U.S. Strategy for Innovation - “Out Innovate With Everyone”

The National Advisory Council on Innovation and Entrepreneurship (NACIE) issued its recommendations to Secretary Gina Raimondo of the U.S. Department of Commerce this past February. From its start in 2009, NACIE has “recommended policies that increase capital access and deployment, accelerate research and development at early and growth-stage companies, and better align science, technology, engineering, and math (STEM) talent demand and development.” [1] I’ve read the report, and I want to share some details that I find promising for underrepresented founders and those who support them.

First, the Council recognized four principles that were foundational to their recommendations.

Straight from the report, these are:

• “It is crucial for our economy and national security that we continue generating new companies that leverage cutting-edge science and engineering,
• Access to capital, mentorship, new technologies, intellectual property protection, and other resources is critical,
• Disadvantaged communities, both urban and rural, will benefit from increasing entrepreneurship, [and]
• Entrepreneurship is a skill that can be developed.” [2]

The take-home message is for the U.S. to continue as a global leader of innovation, we must “out-innovate with everyone,” as noted by Michael Crow during the NACIE meeting where the recommendations were made public. [3]

The Council found ample evidence for three critical areas to address in American entrepreneurship. These three pillars are:

1. Growing the industries of the future,
2. Accessing capital, and
3. Developing entrepreneurial talent. [4]

Each pillar is further based on council findings on the barriers to and problems within our existing innovation ecosystem. For example, our ability to grow the industries of the future is hampered by the lack of common portals for entrepreneurial information, resources, and mentorship, the decrease in federal R&D support over the decades since 1964, the inherent challenges of moving university research into the marketplace, and the inability for the US to capture the full value of our innovations because we rely on offshore manufacturing.

The three pillars encompass the ten NACIE recommendations to strengthen U.S. entrepreneurship. [5] Under Pillar 1, Growing the Industries of the Future, we have these five items:

1. “Establish a National Innovation Council . . . to champion innovation and entrepreneurship across the country and coordinate relevant federal government activities.” The Council recognized many federal agencies were engaged in entrepreneur support efforts, and new programs had been authorized by Congressional legislation, including the CHIPS and Science Act. The NIC will coordinate federal efforts, launch and direct the National Innovation Accelerator Network [see recommendation 3 below], partner with private equity and VC industries to improve equitable capital deployment, and support metrics, best practices and standards for measuring and reporting outcomes. During the February meeting, EDA Secretary Gina Raimondo took the lead for this recommendation to “keep innovation high on the agenda.” [6]
2. “. . . Substantially increase federal R&D investment in critical technologies to enable US leadership in the growth industries of the future.” This includes such actions as increasing federal R&D funding to 2% of US GDP by 2030 and fully fund the EDA Tech Hubs program. This item clearly falls within the legislative branch’s mandate.
3. “Launch a National Innovation Accelerator Network (NIAN) – a virtual ‘network of networks’ . . . to empower inclusive entrepreneurship across all aspects of society at scale.” This was another priority item for Secretary Raimondo, and the Council agreed that connecting the proposers for the NSF Engines, EDA Tech Hubs, and Build Back Better programs could produce one or two virtual networks before the end of 2024. [7] The NIAN hubs will coordinate entrepreneurial activities for startups, state and federal agencies and provide open access for small companies to leading-edge resources like compute power and data to facilitate converting disruptive ideas into commercial products. NIAN nodes will also help “implement the USPTO’s Council for Inclusive Innovation (CI2)’s National Inclusive Innovation Strategy. . .” [8] (stay tuned for another article on this disruptive plan!)
4. “Provide intellectual property (IP) incentives for federally funded research and development; develop policies and incentives for robust dissemination and commercialization of federally funded innovations; and promote broader domestic manufacturing of federally funded innovation.” [9] This recommendation seeks to increase the conversion of federally funded R&D into commercial inventions, something our universities often struggle to achieve. Critical to streamlining this coversion are “the resources . . . and efficient, effective processes for filing, protecting, promoting, and commercializing intellectual property.”
5. “Ensure they [(innovators, entrepreneurs, and funders)] have adequate intellectual property and cyber security education and resources to protect their ideas and businesses . . . “ Effective IP protection is a requirement to ensure revenue creation and capture from novel ideas. Cybersecurity is a critical component of such protection. The threat of foreign state actors to the US innovation economy is real, and this recommendation is intended to address that risk. Fortunately, the USPTO is already engaged in the actions for this recommendation through it’s expanding network of libraries and other community partners.

Capital access (Pillar 2) is significant in the Council’s thinking. Many members expressed their concern about how the current entrepreneurial funding ecosystem is concentrated in a few industries and is virtually inaccessible to many US entrepreneurs (including women and people of color). All three of the recommendations for this pillar seek to develop new approaches and mechanisms to diversify capital access within this ecosystem. They include:

• “Expand the pipeline for growth capital to entrepreneurs through the creation of novel federal programs to support more entrepreneurs everywhere . . .” [10] This recommendation builds on the highly successful federal SBIR/STTR programs (particularly those of the DOD and Air Force) to expand them to support entrepreneurs in industry sectors outside of the traditional VC markets. It also includes incentives to build new VC offerings and alternative funding to serve more companies, especially those founded by persons from historically underserved communities. The capital members of the Council were particularly enthusiastic about this recommendation throughout the meeting.
• “Increase funding and provide opportunities . . . so that there are more VC investors, of variety of demographic backgrounds and expertise, in more places across the country.” [11] This recommendation leans into federal incentives to expand the pipeline of venture and growth capital investors to diversify the investor base. This includes allowing federal funds to directly invest in venture funds, creating training programs for new fund managers, and incentivizing a venture capital fellowship program. However, organization science experts have found that changing investor demographics to increase funding to underrepresented founders has the potential to impact future funding rounds. [12] This point needs more work to incorporate that perspective.
• “Provide annual tax credits and incentives to companies and individuals that invest in R&D, in startups at the Seed or A round of financing, to women and minority-owned startups, and for protecting and licensing IP.” [13] This recommendation includes restoring first-year expensing of startup’s R&D investments (an incentive with 70 years of historical success changed in the 2017 Tax Cuts and Jobs Act) and other incentives to increase funding to women or minority-owned startups.

The final pillar, Developing Entrepreneurial Talent, has just one recommendation.

• “Comprehensively support new high-potential entrepreneurs by supplying mentors, funding for support services and assistance with attracting and developing key talent, all designed to increase the number and impact of new startup companies in the U.S.” [14]

In addition to expanding the resources and supports for entrepreneurs, this pillar leans heavily into using federal workforce funding to develop skills-based and inclusive talent development and mobility strategies and invest in infrastructure to support US workers and entrepreneurs with childcare and access to networks, space, and equipment for training staff and operating new businesses. The EDA plans to use the NIST National Semiconductor Technology Center as their Workforce Development Center of Excellence pilot project. [15]

What’s next for the Council after issuing these recommendations? They will remain active through May to sort and prioritize the recommendations to determine what should be done first regarding bandwidth, existing programs, and resources. During the meeting, Co-chair Steve Case pointed out the next job is figuring out how to turn each recommendation into “shovel-ready” projects to sustain the Council’s momentum. [16] The list of quick wins (supported by Secretary Raimondo) includes forming the National Innovation Council and working to launch a couple of NIAN nodes this year. Also achievable could be engaging a couple of innovation-focused governors as champions to incentivize multistate collaborations.

This isn’t grand challenge stuff (like the Cancer Moonshot or climate action); however, NACIE’s recommendations are intended to build the fundamental infrastructure to enable grand challenge successes nationally. NACIE members are the ambassadors for this work. They’ll have slide decks, talking points, and social media assets created by the EDA to help them. My call to action is for you to engage with and help them share this message with your local, state, and regional communities, officials, and legislators. [17] Working together, we can build an inclusive national innovation platform that better serves entrepreneurs from all communities and solves the many challenges we face.

References

[1] NACIE, “Competitiveness Through Entrepreneurship: A Strategy for U.S. Innovation” (Report and Recommendations to the Secretary of Commerce). February 2024. Accessed February 23, 2024. https://www.eda.gov/sites/default/files/2024-02/NACIE_Competitiveness_Through_Entrepreneurship.pdf

[2] “Competitiveness Through Entrepreneurship,” p. 3.

[3] NACIE 4.0: Fifth Meeting, Washington, DC, February 8, 2024. YouTube recording accessed March 29, 2024, https://youtube.com/live/7sr7k50umhY, time point 2:25.

[4] “Competitiveness Through Entrepreneurship,” p. 3.

[5] “Competitiveness Through Entrepreneurship”, p. 7-22.

[6] NACIE 4.0: Fifth Meeting, time point 2:24.

[7] NACIE 4.0: Fifth Meeting, time point 2:30.

[8] “Competitiveness Through Entrepreneurship,” p. 9.

[9] “Competitiveness Through Entrepreneurship,” p. 10.

[10] “Competitiveness Through Entrepreneurship,” p. 14.

[11] “Competitiveness Through Entrepreneurship,” p. 15.

[12] Isabelle Solal and Kaisa Snellman, “For Female Founders, Fundraising Only From Female VCs Comes at a Cost.” Harvard Business Review, February 1, 2023. Accessed March 18, 2024.? https://hbr.org/2023/02/for-female-founders-only-fundraising-from-female-vcs-comes-at-a-cost

[13] “Competitiveness Through Entrepreneurship,” p. 16.

[14] “Competitiveness Through Entrepreneurship,” p. 19.

[15] You can read the November 2023 workforce progress report here: https://www.nist.gov/system/files/documents/2023/11/03/Building-the-US-Semiconductor-Workforce.pdf

[16] NACIE 4.0: Fifth Meeting, time point ~2:00.

[17] NACIE 4.0 members, accessed March 29, 2024. https://www.eda.gov/strategic-initiatives/national-advisory-council-on-innovation-and-entrepreneurship/board/2022-24