If state lawmakers approve two new economic development initiatives, North Carolina would improve its ability to boost employment the old-fashioned way: by home-growing jobs through entrepreneurship.
The first, Gov. Pat McCrory’s Innovation-to-Jobs plan, would help commercialize university research and increase the supply of funding and talent for innovative start-up companies. The second, the N.C. Providing Access to Capital for Entrepreneurs and Small Business Act (NC PACES), is a crowdfunding bill designed to help start-ups and small businesses raise much-needed early stage capital.
North Carolina, especially the Research Triangle area, is extraordinarily successful at bringing in federal research dollars. The Council for Entrepreneurial Development reviewed funding for basic research between 2009 and 2012 and found that the state has few peers for dollars committed at the “top of the funnel” to drive innovation.
Our universities have also been successful in turning cutting-edge research into spin-out businesses and securing revenue-generating licensing agreements. According to data from the Association of University Technology Managers, North Carolina universities created 43 spin-outs in 2013 – an increase of 64 percent over the previous two years – and completed 292 licensing deals, an increase of 20 percent. That track record compares favorably with universities in California and Massachusetts, which benefit from proximity to a higher concentration of risk-taking venture capital and long-established communities for entrepreneurs.
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The governor’s initiative takes these strengths into account and seeks to add programs that will accelerate the universities’ success. The highlight of his plan is a new revolving fund to match private investment in spin-outs, but he also has prioritized collaboration among researchers, dollars to test concepts and match federal commercialization grants, assistance pairing researchers with proven entrepreneurs and promotion of the state’s university-linked success stories, such as SAS and Quintiles. These additions surely would supercharge what is already a well-oiled machine.
The crowdfunding bill would make it easier for investors to take an equity stake in or provide debt financing to an early-stage company or small business. Those investors can be high-net-worth individuals or any resident of North Carolina looking to gain a return by supporting an entrepreneurial enterprise.
Safeguards built into the NC PACES Act include disclosure requirements, reporting requirements and registration requirements. It also would include an investment limit that, depending on the final legislation, could range from $2,000 to $5,000 per offering for non-accredited investors, designed to limit their potential losses.
The opportunity created by this act is different from existing crowdfunding programs like Kickstarter or Indiegogo, which let companies raise money online but do not give investors the opportunity to buy part of the company itself. In states that have adopted similar laws, the main beneficiaries have been small businesses and start-ups that lack sufficient capital to qualify for conventional commercial loans.
While equity crowdfunding programs are still in their infancy and may hit some bumps, they are worth considering as a tool to support job creation. Funding is the life blood of start-ups, and North Carolina does not have a density of venture capital or private equity investors. If we are serious about building a strong, successful community for entrepreneurship, we must encourage initiatives like the NC ACES Act that can lead to new sources of capital.
Even if these bills are implemented, the immediate results may not be as dramatic as a ribbon-cutting or a global corporation’s relocation. Entrepreneurship is hard work, and it can take years to coax a concept into a sustainable enterprise. Job growth, when it comes, initially will be gradual. And, yes, there will be failures, as not every good idea turns into a successful business. When you swing for the fences, sometimes you strike out.
But backing entrepreneurship is a smart bet for North Carolina’s jobs strategy, especially with such a strong hand to play through its academic research programs. Aligning public policy with private-sector leadership can pay off in more capital and talent flowing to the state, ultimately leading to a stronger, more resilient economy.
North Carolina certainly has been noticed as a state “on the rise” for leadership in entrepreneurship and job growth. But we must do all we can to encourage and nurture that growth – and these proposals would be an intelligent, helpful step in the right direction.
Joan Siefert Rose is president of North Carolina’s Council for Entrepreneurial Development.