I just began this week a new MOOC on Coursera, named “Beyond Silicon Valley: Growing Entrepreneurship in Transitioning Economies” by Professor Michael Goldberg from the Case Western Reserve University.
The course starts with the case of Cleveland, and how the American city did reboot its economy by fostering an innovation ecosystem. Here are my notes on the first lesson.
Beyond Silicon Valley: Cleveland as a playground for innovation ecosystem building
A hundred years ago, Cleveland was one of the most important cities in the US, and went up to being the 5th largest city in the US (1910-1920) very confident, with a rising industrial production. Steel makers, chemical plants, were all there, and innovative. John D Rockefeller did begin his adventure as an entrepreneur in Cleveland.
By the 1950s Cleveland began to lose it, maybe for being too focused on heavy industry. Progressively, big companies failed, and no new jobs were provided. “We were used to have big businesses, we forgot to be innovative”, says Dorothy Baunach, founding president of Nortech, which advocated for a new path. In, Cleveland was ranked 61th by a ranking of Entrepreneur Magazine.
Upon reconstruction, discussion tried to figure out what was missing, capital, or investable ideas, a debate which spans all nascent tech ecosystems. Jumpstart was created as an agency to drive this change, with Ray Leach, a serial entrepreneur from Cleveland, offered the position of CEO.
Bruce Katz, author of the Metropolitan Revolution and working at the Brooking Institution, stresses the role of the government in this renewal: “it provides the kind of investment for technology, in places perceived as not so good in the new economy. There’s a market failure here”.
Role of government in tech ecosystems: the case of Ohio Third Frontier program
What kind of initiatives should the government support? Programs for entrepreneurship can sometimes be too scattered and disorganised. Entrepreneur Charu Ramanathan, founder of CardioInsight, explains what kind of support she got from the Cleveland government. “About 10% of our funding come from the state”, she says.
The state of Ohio created in 2002 a program called The Third Frontier, to focus resources on the strengths of the state’s industries, with more coordination. $2.3bn credits were approved by voters, “without it, we would have to move out of Cleveland”, says Charu.
Two key things are done by the government to ensure some results.
- First, an outside match requirement, so that the private funding is always associated with the public one. “Those matching dollars can come in many different ways. It acts as a second screening”, says an official from the Third Frontier.
- Then, a third party independent evaluation to better allocate resources. This party would look at the proposal and assess it.
What metrics are used for government action? A common one is “jobs created”, but part of the problem is that investment often increase productivity of a person, a more qualitative value could be the revenue generated per individual. Follow-on capital is another possible KPIs which assess of an initial success.
In any case, the government should not “act as a king makers, and look at the entrepreneur’s needs, not at his project itself”, adds a Cleveland investor. In other countries, such as Vietnam, the role can be different, as the scene is smaller. Moez Dalloua from Tunisia’s FSVC, adds that “with some schemes, the government puts as much as 96% of the costs of the startups, so the entrepreneur, adding only 4%, has too low risk”.
The scale of the Third Frontier also makes it significant, compared to other similar government programs. Funding must be big to have an impact. It must also look to fund diverse programs, at different stages of the entrepreneurial journey.
We’ll be publishing our notes for each week of this MOOC, where you’re welcome to join the conversation!