2011 Introduction of key job growth and economic development issues for the

Commerce CommitteeJanuary 20, 2011

Matthew NemersonPresident & CEO – CTC

Liddy Karter Exec. Dir. CVG cannot make the meeting2.4

Who are we? A new allianceof two venerable organizations

17 year old State-wide trade association to support the technology community. Promote growth & innovationMembers include largest to small firmsSpeak for 2,000 tech firms Global and national affiliations

Best practices in other states -TECNA•2011 Connecticut Competitiveness Agenda•Annual Legislative Agenda•Women of Innovation•Tech Top 40 Awards•100 Companies to Watch Awards•Monthly PowerMatch•Various forums: CEO, CIO•Peer to peer month roundtables

25 year old State-wide trade association to support the venture and risk capital community to the creation of start-ups and the availability capital.Creates opportunities to connect ideas and capital

Members include VCs, key service providers, entrepreneurs•Crossroads Venture Fairs•Entrepreneurial bootcamps•Regional Chapter meetings & events•Development of VC funds & community•Connections to Angels and Private Equity

Combined audience of 15,000

people and firms in the innovation, support and tech community

We need bold action and better understanding to grow jobs here

Why is Connecticut at the bottom for job and firm growth?

• We wanted to figure this out• Does it makes sense?• If so, what is going wrong?• Asked CEOs of fast growing firms• Learned some interesting things• Created an agenda to deal with these real

issues that are slowing job growth

Note: The following slides are CTC not CVG work

What we usually hear…

• Taxes and cost too high here – – But compared to other high value added locations

we are competitive• Electrical costs too high– An issue for manufactures but not really for others,

and we lead the nation in output/btu• Not enough skilled local graduates– There is lots of talent in the greater Northeast –

and some of our cities top nation for young people

Fast growing firm CEOs actually saidIssue Mentioned in

Interview

State (or Governor) doesn’t know my company and does not know how to help me. Others state’s seem more on top of my needs

72%

University Research – Hard to connect with professors, grad students and labs; tech transfer complicated. I do better with other state’s universities.

66%

Connections & Networks – Regional innovation networks are frail or non-existent, hard for young talent to find us, hard to get to NYC or the world

62%

Risk Capital – Seems harder to get here and investors are not as excited about my industry

62%

Critical Mass – Not enough other entrepreneurial companies like mine. Top competitors are elsewhere. Need to be in the center of the action for future success. Will be harder to recruit top people, customers and investors.

55%

Is it Worth the Cost? – My objective is growth, not cost-minimization: high cost worth it if the environment is world class for growth and key employees. This competitiveness is not something people think about a lot here.

45%

2. Denser InnovationNetworks

We can fix our key weaknesses

1. State doesn’t know me or my successes and other states do a better job of letting me know we are important.

- If the state government is proactive, open and strategic, and if I am in a world class, supportive innovation environment (which I am not at present) then I can tolerate existing high costs (though not much higher).

2. Networks & Connections are weak: Local professional networks are frail, there is insufficient critical mass in my cluster, it is hard to find young talent and to travel.

-A growing business needs new ideas and talent. Help me connect with peers, attract young employees, and make it easy to travel to global and regional hubs.

3. New financial risk capital is hard to find and lack of innovation culture makes it hard to grow, despite presence of money and skilled people here. The attitude, industry awareness and availability of investors and researchers are much better in other places.

-Why should I stay in an location that is not these most supportive of successful firms like mine, and if I need sophisticated help, where would I go?

1. State Needs to

Care

3. Brains , Bucks &

Help

The Connecticut Predicament: A leadership opportunity

• Connecticut is very productive in the job losing large firm “industrial traded economy,” but lags in job creation the “post-industrial” new firm high tech, entrepreneurial economy.

• It has failed to translate potential into success, resulting in lackluster job growth and eroding incomes.

• Connecticut must compete in knowledge sectors and promote entrepreneurship, or risks being left behind.

• There is no central organizing force to create an culture of innovation – many groups organized for that purpose are political, parochial or operate in a spirit of scarcity.

A preview of our 2011 AgendaIssue Solutions

1. More Start-ups Create a full service “Jobs Factory”

2. More growth Increase risk capital available in the state

3. Talent growth Innovation Corps – business plans competitions, interns, Fellows

4. Leadership & Focus

Jobs growth “war room”

5. Research & Networks

University – Business partnership and university to university collaborations

6. Connections Attention to air, rail and highway to get to key locations: NYC, Washington DC, West Coast and Asia.

Background on our situation

Gaining perspective

The State Legislature view of Connecticut

Gallis Corridor slide

A Connecticut business person’s view of the state

A tech CEO’s view of Connecticut

Jobs > Growth

The Innovation Job Growth Eco-systemThe Innovation Job Growth Eco-system

14Image – Global perceptions

VentureLater state

Infrastructure – Global connections

Early StageSeed

Incubators

NetworksAssociations

MentorsGrants

SkilledWorkersStudents

Innovation Accelerators

SBIR

Validation

Entrepreneurs

AngelInvestors

Technology Transfer

UniversityR&D

Government Incentives

New jobs come from a deliberate process that requires many parts of a puzzle to contribute and be better than other locations at each step…

CorporateSpin Outs

We are number six in Kauffman’s innovation rankings, right?

We should rock

High costs are OK if matched with high performance

2010 State New Economy Index 2007 Cost of Doing Business Index, 2007 [1 = least expensive]

(Kauffman/ITIF) (Milken Institute)Massachusetts 1 46Washington 2 35Maryland 3 39Connecticut 5 45New Hampshire 11 38Texas 18 26Pennsylvania 22 29North Carolina 24 19

State

Co

st

Com

petiti

vene

ss

CT is failing to turn key assets into innovative, entrepreneurial growth

What we need to grow jobs

• Strong networks – where people know each other through out the region

• Contented CEOs - who recommend the state to their best friends

• Venture investors - who move their best firms to Connecticut and take higher risks on our start-ups

• Agencies, organizations and institutions that seek out each other (with incentives perhaps) to collaborate and create partnerships

The Connecticut Predicament – Why we don’t have more jobs and new firms

• We have large % of large firms – they shrink• We start too few firms – easy to leave• Our Fast growing firms were started here• Quality of life overcomes weak environment

up to a point• CEOs worried about ability to maintain growth• Eco-systems are more curious, innovative and

deal with fast growth and unexpected needs.

The Connecticut Paradox

“Personally, I love it here, but it’s not a good place for my business.” - Connecticut CEO of a fast growing firm

So firms stay until beyond their comfort point and then often leave or find themselves underperforming. Intervention is needed earlier and start-up roots need to be explored and reconnected.

CEO feelings about ConnecticutIt is very good for my company here 28%It is not good for my company to stay here 14%It’s great for me personally, and it’s OK for my business for now 59%

The share of CT’s jobs in high tech sector is declining

State Share of Jobs in High Tech sector, U.S. Rank 2008

Massachusetts 1

Maryland 4

New Hampshire 6

Washington 7

Connecticut 18

Source: AeA, Cyberstates 2008 (Washington DC: 2008) and AeA, Cyberstates 2001 (Washington DC: 2001).

Smaller companies seem to create most jobs…

Source: Stangler and Kedrosky, “Neutralism and Entrepreneurship,” Kauffman Foundation Research Series: Firm Formation and EconomicGrowth, 2009

But data analysis shows that its is the age which is the true correlation

Source: Stangler and Kedrosky, “Neutralism and Entrepreneurship,” Kauffman Foundation Research Series: Firm Formation and Economic Growth, 2009

Years in Business

While young companies create most jobs, older ones lose them

Connecticut, 2008 Employees % of Jobs CT RankStage 1 (2-9) 30% 34Stage 2 (10-99) 33% 44Stage 3 (100-499) 14% 23Stage 4 (500+) 15% 7

Source: YourEconomy.com. Edward Lowe Foundation.

The story of job. “Net” jobs lost or gained only tells us a little bit. Here’s jobs created…

Source: YourEconomy.com. Edward Lowe Foundation.

(c) CTC 2010 27

Now look at job losses

New jobs are fewer than closed businesses – but look at start-ups…

-20,000

Now let’s look at the whole story for jobs expanding and contracting…

+2,000

Large firms dominate our “smoke-stack” chasing

+5,000

Smaller firms dominate job creation

+

+ =

Jobs started by new firms

(c) CTC 2010 32

Let’s compare:Stage 1 compensates for MD & TX for job losses. Not CT and MA

-5,000

+250,000

+55,000

-20,000

Don’t worry about the brain drain – it may not be the systemic crisis we think it is

CT Cities Show Mixed Results in Attracting Young Professionals

1990 2000 2005 2007 200817

19

21

23

25

27

29

31

Percentage of Population 25-39Source: American Community Survey

StamfordNew HavenBridgeportHartford

Stamford and New Haven do well versus other hip small cities…

1990 2000 2005 2007 200817

19

21

23

25

27

29

31

33

35

Percentage of Population 25-39Source: American Community Survey

StamfordAustinNew HavenMinneapolisDurhamBoulder

Venture capitalists not finding Connecticut companies in which to invest

Source: https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical

So, Connecticut’s venture capital community focuses elsewhere

Source: Sources and Targets of Venture Capital Investments 2009, National Venture Capital Association, PriceWaterhouse Coopers

The percent of venture capital managed in Connecticut that is invested in-state is lower than in competitor states

How to compete with other states in offering university partnership

Source: National Science Foundation/Division of Science Resources Statistics, “Survey of Research and Development Expenditures at Universities and Colleges” http://www.nsf.gov/statistics/nsf10311/pdf/tab30.pdf

Tech schools tend to have the easiest time creating partnerships – these are vital to many firms

Reviewing what the CEOs told us

Issue Mentioned in Interview

State (or Governor) doesn’t know my company and does not know how to help me. Others state’s seem more on top of my needs

72%

University Research – Hard to connect with professors, grad students and labs; tech transfer complicated. I do better with other state’s universities.

66%

Connections & Networks – Regional innovation networks are frail or non-existent, hard for young talent to find us, hard to get to NYC or the world

62%

Risk Capital – Seems harder to get here and investors are not as excited about my industry

62%

Critical Mass – Not enough other entrepreneurial companies like mine. Top competitors are elsewhere. Need to be in the center of the action for future success. Will be harder to recruit top people, customers and investors.

55%

Is it Worth the Cost? – My objective is growth, not cost-minimization: high cost worth it if the environment is world class for growth and key employees. This competitiveness is not something people think about a lot here.

45%

Where Do Good Ideas Come From: The Natural History of Innovation, Steve Johnson 2010

If there is a single maxim that runs

through this book’s arguments, it is

that we are often better served by

connecting ideas than we are by

protecting them…environments that

build walls around good ideas tend

to be less innovative in the long run

than more open-ended

environments. [Ideas] want to

complete each other as much as

they want to compete.

Clusters are seen are key to job creation by Brookings and others

Conclusion: thinking about economic development

1. The goal should be the creation strong policies, enacted more quickly, with measured results, honestly and frequently reviewed and corrected in mid-stream.

2. We start with the assumption that changes are needed in the organizational structures

3. A better approach would be to reassign responsibilities and efforts – while leaving the fundamental structure alone.

4. CERC/Chambers, Trade Associations/Not for profits/non government organizations (NGOs such CCAT) should be used to help carry out policy –

5. The best models for this can be seen in Oklahoma with the OCAST, Ben Franklin Partnership in PA and TEDCO in MD.

A preview of our 2011 AgendaIssue Solutions

1. More Start-ups Create a full service “Jobs Factory”

2. More growth Increase risk capital available in the state

3. Talent growth Innovation Corps – business plans competitions, interns, Fellows

4. Leadership & Focus

Jobs growth “war room”

5. Research & Networks

University – Business partnership and university to university collaborations

6. Connections Attention to air, rail and highway to get to key locations: NYC, Washington DC, West Coast and Asia.

Thanks for your time!

Good luck in the 2011 session