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Connect raises funds to boost San Diego’s ‘innovation economy’

23 August 2009 No Comment

By Helen Kaiao Chang

See original story on SDNN

Thursday, August 6, 2009

Connect — a non-profit coalition for scientists, entrepreneurs and investors — has announced new initiatives to support the growth of early-stage companies in San Diego.

The five initiatives aim to enhance San Diego’s position as an “innovation economy,” at a time when the region has been gutted by funding and other obstacles.

“The input for these five initiatives (is) to start to think about the future of innovation for San Diego,” said Duane Roth, Connect’s chief operating officer. “What things can we put forward that are going to drive us for the next 25 years?”

The initiatives will require more than $10 million dollars, which the organization has already begun to raise from private and public sources. Connect, which itself has a $3 million budget, has also hired a new full-time vice president to implement the programs.

The five initiatives are:

– Hiring a lobbyist in Washington

– Starting a seed loan fund in San Diego

– Creating an early-stage funding program

– Supporting niche, high-tech industries

– Expanding scientific research

Because Connect focuses on supporting start-up and early-stage companies, its work will benefit other trade organizations which the new companies join. The groups include: Biocom, CommNexxus, San Diego Software Industry Council, CleanTech San Diego and the San Diego Regional Chamber of Commerce.

Washington lobbyist

For Connect, one key initiative is to hire a lobbyist in Washington D.C., representing the interests of start-up companies in San Diego, particularly in the life science and high tech fields.

Connect’s leaders are now actively doing fundraising for this position, which will cost from $250,000 to $500,000, said Roth. This includes salary, office space and travel expenses. The candidate is likely to already reside in Washington, but is familiar with the needs of San Diego’s companies. Connect expects to fill this position by year end.

The key issues the lobbyist will cover: regulation, capital formation, trade, anti-trust laws, work visas for foreign students, and research money.

“Having a full time advocate who represents what Connect represents – the early-stage start up, the tech transfer from research institutions — in my mind is the most important thing to do,” said Roth.

Earlier this year, Roth and other business leaders from San Diego were flying to Washington frequently to defeat a proposed bill that would water down the patent law and hurt inventors here. They succeeded. Roth and his delegation were also visiting Washington to figure how best to tap federal stimulus funds for San Diego.

The Washington advocate will represent San Diego’s interests to lawmakers. “We can have great ideas, but if we’re not communicating with the people who set the rules and fund the programs,” said Roth. “That’s bad.”

Seed loan fund

Connect also plans to start a $10 million seed loan fund for start-up companies in San Diego. This addresses a critical phase, called the “Valley of Death,” where a scientist with a significant discovery cannot attract enough funds needed to build a company around it and turn it into a commercial product.

Currently, researchers rely on government grants, such as the Small Business Investment Research grant. They also have traditionally turned to venture capitalists. But VC funding has dropped drastically in San Diego, leaving a huge gap.

For the first quarter of 2009, VC funding in San Diego dropped by 80 percent compared to the same quarter last year – hitting a 12-year low — according to a PricewaterhouseCoopers/National Venture Capital Association MoneyTree quarterly report. Initial public offerings have also dropped, falling by 89 percent in 2008 compared to 2007, according to Thomson Reuters.

The Regional Intellectual Property and Seed Fund Loan Program would help local researchers protect their discoveries through patents, until more funding sources can step in to turn them into companies.

On a national level, Connect plans to spearhead a program for the federal government to fill this gap, by investing in programs alongside entrepreneurs. The country needs to “change the model” for seeding start-ups, said Roth.

Based on VC investment records, Roth estimated this current funding gap to be between $5 billion and $10 billion nationally. A national system would help seed companies in all states.

“If we don’t solve (the problem), all this federal funding for research is going to sit there and not be advanced to the point where it can become commercial products and help solve problems,” said Roth. “It’s a big bottleneck.”

Niche industries

Connect also plans to promote high-growth niche industries. These include: wireless health, contract services, sports innovation, cyber security and robotics.

For one, contract companies which cater to life science and high tech companies are a growth area in the region. In previous decades, businesses needed to spend large amounts of money on infrastructure – buildings, equipment, laboratories – to do research work.

But today, the life science and high tech industries are moving toward subcontracting models, where smaller companies are hired to do specific types of research. By promoting this industry, more companies can be formed in the region to perform subcontracting work, said Roth.

“We’re trying our best to efficient with the use of capital, and to figure out how to get critical information without building buildings,” he said.

Scientific research

Connect has another initiative to boost scientific research in the region. The goal is to recruit more scientific researchers to the area, as a well set up more research institutes to support scientific development.

Academic research is one of San Diego’s strengths compared to other regions in the world, said Roth. San Diego currently has nearly 50 research institutes, five of which were formed in the last two years.

Centers such as the Salk Institute, Scripps Institution of Oceanography and Spawar do work that has had economic spin-offs for the region. Their research over the last 50 years, “put us in a very competitive market for landing more and more (government grants),” he said.

“The future of innovation is heavily dependent on research done in government-funded laboratories,” said Roth. “From there come the ideas.”

Setting up research institutions and recruiting top scientists has direct and indirect benefits to the region. Leading scientists bring laboratories and federal grant money, which contribute to employment and the local economy.

The research they do generates ideas, which can be turned into businesses, which further enrich the economy.

Core competency

Connect hired a new executive vice president in August to implement many of these initiatives. Moya Gollaher, executive vice president, is responsible for fundraising and program development. She previously worked with a venture capital company, where she did marketing and business development.

One of her tasks will be raising funds from private and public sources — businesses, foundations, institutions, industry groups and and government.

The new initiatives follow months of uncertainty for Connect, which operates on a $3 million budget, funded by businesses, research institutions, foundations, venture capital and industry groups.

Earlier this year, Connect and the San Diego Regional Economic Development Corporation were thinking of merging into one organization. Connect, Biocom, and CleanTech San Diego had also considered jointly hiring a Washington lobbyist.

But both ideas got scrapped. Instead, the groups decided to concentrate on core competencies for each organization. Connect’s Washington lobbyist, for example, will represent San Diego’s start-up companies across all industries, while other groups will focus on initiatives for their specific industries. Biocom will also fly out its own leaders to lobby Washington.

Connect’s work creates a pipeline for future businesses in San Diego.

“We’re in that interface between discovery and formation of first financing of a company,” said Roth. “We do it across all the disciplines… That’s the beginning of pipeline of what we do.”

Follow Helen on Twitter @HelenChang.

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