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TECHNOLOGY
City, state still in infancy, say technology leaders
By Sarah G. McC. Moise
Staff Writer
The technology sector made major headlines in 2004. Not only has Blackbaud Inc. become Charleston’s first homegrown company to make an initial public offering, but the city now has more than 44 companies and 2,080 jobs in the technology sector. At the state level, South Carolina showed a commitment to technology development with the passage of new laws and its enthusiastic support of InnoVenture, the first statewide venture capital conference in 10 years.
Although both city and state are more aware of the value of a diverse economy and the power of knowledge-based industry, technology leaders predict the need for more than “baby steps” to catch up and emerge as a leader in the race to attract high tech businesses.
One of the region’s major efforts is ThinkTEC, the Charleston Metro Chamber of Commerce’s initiative to grow the region’s knowledge-based industry. One of ThinkTEC’s main projects last fall was the Homeland Security Conference, which focused on port security and SPAWAR security technology.
Even though ThinkTEC works to promote technological growth and the innovation economy, it still has many hurdles to cross, says Ken Roozen, director of the Medical University of South Carolina’s Foundation for Research and Development and the past executive director of ThinkTEC.
“At the end of the day, neither SPAWAR nor the port is all that important to biomedical start-ups,” says Roozen.
Digital Corridor continues to show results
While the CRDA continues to recruit larger industries to the area, the Lowcountry lacks government and private sector interest in small business development—potentially an area of greater job creation. What’s most important, Roozen added, is good access to investment capital, laboratory-based incubators and a set of early development incentives focused on small companies.
“The government and private sector put over a million dollars into the Charleston Regional Development Alliance, whose job it is to recruit companies to area. We need to continue to do that, but everyone knows the greatest job creation is in small business,” says Roozen. “The most successful organization in the area is the Digital Corridor, which works one-on-one with companies that may only have four or five employees, but whose average per capita wage is just over $78,000, twice the average annual wages in South Carolina.”
In 2004 the Charleston Digital Corridor accomplished four major goals: to create a “talent portal” for technology jobs and a “touchdown space” for young companies, make a transformation to a membership organization, and form a corridor foundation and fund.
“People can bring their clients in to the touchdown space if their own office is too small, and it not only gives a good impression to their clients, but shows the city’s support for its entrepreneurs,” says Ernest Andrade, director of the Charleston Digital Corridor. “People are paying attention to our wage survey and noticing that we are most attentive to the needs of our existing business community.”
InnoVenture
South Carolina is facing the same problem as its municipalities in developing infrastructure for a knowledge-based industry. “The venture capitalists who attended InnoVenture 2004 gave us an ‘A-plus’ for the conference in terms of delivery, management and creation and attendance,” says Brenda Laakso, manager for small business and entrepreneurship for the Greenville Chamber of Commerce and executive director of InnoVenture. “But they said the companies that were presenting weren’t yet venture-ready. We need this region to develop an infrastructure for companies to move from a start-up to a mid-stage company to a venture capital-ready stage.”
Cities like Raleigh, N.C., Charlotte and Atlanta have all proven the success of organizations such as angel investor groups and incubators, which provide early stage capital and the expertise to make companies truly venture-ready.
“The three main elements venture capitalists look for are a big market opportunity, an innovative product or idea, and ‘grade-A’ management teams. The venture capitalists we interviewed in 2003 said that even if the company has the first two elements in place—a great innovation and market opportunity—venture capitalists will walk away if there isn’t a good management team,” says Laakso.
InnoVenture will reflect the feedback from the venture capitalists by including two separate halls at the 2005 conference. A presentation hall will showcase companies that could qualify for investment for venture capital or angel investment. The innovation hall will house research organizations, which includes research from the different research universities in the region as well as research labs, exhibiting the emerging technologies available for commercialization.
2005 to see S.C. cultivating research and development
Two other state initiatives, the Carolina Research Centers of Economic Excellence program and the South Carolina Health Sciences Collaborative, were created to make the Lowcountry more fertile soil for research and development. However, fertile soil does not guarantee a successful harvest.
“MUSC is already very successful at recruiting researchers and identifying technologies that have commercial potential, but the fear I have is that the next generation economic benefit will not be realized in Charleston,” says Roozen. “MUSC created around 400 jobs this year from research, but we are continuously licensing to companies out of the area. The community will get the benefits of job creation at the university, but it’s missing out on the job creation from the spin-offs.”
For instance, a company in North Carolina is developing an accurate and non-invasive blood test for the early detection of cervical cancer based on MUSC research. “Why are they in North Carolina and not Charleston? The answer is the environment for the creation of medical start-up companies is not quite as good here,” says Roozen.
“Charleston Angel Partners has made four or five investments now,” he adds, “and most are highly focused on North Carolina. That’s where you find experienced entrepreneurs, access to capital, and access to board members, facilities and personnel.”
Organizations like Charleston Angel Partners are looking for companies that will earn $30 million to $50 million in five years, not $3 to $5 million in returns, adds Andrade, which is why he developed the Charleston Digital Corridor Fund to assist start-up and young companies. “Small start-ups are coming here because their needs are not being met elsewhere,” he says.
Although Andrade originally expected the Charleston financial community to contribute to the fund, lack of experience in technology investment from local banking institutions left him dependent on corporate donations.
“Because of lack of participation, our ability to deploy this necessary financial tool to grow our knowledge-based community is going to come online slower than expected,” says Andrade. “We have had blocks of monies provided by the private sector—Universal Solutions, CSS and the Daniel Island Co. Those monies have been invested and we expect to collateralize those loans in 2005. We are at 80 percent of our funding objectives for 2005, but I expected to be well under way in 2004.”
FastTrac NewVenture, an entrepreneurial training program offered by the Kauffman Foundation through ThinkTEC, is one option that is beginning to gain ground. “We graduated two classes of about a dozen people each in 2004, and we’re gearing up for a bigger year next year,” says Pennie Bingham, director of ThinkTEC, adding that one of the chamber’s goals is to increase funding for entrepreneurial programming in 2005. “We’ve been asked by the technology community to replicate FastTrac statewide.”
Roozen says organizations like the Small Business Development Centers and the Service Corps of Retired Executives also must change their focus. “They need to provide business expertise to technically educated and professional people, such as university faculty, who don’t have the training and experience to do the business side of product development,” he says.
The South Carolina House of Representatives has proposed the 2005 Job Creations Act, part of which will encourage investments in small businesses by offering tax credits to anyone who makes an investment of a specific minimum size in a small enterprise. Similar plans have already been created in some other states, including North Carolina.
“We’re still making baby steps, but given the circumstances of the country and state, it’s unrealistic to expect quantum leaps. To build anything sustainable, we have to do things right—in small steps,” says John Clarkin, director of the Tate Center for Entrepreneurship at the College of Charleston.
He sees promise in the business community’s growing buzz about Charleston’s technology industry. “In looking back, people weren’t talking about this kind of stuff 18 or 24 months ago. They were talking about tourism,” says Clarkin.
“I sense more so now than two years ago an improved environment for collaborative efforts,” says Clarkin. “The Tate Center collaborated with ThinkTEC for many of its initiatives this year. On a statewide basis, InnoVenture included Charleston and other areas rather than focusing on the Upstate. The South Carolina Investors Network brings together many of same players, and its members make a conscious effort to meet everywhere.”
Sarah Moïse covers technology for the Business Journal. E-mail her at smoise@crbj.com.
SIDEBAR: AREA TECHNOLOGY LEADERS GIVE THEIR TAKES ON ACCOMPLISHMENTS, CHALLENGES
Pennie Bingham, director of ThinkTEC
Biggest accomplishment of 2004: In concert with economic development goals of concentrating on industry clusters, ThinkTEC sponsored a conference on Homeland Security technologies that brought local regional and national attention to Charleston as a model for this type of industry growth.
Biggest challenges for 2005: Securing financial support so ThinkTEC can deliver programs required by knowledge-based businesses to accelerate their economic growth.
John Warner, chairman of InnoVenture
Biggest accomplishment of 2004: When we went to talk to venture capitalists in the Southeast before InnoVenture, we found that they didn’t have a bad image of South Carolina—they had no image at all. The conference raised awareness of South Carolina for Southeastern venture capitalists and started building relationships.
Biggest challenges for 2005: We don’t have enough venture quality companies in this state. We need to build the infrastructure in South Carolina to educate entrepreneurs on what it takes to interest venture capitalists, such as angel networks and programs like FastTrac.
Ernest Andrade, director of the Charleston Digital Corridor
Biggest accomplishment of 2004: In 2004, the Digital Corridor moved beyond support and advocacy for Charleston’s growing knowledge-based community to implementing innovative value-added programming that directly benefits our entrepreneurs.
Biggest challenges for 2005: The corridor’s development of a revolving “entrepreneur-in-residence” in 2005, coupled with the passage of key legislation benefiting small business in South Carolina, should bode well for the expansion of Charleston’s knowledge-based industry.
Dr. John Clarkin, assistant professor of entrepreneurial studies and director of the Tate Center for Entrepreneurship
Biggest accomplishment of 2004: By bringing organizations like Charleston Angel Partners, the Entrepreneurial Women Series, FastTrac, Students in Free Enterprise and the National Foundation for Teaching Entrepreneurship to the college, we’ve found ways to link students with the business community and bring the classroom to life.
Biggest challenges for 2005: One of the highest priorities of the College of Charleston is to apply the principles of entrepreneurship not only to business classes, but to science and math and art. And I want to make the Tate Center even more relevant to the entrepreneurial community by offering the venue, talent and resources to help meet the challenges of their businesses.
Dr. Kenneth Roozen, executive director for the Medical University of South Carolina’s Foundation for Research Development
Biggest accomplishment of 2004: We completed our largest license agreement ever with a major pharmaceutical company and several smaller agreements with other significant companies. MUSC’s inventions are now being acquired routinely by companies with a track record in bringing products to market as well as providing the technology and intellectual property foundation for new companies.
Biggest challenges for 2005: We will endeavor to accelerate our licensing activities and work more closely with those MUSC spin-off companies that have traction. Importantly, we will also continue to work with others in the community and state to enhance the availability of seed capital, create a new business incubator with lab space, and build on recent state legislation to assist high tech start-up companies. It is still a challenge to license our technology to existing companies in South Carolina and to retain the companies started here.
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