in photonics and electronics.

Ryan Buscaglia: I would love to start out and ask if you could tell us about how your coalition came together and a little bit of the history of NeoCity?

Jim Vandevere: Historically, Osceola County has been a region known for its strength in the services and agriculture industry. You either work in theme parks, restaurants, or farming— such as on a cattle ranch or something like that. During 2008, and more recently during COVID, there was a down-tick in the market where things changed, and people didn’t travel much. Osceola County specifically ranked about second in the country in unemployment. They recognized the importance of having a diversified portfolio for people to work in and wanted to add a third leg to the revenue stool, which is basically a technology component that survives downturns in markets.

Osceola County looked at what innovative technologies were being conducted within Florida’s universities (University of Central Florida, University of Florida, University of South Florida) that can be leveraged, and along with leadership from the Florida High Tech Corridor Council and Orlando Economic Partnership, felt that the semiconductor industry was an area where Florida, and particularly Osceola County in Central Florida, can truly make an impact on a national scale. After a few years, SkyWater Technologies also became involved in the regional efforts. So, for nearly the past decade, the group has been working closely together and eventually formed a coalition to grow an ecosystem on a 540-acre plot of land owned by Osceola County called NeoCity. Since the start of the economic diversification initiative, the county has invested approximately $270 million dollars to build a 200mm microelectronics fabrication facility (or ‘fab’), built a STEM-based high school, and added a Class A office complex onsite. With local and state funding, along with collaborations from industry partners such as TEL and SUSS Microtec, BRIDG was able to add tools to operate the fab as you see it today. Our cluster has been meeting twice a week since before the Build Back Better Regional Challenge was even a thing. We’ve been interacting for a long time. 

There’s a real sense of community here. Not just within Osceola County, but along the entire Florida high tech corridor from the Space Coast to Tampa—everybody’s interested and invested (whether directly or indirectly) in the success of this environment and the NeoCity campus.

How did Osceola County make the decision to pursue semiconductors as a cluster instead of another industry, and who was making that decision? Was the county leading on that, or were there other people at the table?

The idea for NeoCity started in 2012 after a “best practice” regional leadership mission to Texas and discussions around the importance of the semiconductor industry. There were other people at the table. Everybody had an opinion. The difficult question was, “How do you fit $278 million into your budget to make this program work in Central Florida?” Osceola County’s response was, “We can make this happen. We’re the fastest growing county in the state of Florida.” They decided to take a big leap of faith with some sound financial planning, knowing that it could deliver huge dividends and a huge tax base with employees. Most semiconductor fabs average between 300 and 1000 people or 5000 people depending on size. And these people—ranging from PhDs to high school graduates—make a whole different level of income. In fact, the high school graduates are making significantly more than the average salary of someone working in agriculture or hospitality.

From a high school graduation point of view and continuing education into college or higher ed, Osceola County had ranked 61st out of 67 school districts in the state of Florida. Many students weren’t moving on to college. So, the county implemented a program two years ago to fund high school seniors from Osceola County to attend Valencia College. They paid for school—strategic workforce development stuff—and now they’ve moved up to 17th in a short window of time. That’s a huge jump!

Could you talk a little bit more about how Osceola came to focus on education and workforce as a key component? How did the high school associated with NeoCity come to be?

As soon as we made the decision to move toward semiconductors, we understood that it takes a different level of student. It takes a STEM student, somebody who’s interested in science, technology, engineering, and math. At the time, the county didn’t have that niche focus within their existing high school system. So, they proactively built a STEM-focused, project-based high school next door to the office complex at NeoCity (NeoCity Academy). That STEM high school started four years ago and graduated its first class last year in May. Nearly 100% of the students in that graduating class went on to colleges all over the country. It’s a serious testament to the academic excellence they achieved. 

Osceola County had the planning and the foresight to ask, “How do we get our students more involved from the beginning?” This went all the way down to science fairs in middle schools and even science awareness outreach in elementary schools. We actively engage and support science fairs in Osceola County that target these students to get kids and parents to understand the technology that we’re developing. SkyWater, BRIDG, NeoCity Academy, Osceola County, the Florida High Tech Corridor, and imec are all actively involved in support of education in this community.

So, we’ve talked about a couple of different groups involved. We’ve talked about education. We’ve talked about the role of the county. But how does the coalition approach working with other stakeholders?

As a not-for-profit organization, BRIDG interfaces with a lot of universities. Mostly universities in Florida. However, we work with universities across the United States like UC Davis, Stanford, MIT, Georgia Tech, ASU, and Ohio State. I will tell you that one of the biggest accomplishments from an outside point of view is that imec, a Belgian company, chose Florida to open their U.S. headquarters. They basically solidified the vision of the county because they are a very advanced engineering company based out of Leuven where they have a 300mm fab and a lot of capabilities in design. They work with Fortune 500 companies all over the world. And their U.S. headquarters is right here at NeoCity in Osceola County. That interface and that linkage validates what Osceola County wanted to do and continues to do every day. 

From an industry partnership standpoint, we have two equipment suppliers that are ranked in the top five equipment suppliers of all semiconductor fabs—big multi-billion-dollar companies—that use our site as a demo center for their U.S. capabilities.

Locally, we work with regional industry associations such as the Manufacturing Association for Central Florida, FloridaMakes, and the Florida Photonics Cluster. We have a good relationship with Valencia College, and then we have our partner school, the Institute for Simulation and Training at UCF, which is globally renowned for their modeling, simulation, and training program. Then, we also have ongoing project collaborations with the University of Florida, as well. So, we have a really solid record pulling in local as well as international friendlies into the site to make it successful.

Students entering NeoCity Academy, located within the NeoCity Community campus.
NeoCity Academy

Between Kissimmee and St. Cloud, NeoCity Academy is one of community’s current tenants. Students engage in inquiry-driven, project-based learning, aiming to enter the workforce with enhanced technical skills.

Of the research institutions you mentioned: I know one of the key projects in your Build Back Better proposal is working with UCF on creating digital twins of the facility. Could you talk about what motivated that and why you thought that that was an important project?

It’s definitely an important project. The Air Force funded secure digital twins for DoD applications to virtually show the pipeline of activities from design all the way through to where the product winds up—showing sourcing components to fab processing, all the fab machines and everything like that and all the decision points. It’s basically taking snapshots to understand design attributes, metrology testing, inspections, etc. all the way into final test assembly and then out to the end use product. 

Now how is UCF involved? They are modeling and simulating how components go through the process. So, as you go through each tool and it performs its function, they’re pulling data from that performance to understand the process. In the end, we will understand the entire flow. Once you understand that flow, you will then know what the variables are. Doing a simulation of ‘what if’ scenarios can help industry understand costs and what kind of tool sets you need to do certain things. Then, you can do a predictive plan model saying ‘hey, it’s going to cost you this much money. You’re going to need this many people, and this is what you need.’ It’s already being done for most industries, for example the automotive industry, but this is the first semiconductor play.

Taking a step back from the projects that you’re working on and going back to how you originally came up with the plan for the Build Back Better grant, I would love to know who actually did the work to write this Build Back Better Regional Challenge application. Who took the lead and how did you decide that they would take the lead? Was it natural or did it come about from a consensus process?

It came about from a consensus process. The detailed technical information came mostly from BRIDG and the overarching documentation came from a grant writing group and Osceola County staff. This direction and the knowledge of how to submit this grant was very important. 

The overall vision of how we present ourselves came from our normal meetings with the county manager, the team, and me. The creation of the grant was a complete team effort. Honest, straightforward questions, challenges, and feedback came up amongst the coalition group while we developed this. We learned a lot more about each other and how every individual group does business. We went through six months of hard grinding to get that grant to be representative of the coalition.

It sounds like the recipe called for not only deep technical expertise, but also an open and collaborative group working on it. And then a clear vision that tied all of the disparate parts together. Are those the main ingredients?

Yes, and I would add understanding and knowledge of grant writing and what the reviewers are looking for.

Even the best teams have disagreements sometimes. Are there any moments where your coalition had different ideas about what the vision for the future was? And how did you reconcile those situations?

As a kid, my father told me there’s no ‘I’ in team. We win together, we lose together. But there are always ‘me’ people in a group. Getting those dynamics out of the way when you first start is important. The best part about our group is that we have a common vision of making NeoCity work. That was the underlying tone. Their ideas were maybe not like yours or anybody else’s, but everybody’s heart was in the right place. The challenge was how you communicate to get everybody to understand your idea. That is why our coalition is successful. We’re not afraid to have honest conversations and disagreements, but we work through it.

How will Osceola County look different in 10 years if you’re successful and doing what you all proposed? What does it look like for the class of 2033 coming out of NeoCity Academy or for the families who can rely on working in the fab or someplace adjacent?

In 10 years…I think the opportunity for NeoCity is like in many places across the United States. Today is when you’re going to see the most funding ever. You’re not going to see this again, probably, for another decade. However, I would say that there is nothing stopping the growth of NeoCity as long as we execute the way we’ve been executing and hold true to our vision. I will say 10 years from now, we will have successfully created the Design Center of Excellence to attract more companies, in addition to the ones you see here today. You will probably see seven or eight more companies in a group that support leapfrog advanced studies and work on that as a collaborative effort. 

Additionally, we’ve put significant funds toward workforce development including our local community college system. Our goal is to increase STEM capabilities and provide equipment, information, and better tools to support Osceola County. We want to continue the support of the Osceola County gift that has provided a Valencia College education for every high school senior that graduated in the Osceola County system over the last two years. We can supplement that and create a more robust avenue that connects students not only to the existing Valencia College environment, but also to all universities throughout the state of Florida. The goal is to elevate the entire state. Staffing in the semiconductor industry right now is tough— everybody’s complaining about it across the country. They can’t get the workforce. In Florida, we control our own destiny. That’s what I hope to see in 10 years.

Systems Thinking In Entrepreneurship Or: How I Learned To Stop Worrying And Love “Entrepreneurial Ecosystems”

As someone who works remotely and travels quite a long way to be with my colleagues, I really value my “water cooler moments” in the FAS office, when I have them. The idea for this series came from one such moment, when Josh Schoop and I were sharing a sparkling water break. Systems thinking, we realized, is a through line in many parts of our work, and part of the mental model that we share that leads to effective change making in complex, adaptive systems. In the geekiest possible terms:

A diagram of 'water cooler conversations' from a Systems Thinking perspective
Figure 1: Why Water Cooler Conversations Work

Systems analysis had been a feature of Josh’s dissertation, while I had had an opportunity to study a slightly more “quant” version of the same concepts under John Sterman at MIT Sloan, through my System Dynamics coursework. The more we thought about it, systems thinking and system dynamics were present across the team at FAS–from our brilliant colleague Alice Wu, who had recently given a presentation on Tipping Points, to folks who had studied the topic more formally as engineers, or as students at Michigan and MIT.  This led to the first meeting of our FAS “Systems Thinking Caucus” and inspired  a series of blog posts which intend to make this philosophical through-line more clear. This is just the first, and describes how and why systems thinking is so important in the context of entrepreneurship policy, and how systems modeling can help us better understand which policies are effective. 

The first time I heard someone described as an “ecosystem builder,” I am pretty sure that my eyes rolled involuntarily. The entrepreneurial community, which I have spent my career supporting, building, and growing, has been my professional home for the last 15 years. I came to this work not out of academia, but out of experience as an entrepreneur and leader of entrepreneur support programs. As a result, I’ve always taken a pragmatic approach to my work, and avoided (even derided) buzzwords that make it harder to communicate about our priorities and goals. In the world of tech startups, in which so much of my work has roots, buzzwords from “MVP” to “traction” are almost a compulsion. Calling a community an “ecosystem” seemed no different to me, and totally unnecessary. 

And yet, over the years, I’ve come to tolerate, understand, and eventually embrace “ecosystems.” Not because it comes naturally, and not because it’s the easiest word to understand, but because it’s the most accurate descriptor of my experience and the dynamics I’ve witnessed first-hand. 

So what, exactly, are innovation ecosystems? 

My understanding of innovation ecosystems is grounded first in the experience of navigating one in my hometown of Kansas City–first, as a newly minted entrepreneur, desperately seeking help understanding how to do taxes, and later as a leader of an entrepreneur support organization (ESO), a philanthropic funder, and most recently, as an angel investor. It’s also informed by the academic work of Dr. Fiona Murray and Dr. Phil Budden. The first time that I saw their stakeholder model of innovation ecosystems, it crystallized what I had learned through 15 years of trial-and-error into a simple framework. It resonated fully with what I had seen firsthand as an entrepreneur desperate for help and advice–that innovation ecosystems are fundamentally made up of people and institutions that generally fall into the same categories:  entrepreneurs, risk capital, universities, government, or corporations. 

Over time–both as a student and as an ecosystem builder, I came to see the complexity embedded in this seemingly simple idea and evolved my view. Today, I amend that model of innovation ecosystems to, essentially, split universities into two stakeholder groups: research institutions and workforce development. I take this view because, though not every secondary institution is a world-leading research university like MIT, smaller and less research-focused colleges and universities play important roles in an innovation ecosystem. Where is the room for institutions like community colleges, workforce development boards, or even libraries in a discussion that is dominated by the need to commercialize federally-funded research? Two goals–the production of human capital and the production of intellectual property–can also sometimes be in tension in larger universities, and thus are usually represented by different people with different ambitions and incentives. The concerns of  a tech transfer office leader are very different from those of a professor in an engineering or business school, though they work for the same institution and may share the same overarching aspirations for a community. Splitting the university stakeholder into two different stakeholder groups makes the most sense to me–but the rest of the stakeholder model comes directly from Dr. Murray and Dr. Budden. 

IMAGE: An innovation ecosystem stakeholder model a network of labeled nodes, including entrepreneur, workforce, research, corporations, government, and capital nodes, each connected to the other.
Figure 2: Innovation Ecosystem Stakeholder Model

One important consideration in thinking about innovation ecosystems is that boundaries really do matter. Innovation ecosystems are characterized by the cooperation and coordination of these stakeholder groups–but not everything these stakeholders do is germane to their participation in the ecosystem, even when it’s relevant to the industry that the group is trying to build or support. 

As an example, imagine a community that is working to build a biotech innovation ecosystem. Does the relocation of a new biotech company to the area meaningfully improve the ecosystem? Well, that depends! It might, if that company actively engages in efforts to build the ecosystem say, by directing an executive to serve on the board of an ecosystem building nonprofit, helping to inform workforce development programs relevant to their talent needs, instructing their internal VC to attend the local accelerator’s demo day, offering dormant lab space in their core facility to a cash-strapped startup at cost, or engaging in sponsored research with the local university. Relocation of the company may not improve the ecosystem  if they simply happen to be working in the targeted industry and receive a relocation tax credit. In short, by itself, shared work between two stakeholders on an industry theme does not constitute ecosystem building. That shared work must advance a vision that is shared by all of the stakeholders that are core to the work.

Who are the stakeholders in innovation ecosystems? 

Innovation ecosystems are fundamentally made up of six different kinds of stakeholders, who, ideally, work together to advance a shared vision  grounded in a desire to make the entrepreneurial experience easier. One of the mistakes I often see in efforts to build innovation ecosystems is an imbalance or an absence of a critical stakeholder group. Building innovation ecosystems is not just about involving many people (though it helps), it’s about involving people that represent different institutions and can help influence those institutions to deploy resources in support of a common effort. Ensuring stakeholder engagement is not a passive box-checking activity, but an active resource-gathering one. 

An innovation ecosystem in which one or more stakeholders is absent will likely struggle to make an impact. Entrepreneurs with no access to capital don’t go very far, nor do economic development efforts without government buy-in, or a workforce training program without employers. 

In the context of today’s bevvy of federal innovation grant opportunities with 60-day deadlines, it can be tempting to “go to war with the army you have” instead of prioritizing efforts to build relationships with new corporate partners or VCs. But how would you feel if you were “invited” to do a lot of work and deploy your limited resources to advance a plan that you had no hand in developing? Ecosystem efforts that invest time in building relationships and trust early will benefit from their coordination, regardless of federal funding.  

These six stakeholder groups are listed in Figure 2 and include: 

In the context of regional, place-based innovation clusters (including tech hubs), this stakeholder model is a tool that can help a burgeoning coalition both assess the quality and capacity of their ecosystem in relation to a specific technology area and provide a guide to prompt broad convening activities. From the standpoint of a government funder of innovation ecosystems, this model can be used as a foundation for conducting due diligence on the breadth and engagement of emerging coalitions. It can also be used to help articulate the shortcomings of a given community’s engagements, to highlight ecosystem strengths and weaknesses, and to design support and communities of practice that convene stakeholder groups across communities.

What about entrepreneur support organizations (ESO)? What about philanthropy? Where do they fit into the model? 

When I introduce this model to other ecosystem builders, one of the most common questions I get is, “where do ESOs fit in?” Most ESOs like to think of themselves as aligned with entrepreneurs, but that merits a few cautionary notes. First, the critical question you should ask to figure out where an ESO, a Chamber or any other shape-shifting organization fits into this model is, “what is their incentive structure?” That is to say, the most important thing is to understand to whom an organization is accountable. When I worked for the Enterprise Center in Johnson County, despite the fact that I would have sworn up-and-down that I belonged in the “E” category with the entrepreneurs I served, our sustaining funding was provided by the county government. My core incentive was to protect the interests of a political subdivision of the metro area, and a perceived failure to do that would have likely resulted in our organization’s funding being cut (or at least, in my being fired from it). That means that I truly was a “G,” or a government stakeholder. So, intrepid ESO leader, unless the people that fund, hire, and fire you are majority entrepreneurs, you’re likely not an “E.”

The second danger of assuming that ESOs are, in fact, entrepreneurs, is that it often leads to a lack of actual entrepreneurs in the conversation. ESOs stand in for entrepreneurs who are too busy to make it to the meeting. But the reality is that even the most well-meaning ESOs have a different incentive structure than entrepreneurs–meaning that it is very difficult for them to naturally represent the same views. Take for instance, a community survey of entrepreneurs that finds that entrepreneurs see “access to capital” as the primary barrier to their growth in a given community. In my experience, ESOs generally take that somewhat literally, and begin efforts to raise investment funds. Entrepreneurs, on the other hand who simply meant “I need more money,” might see many pathways to getting it, including by landing a big customer. (After all, revenue is the cheapest form of cash.) This often leads ESOs to prioritize problems that match their closest capabilities, or the initiatives most likely to be funded by government or philanthropic grants. Having entrepreneurs at the table directly is critically important, because they see the hairiest and most difficult problems first–and those are precisely the problems it take a big group of stakeholders to solve. 

Finally, I have seen folks ask a number of times where philanthropy fits into the model. The reality is that I’m not sure. My initial reaction is that most philanthropic organizations have a very clear strategic reason for funding work happening in ecosystems–their theory of change should make it clear which stakeholder views they represent. For example, a community foundation might act like a “government” stakeholder, while a funder of anti-poverty work who sees workforce development as part or their theory of change is quite clearly part of the “W” group. But not every philanthropy has such a clear view, and in some cases, I think philanthropic funders, especially those in small communities, can think of themselves as a “shadow stakeholder,” standing in for different viewpoints that are missing in a conversation. Finally, philanthropy might play a critical and underappreciated role as a “platform creator.” That is, they might seed the conversation about innovation ecosystems in a community, convene stakeholders for the first time, or fund activities that enable stakeholders to work and learn together, such as planning retreats, learning journeys, or simply buying the coffee or providing the conference room for a recurring meeting. Finally, and especially right now, philanthropy has an opportunity to act as an “accelerant,” supporting communities by offering the matching funds that are so critical to their success in leveraging federal funds.  

Why is “ecosystem” the right word? 

Innovation ecosystems, like natural systems, are both complex and adaptive. They are complex because they are systems of systems. Each stakeholder in an innovation ecosystem is not just one person, but a system of people and institutions with goals, histories, cultures, and personalities. Not surprisingly, these systems of systems are adaptive, because they are highly connected and thus produce unpredictable, ungovernable performance. It is very, very difficult to predict what will happen in a complex system, and most experts in fields like system dynamics will tell you that a model is never truly finished, it is just “bounded.” In fact, the way that the quality of a systems model is usually judged is based on how closely it maps to a reference mode of output in the past. This means that the best way to tell whether your systems model is any good is to give it “past” inputs, run it, and see how closely it compares to what actually happened. If I believe that job creation is dependent on inflation, the unemployment rate, availability of venture capital, and the number of computer science majors graduating from a local university, one way to test if that is truly the case is to input those numbers over the past 20 years, run a simulation of how many jobs would be created, according to the equations in my model, and seeing how closely that maps to the actual number of jobs created in my community over the same time period. If the line maps closely, you’ve got a good model. If it’s very different, try again, with more or different variables. It’s quite easy to see how this trial-and-error based process can end up with an infinitely expanding equation of increasing complexity, which is why the “bounds” of the model are important. 

Finally, complex, adaptive systems are, as my friend and George Mason University Professor Dr. Phil Auerswald says, “self-organizing and robust to intervention”. That is to say, it is nearly impossible to predict a linear outcome (or whether there will be any outcome at all) based on just a couple of variables. This means that the simple equation(money in = jobs out) is wrong. To be better able to understand the impact of a complex, adaptive system requires mapping the whole system and understanding how many different variables change cyclically and in relation to each other over a long period of time. It also requires understanding the stochastic nature of each variable. That is a very math-y way of saying it requires understanding the precise way in which each variable is unpredictable, or the shape of its bell-curve.

All of this is to say that understanding and evaluation of innovation ecosystems requires an entirely different approach than the linear jobs created = companies started * Moretti multiplier assumptions of the past. 

So how do you know if ecosystems are growing or succeeding if the number of jobs created doesn’t matter? 

The point of injecting complexity thinking into our view of ecosystems is not to create a sense of hopelessness. Complex things can be understood–they are not inherently chaotic. But trying to understand these ecosystems through traditional outputs and outcomes is not the right approach since those outputs and outcomes are so unpredictable in the context of a complex system. We need to think differently about what and how we measure to demonstrate success. The simplest and most reliable thing to measure in this situation then becomes the capacities of the stakeholders themselves, and the richness or quality of the connections between them. This is a topic we’ll dive into further in future posts.