Regional Economic Development andthe Role of Innovation Centers

Timothy Rowe

April 2009

BACKGROUND ON NEW ENGLAND’S SUCCESS

KEY DRIVER’S OF REGION’S GROWTH (over 400 years):

• Entrepreneurship

• Local networking (“Bump and Connect”)

BUT WE’RE NO LONGER LEADING IN THESE AREAS

Source: Robert Krim, Boston History and Innovation Collaborative Study

VENTURE CAPITAL DOLLARS INVESTED TELL THE STORYComparison By Region

2003 2004 2005 2006 2007 -

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

Silicon Valley

New England

Source: PricewaterhouseCoopers MoneyTree Report, 2008

IN 2003 THE VALLEY WAS 2X NEW ENGLAND. TODAY IT IS 3X NEW ENGLAND.

OF THE TOP 5 MARKETS, WE ARE THE ONLY ONE THAT HAS STALLEDComparison By Region

2003 2004 2005 2006 2007 -

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

Silicon Valley

New England

Next 3 regions combined

Source: PricewaterhouseCoopers MoneyTree Report, 2008Regions ranked by 2007 total VC investment; Next 3 = San Diego, LA, Texas

We’re falling behind.

OUR VENTURE CAPITAL FIRMS ARE GOING WEST

This is not a great picture

HOW OUGHT THE COMMUNITY RESPOND?

FIRST WE NEED TO IDENTIFY THE OBSTACLES

• Cautious capital

• Fewer experienced startup CEOs

• Fewer networking opportunities

• Marketing: we’re not as good at telling our story– they tell the Google/Apple/Cisco stories…

Leads to a “vicious cycle”

WE CAN’T WIN BY TRYING TO ACT LIKE CALIFORNIANS

Cambridge, MA snow shoveller (Reuters, 2003)

WE NEED TO LEVERAGEOUR OWN STRENTHGS.

SOME OF OUR STRENGTHS

• Perhaps the highest concentration of bright minds in the world– Much more concentrated than competitive areas– In 5-10 minutes you can walk between the offices of Nobel laureates,

top venture capitalists, and some of the country’s most promising startups

• An incredible flow of bright minds coming to the area every year– Approximately 2,800 new top minds move to Cambridge ever year to

attend MIT alone– Represents an evergreen world-class labor force

• Access to a tremendous amount of venture capital

WE MUST BUILD OUR INNOVATION INFRASTRUCTURE TO LEVERAGE THESE STRENGTHS

SOME IMPORTANT ELEMENTS:– University research– Government funding for university research– Corporate research– Entrepreneurship education programs– University out-licensing programs– Mentors and advisors– Innovation Centers– Experienced former CEOs– Startup-savvy population of risk-taking employees– Independent investors (“angels”)– Venture capitalists (seed, early, and late stage)– Startup-savvy service firms (law, accounting, PR)– Sources of debt financing

THE BALANCE OF THIS PRESENTATION EXPLORES

OPPORTUNITIES FOR IMPACT THROUGH INNOVATION CENTERS

WHAT IS THE ROLE OF AN INNOVATION CENTER?

Concentrate entrepreneurs in one place nearby a university

- So they can model success, legitimize this career path

- So they can learn from each other

- So students can easily work in startups before graduating

Offer optimized support infrastructure for entrepreneurs

- Far more economically efficient, lowers cost, risk to get started

THE TRADITIONAL INCUBATOR MODEL

• Nearly all incubators costs are covered by governments or universities

• Nearly all are in economically depressed areas, in dis-used real estate

• Nearly all ask for equity in the startups

They are a positive force in depressed areas, but few move the needle

(don’t create Gillette, Lotus, Google, EMC…)

IN CONTRAST: CIC’s MODEL

• No government or university subsidy

• Located in prime real estate / a highly desirable location

• Does not take equity stake in the companies that come in– this tends to drive away the best entrepreneurs

• Uses term “innovation center” to differentiate from “incubator” concept

• Designed to be attractive to the most capable/best financed entrepreneurs

Early evidence suggests this approach works very well.

04/10/2023 (C) Cambridge Innovation Center

CAMBRIDGE INNOVATION CENTER’S STORY

Founded in 1999 by MIT grads, based in an MIT-owned building

Has become the largest innovation center (incubator) in the US (that we know of)• Located in One Broadway, center of Kendall Square• Uses no university or government subsidy• Has helped more than 350 businesses get off the ground

Approximately half of the activity at CIC is companies founded by MIT graduates and staff (1)

(1) Calculated as a percentage of VC dollars invested in CIC startups founded by MIT students and staff vs. others

04/10/2023 (C) Cambridge Innovation Center

CIC HAS GROWN OVER THE PAST 7 YEARSCompanies and Investment

This chart was created in early 2006. Since then we’ve doubled.

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2001 2002 2003 2004 2005 2006

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CIC

Cumulative Investment Cumulative Number of Companies at CIC

WHAT MAKES CIC POPULAR WITH ENTREPRENEURS?

• People– New startups are surrounded by other startups, successful CEOs– ~180 leaders of new orgs in one building—they have many connections

• Flexibility– All agreements are month-to-month, with just a 1-month deposit– Charges are partly per-person, rather than per square foot

• Location– Right next to MIT– Means that many/most initial employees may be top students, still in school

SOME EVIDENCE OF IMPACT

• “Money factor”– At least $750M invested in CIC companies, 2003-2007

• Total investment today is approximately $900M– Represents a meaningful percentage of the $16B of venture capital

invested in New England 2003-2007!

• “Cool factor”– In a recent unscientific list of “cool” companies in MA and NH by Globe

reporter Scott Kirsner, 8 companies, or about 25% of those on the list founded since 1999, were founded at CIC

Over 350 companies have taken root at CIC since our founding!

SOME NOTABLE PAST AND PRESENT CLIENTS…

Established New England HQ at CIC, grew from 1 to ~200 people

Acquired by Yahoo for $160M, became base of new Yahoo office in New England

Media-lab spin-out has become world leader in RFID technologies.

Prominent local oncology bio-tech, grew from 2 people at CIC

Media-lab spin-out invented wireless mesh networking, created the Zigbee

standard

Founded by two MIT grads, is a leading supplier of high-brightness LEDs

Leading coal gasification company, raised largest VC round in recent Mass memory,

building plant in Fall River

Founded based on MIT’s Bob Langer’s research. On its way to

curing paralysis caused by spinal cord injury

SO, IF IT IS WORKING, WHY IS IT WORKING?

• Location, location, location: Proximity to MIT and the T

• Density effect: Large number of high quality startups/entrepreneurs in one building– 24x7 networking

• Note that these two factors work together: the MIT-proximate location is necessary to achieve the density

MIT Sloan

CIC