Innovation Economics Roundtable

The New Reality of Innovation Economics

Key Questions Survey and Suggested Reading

“Are you ready? Get set!” - Barack Obama

Share your comments and replies below for each issue or key question to help guide Roundtable Discussions.

Issue 1:

If innovation economics and new venture creation are such great ideas, why has their implementation been so slow?

Key questions:

·         What is innovation economics?

·         How does increasing the rate of technology deal flow affect metro region economies?

·         If the goal of innovation economic development is the long-term commercial viability of new enterprises, why do so many of them die?

·         How do new enterprises get integrated into the regional market?

·         What is the required birth rate of new technology ventures to promote regional economic growth?

·         Who should monitor the birth and death rate of new ventures in a metro region? 

·         How do the financial interests of small manufacturing enterprises (SME) fit into a strategy of innovation economics?

·         Does the preoccupation with entrepreneurship and new venture creation distract attention from the role that SMEs play in the regional innovation process?

·         Does the existing economic development model of industrial recruitment affect the successful strategy of innovation economics?

·         How can traditional economic development professionals make a transition to innovation economics?

Suggested Reading :

Andrew Wong, Angel Finance: The Other Venture Capital, available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=941228. 2002.

Victor Fleischer, Two and Twenty: Taxing Partnership Profits in Private Equity Funds, Legal Studies Research Paper Series Working Paper Number 06-27, March 2006, Revised August 2, 2007 .

Douglas J. Cumming, “ United States Venture Capital Financial Contracting Securities”, Advances in Financial Economics, September 2006.

Issue 2:

What are the gaps in the current business model for stimulating innovation in both new and established companies?

Key questions:

·         What is the best business model or platform for a successful innovation economics strategy?

·         Who is competing to gain the benefits of innovation?

r       Competition between MNCs

r       Competition between VCs and MNCs

r       Competition between metro regions and MNCs

r       Competition between metro regions and VCs: the Dr. Kerkorkian Effect

Suggested Reading :

Laura Bottazzi, Marco Da Rin, Thomas Hellmann, The Importance of Trust for Investment: Evidence from Venture Capital, ECGI Working Paper Series in Finance Working Paper No.187/2007 May 2007.

Morten Sorensen, Learning by Investing: Evidence from Venture Capital, AFA 2008 New Orleans Meetings Paper Available at SSRN. February, 2008.

Thomas Brenner, Andre Mohlig, Factors and Mechanisms Causing the Emergence of Local Industrial Clusters- A Meta-Study of 159 Cases, # 0723 Max Planck Institute of Economics, Evolutionary Economics Group. 2007.

Charles Steinfield, Ada Scupola-Hugger, When Do SMEs Benefit from E-Commerce in an Industrial Cluster? Evidence from a Biotech Cluster, Paper prepared for presentation at the APEC Symposium on Industrial Clustering for SMEs, Taipei , March 7-9, 2005 .

Issue 3:

What new analytical tools and business networks are needed to advance innovation economics?

Key questions:

·         Who catalyzes generation of new investment ideas for entrepreneurs?

·         What business entities promote the innovation process in the regional economy?

·         Who has created successful strategic plans for radical innovation in a regional economy?

·         Who succeeds in stimulating product innovation in existing SMEs?

·         Who help SMEs create ideas on successful product innovations in their market?

·         What types of business support networks can replicate new venture and value growth creation outcomes of VCs in regional economies?

·         How can the Feser Technological Affinities model and regional technological clusters assist the innovation economics process?

·         How do regions attract serial entrepreneurs to locate in their region?

Suggested Reading :

Andrew Zacharakis, Laurel Smith-Doerr, Effects of Venture Capital Syndication Networks on Entrepreneurial Success, Jennifer M. Walske, Electronic copy available at: http://ssrn.com/abstract=1060081

Edward Feser, Andrew Isserman, Clusters and rural economies in economic and geographic space, University of Illinois 27 November 2005 .

Andres Almazan, Adolfo de Motta, Sheridan Titman, Vahap Uysal, Work in progress, Financial Structure, Liquidity, and Firm Locations, October 2006

Yael Hochberg, Alexander Ljungqvist, and Yang Lu, Whom You Know Matters: Venture Capital Networks and Investment Performance.

Jari Kolehmainen, Territorial Agglomeration as a Local Innovation Environment: The Case of a Digital Media Agglomeration in Tampere , Finland , MIT-IPC-LIS-03-002.

Edward Feser, Benchmark Value Chain Industry Clusters for Applied Regional Research, Department of Urban and Regional Planning & Regional Economics Applications Laboratory (REAL), University of Illinois at Urbana-Champaign, October 2005.

Issue 4:

What are competitive conflicts in capital markets and technology transfer that retard innovation economic development?

Key questions:

·         If VCs invest, will that drive away other investors in a new venture?

·         Are financial interests of VCs different from regional angels?

·         What are the conflicts over control of exit outcomes between VCs and new ventures that affect innovation economic development?

·         How does VC capital syndication affect economic growth?

·         How can local sources of capital syndicate local deals with outside capital?

Suggested Reading :

Vladimir Atanasov, Vladimir Ivanov, Katherine Litvak, Venture Capitalists and the Expropriation of Entrepreneurs, May 2006.

Ronit Yitshaki, Confidence in Cooperative Relations Between Entrepreneurs and VCs: The Role of Social and Formal Control Mechanisms, 2007. Electronic copy available at: http://ssrn.com/abstract=1059921

Simona Fabrizi, Steffen Lippert, Pehr-Johan Norbock, Lars Persson, Venture Capitalists and the Innovation Process, August 2006.

Per-Johan Norbock and Lars Persson, The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists, IFN Working Paper No. 626, 2004 Research Institute of Industrial Economics, 2007.

Richard John, Angels Versus Venture Capitalists: The Effect of Value-adding Abilities, Fairness,Trust and the Legal System, Fairchild.Institution: School of Management, University of Bath , December 2007.

Na Daim, Douglas Cumming, Local Bias in Venture Capital Investments, presentation at the  Financial Management Association, 2007.

Issue 5:

If the goal of innovation economic development is the continued viability of new ventures, what types of exit events are needed, and what types of securities should be issued to achieve that goal?

Key questions:

• What capital market mechanisms are required in the front end of the innovation investment process to attract corporate and institutional capital to regional new ventures?  

• What forms of securities are required to promote long-term viability of new ventures?

• What new laws. if any, are needed to protect the financial interests of entrepreneurs who create new ventures?

• What new laws. if any, are needed on corporate governance to protect the interests common stock holders?

• What changes needed in the 1933 Securities Act regarding Reg D 506 to make the issuance of private securities more transparent and liquid?

Suggested Reading :

Darian M. Ibrahim, The (Not So) Puzzling Behavior of Angel Investors, Arizona Legal Studies Discussion Paper No. 07- 16 February 2008 .

Marianna Makri, Marc Junkunc, Jonathan T. Eckhardt, Technological Diversification, Cumulativeness and Venture Capital Exit: M&A Versus IPO, 2007, available online at http://ssrn.com/abstract=1059541

Carsten Bienz and Julia Hirsch, The Dynamics of Venture Capital Contracts, No. 2006/11 Center For Financial Studies, 2006. available online at http://ssrn.com/abstract=929491

Warren Boeker, Ph.D., Robert E Wiltbank, Ph.D., Angel Performance Project, Ewing  Marion Kauffman Foundation Angel Capital Education foundation, 2007.

Brian Broughman and Jesse Fried, Deviations from Contractual Priority in the Sale of VC-Backed Firms, March 2007.

Ed Vos, Andy Jia, Yuh Yeh, Sara Carter, Stephen Tagg, The Happy Story of Small Business Financing, forthcoming Journal of Banking and Finance, 2008.