Creating a Culture of New Ideas For Indiana

By: Mark Hill - Chairman, BlueLock, and Managing Partner of Collina Ventures

We live in an innovation economy, one that’s defined by risk and reward. The failure rate is high for new innovations coming into the marketplace. But the dividends of success are worth it: Being an innovator means leading the market, pricing based on the value to your customer (not cost), and creating wealth and opportunity for stakeholders.

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Innovation doesn’t have to come in the form of a product, but can involve sales and marketing, operations, finance – any new idea that brings new opportunities.

Sooner or later, though, competitors catch on and innovations are duplicated. Big breakthroughs give way to incremental improvements. Finally, what was a cutting-edge idea becomes yesterday’s news, the only way to maintain profit margins is to slash costs, and it’s time to start looking for the next big thing. This is the innovation life cycle.

It’s obvious that the place to be is where new ideas happen – not where they’re copied and commoditized. The most innovative regions are also the most prosperous. Study after study shows that the places with the most patent activity, R&D investment and educated, creative workers also have the highest per capita incomes and strongest economic growth.

Unfortunately, the innovation advantage that the U.S. has traditionally enjoyed over the rest of the world seems to have eroded in recent years. New ideas simply aren’t coming to market the way they used to – initial public offerings (IPOs) are down 70% from 2007 to 2008. Looking further back at the financing of innovation through venture capital investment, we see this trend isn’t just a single year phenomenon:

During the tech boom (1998 through 2001), annual VC investment reached nearly $54 billion and almost 22,000 deals moved through the pipeline (according to PricewaterhouseCoopers and the National Venture Capital Association). Of course, those levels weren’t sustainable, but let’s look at a more recent four year timeframe, 2004 through 2007. Even though this period avoids the worst of the post-9/11 trough and the depths of the current recession, VC investment still dropped by more than 50%, to around $26 billion a year, with just 14,000 total deals.

Moreover, the stock index that tracks pharmaceutical, biotech and life sciences industries as part of the S&P 500 dropped more than 30% from the end of 1998 to the end of 2007. Over that same period, the $30 billion trade surplus that the U.S. enjoyed in advanced technology products turned into a $53 billion deficit.

Other countries are catching up. A recent report from the Information Technology & Innovation Foundation ranks countries on innovation (using metrics like R&D investment, IT infrastructure, and science and technology workforce) and puts the U.S. 6th on the list behind nations like South Korea. The U.S. had the smallest gain on these metrics of any country on the list since 1999. Perhaps not surprisingly, China saw the biggest jump. It’s estimated that by next year, there will be significantly more PhD scientists and engineers in China than the U.S. – they’ll be well-positioned to not only say ‘Made in China,’ but also ‘Invented and Designed in China.’

There are a whole host of policies the U.S. needs to pursue to regain the lead in innovation – in education, tax policy, public investment in science and technology research, many more. But as the saying goes, “Think globally – act locally.” Our challenge closest to home is to make Indiana a more productive source of new ideas. We rank 15th and 19th among states in R&D investment and patents-per-capita – respectable rankings that nonetheless offer ample room for improvement.

That’s why TechPoint is reinventing our annual Tech Summit, now the Innovation Summit focused on the process of bringing new ideas to life across Indiana’s most dynamic high-tech industries – advanced manufacturing, the life sciences, IT, energy technologies and logistics. The day will be filled with panels and workshops specific to these sectors as well as broader issues like capital access. We’re also proud to announce that Dr. Clayton Christensen, a leading author on innovation issues, will join us as the day’s keynote speaker. Learn more about the Summit, September 29th at the Indiana Convention Center, by visiting www.techpoint.org/summit.

TechPoint has worked hard to create an innovation-friendly environment in Indiana. We’ve lobbied for programs like the 21st Century Research and Technology Fund, and incentives like the state tax exemption for patent income. Through the HALO angel investor network, we’ve made more seed capital available to commercialize new ideas. (In Indiana, venture capital investment grew from $82.5 million in 2007 to $123.6 million in 2008, amid an overall decline in VC deals nationally.)

We’re making progress, but there’s much work to be done. We can never be certain where the next big idea is coming from, but we can create a business culture that recognizes and nurtures it. Through the Innovation Summit, we plan to continue the dialogue on how to build this culture, and keeping working towards Indiana’s own idea economy.

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