Reprint from Austin Business Journal

This was a response to an article Reprint from Austin Business Journal written by Michael Quinn Sullivan: A recent proposal to cut the state of Texas Emerging Technology Fund (ETF) back to nothing sends a terrible message to innovators and entrepreneurs statewide and, frankly, out-of-staters who might want to take advantages of Texas’

otherwise rich entrepreneurial environment to come here to create the high paying, tech jobs that fuel a middle-class lifestyle. If we want to show the world that this state is interested in becoming a technology powerhouse, we must get serious about becoming an incubator for innovation, and while the ETF is only one way to do that, it is certainly a significant symbol of what the people of this state are willing to do to create and grow that high tech future.

Of course, when most of us think about high tech and Texas we think of Austin. While it might be easy to become infatuated with the notion that Austin drives the world of high tech, and it certainly has some of that go-go, venture money, gloss that reeks of Sunnyvale, Santa Cruz, and Silicon Valley, the rest of the state is for the most part far, far behind in creating and holding high technology companies.

The high tech that truly drives generally high paying manufacturing jobs is those that can be found on the 123 Beltway around Boston and the Research Triangle in Raleigh Durham. These are the kinds of technology growth that is not based on cool computer gadgets and software. These areas are based on far wider developments from the military, medical, materials, next-generation batteries,

to microfluidics. These are technologies that build American jobs for the middle class, not export dollars and jobs to the Far East, these are the jobs that Texans need to secure the future.

To be fair, the ETF has been a problematic program and a political football.  Besides politics, it has several flaws that make it unwieldy. The process takes forever, the funds do not come in when needed most, and the ownership percentage the state takes is onerous.

As the founder of a Texas company that specializes in new product development and was recently recognized by the Wall Street Journal for technological innovation, I have never applied for or received ETF funds nor do I ever intend to apply for the funding. I do, however, think the program has the potential to lead to great things.

Rather than cut ETF funding, let’s try improving and expand the program to help Texans bring innovative ideas to market.

First, many of the US governmental agencies like the DOD, DOE, NIH and other solicit innovation from small business across the country through SBIR (Small Business Innovation Research) grants. These requests ask small, high tech business to submit ideas answering departmental needs. I would suggest that much of the success of the high tech companies built around Beltway 127 in Boston was due to these SBIRs.

Texans should do two things to increase participation in these and other Federal Government programs. First, we must ask that our congressional delegation require these agencies to play fairly when granting the awards. A recent analysis suggests that Texans receive 2% of the DoD awards, while we comprise about 8% of the US population,

while Massachusetts with 2% of the population receives 10% of the awards. California with about 12% of the population receives 35% of the awards. This preference given to east and west coast firms can only be stopped by our elected officials.

Second, some states such as Montana and Louisiana have, in the past, given small $5000 grants to small business to help offset the cost of writing and submitting a proposal. This would be a great way to encourage small firms to go after Small Business Innovation Research funding (SBIR’s).

Next, Seed funding is critical for the building of proof of concept prototypes. It is much easier to get VC or angel involvement if you have a working device, with most of the technical risks worked out. The local RCICs (Regional Centers for Commercialization and Innovation), should have some spending authority, say up to $250K  for promising technology to get over the initial technical hurdles.

Third, these same outfits should be able to provide funding for startups that have moved past proof of concept but can’t yet attract VC interest. Allow these programs to be administered by local RCICs and let them provide up to $500K to get the project to VC ready status.

Finally, when the ventures are ready for bigger input, of course, let the State ETF committee provide approval. Regional RCIC’s should administer smaller investment, the State Committee should provide the big dollars as necessary.

To make the program viable, it should also be run by real entrepreneurs who know what it means to meet a payroll. It must be kept free of VC influence, and beyond political reach. The ETF must be more nimble and respond more quickly, particularly in early stage development. It should also help smaller firms go after SBIR’s, and make “seed fund” loans available to encourage innovation.

I find it deeply ironic that Michael Quinn Sullivan, the head of Texans for Fiscal Responsibility, who is calling for deep funding cuts to the ETF, has never started a business that brought a product to market. Yet, he claims a doctrinaire position that the market is the only place for this sort of activity.

I can tell Mr. Sullivan, from personal and painful experience, that the marketplace has no ability to help small innovators bring early stage products to market. There are no funds for innovative ideas, and venture capitalists have no tolerance for risk.

Consider what this state would be like today if the Super Conducting Super Collider had actually been built near Waxahachie and Ennis. The Dallas/Ft. The worth area might now be the center of the world of the pinnacle science and particle physics, rather than CERN in the South of France.

Cutting ETF funding would be another such shortsighted blunder. If Texas drastically reduces funding to the ETF, it sends a terrible message to the brilliant minds and daring entrepreneurs in our great state – that Texas is closed to innovation.

We need to open our doors wide, with the kind of financing and support that says “Welcome — we want your innovation AND your business.”


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