Do innovation champions attract investment?
The Consumer Technology Association (CTA), famous for its CES event in Las Vegas, created a very interesting ranking report in 2015 called the "Innovation Scorecard." The description of the Scorecard in the executive summary explains that its purpose is to "[rank] 50 states and the District of Columbia across 10 categories related to creating quality jobs, fostering startups and encouraging innovation of every kind." In its 2016 Innovation Scorecard, the CTA added more categories to its evaluation, which now covers:
- Right to work
- Welcomes new business models
- Tax friendliness
- Entrepreneurial activity
- Fast internet
- Tech workforce
- Attracts investment
- Grants STEM degrees
- Innovation-friendly sustainable policies
- Supports drones
Each state in the United States is given a score in each of the 10 categories that forms the basis for assigning each state one of the following designations: innovation champion, innovation leader, innovation adopter and modest innovator.
The latest update of the report can be found on the CTA website. In addition to its role in putting on the world's most important consumer electronics show, the CTA also plays a key role in researching US consumer markets, supporting standards development, etc. In this case, it's acting as a powerful industry advocate with state governments. These evaluations can form the basis for states to implement policies and legislation that will attract companies and talent that will stimulate the technology economy in their states. The types of jobs and economic benefits associated with the technology industry are highly attractive for any state or community seeking to boost its overall economy and quality of life.
In the 2016 Innovation Scorecard, the following states were recognized as "Technology Champions":
- District of Columbia
- North Dakota
The data published in the Scorecard provides many avenues for analysis. I took an interest in the correlation, or lack thereof, between the overall innovation ranking achieved by a state and the grade it received in the category "Attracts Investment." At first glance it would seem that states that have created the most attractive environment for innovation would be notable on the radar of investors looking to find technology investment opportunities with promising return on investment (ROI). However, this does not seem to be the case.
The table below shows the states that received a grade of B+ or better in the category of "Attracts Investment." It is quickly noted that only 3 of the 13 "Innovation Champions" fall into the top ranks of states for investment attractiveness. In addition, 3 of the companies that only achieved the level of "Technology Adopter" are in the group of top investment attractiveness. In fact, it is possible that without the strong rating in the investment category they could fall into the lowest category of "Modest Innovator."
Investment Attraction Compared to Innovation Status
The table below shows the complete set of grades for California and Massachusetts, the highest-rated states for technology investment. Certainly it is no surprise that they receive the strongest ratings for investment attractiveness. If anybody had to guess, they would come up with the same 2 states at the top. However, the only other category in which California receives a grade of B+ or better is for "Fast Internet." California receives poor marks in many areas of D and below. Massachusetts also scores well in "Fast Internet," but the rest of its grades are underwhelming. On the other hand, if the grades for the 13 "Innovation Champions" are added together, their overall grade point average (GPA) for "Investment Attractiveness" comes up just short of a "B" at 2.95. So the obvious question is clearly, "Why is there a lack of correlation between states that achieve top ratings for supporting innovation and where investors choose to place their money?" It is an obvious question, but one not necessarily easy to answer.
Innovation Scorecard for Top-Rated States for Investment
Right to work
Welcomes new business models
Grants STEM degrees
Innovation-friendly sustainable policies
Some possible answers to the question of why California and Massachusetts are so attractive to technology investors in spite of mediocre-to-poor results on the Innovation Scorecard are:
- Investors have become myopic in their views of where to invest and have become focused on the "traditional" centers of innovation to the exclusion of other attractive locations
- The Scorecard fails to measure the strong synergies between a highly talented workforce, strong technology educational institutions and industry leaders that create an environment that pushes new and current companies to aggressively pursue new opportunities and new markets. Silicon Valley, Southern California, Boston, etc., all fit this description. The vibrancy and resiliency of individuals and companies in these areas make them attractive places for taking risks at the individual, corporate and financial levels.
- The Scorecard is a better predictor of future hot investment areas. While the traditional locations of technology excellence stand out now for investment, they may lose future opportunities to states that aggressively promote an environment that will attract these opportunities. Perhaps there is a coming change where highly talented individuals and exciting companies will choose to move from highly competitive and high-cost locations to areas that offer quality of living benefits along with policies that enable strong support for innovation. Technology itself may enable a more globally distributed, high-tech workforce. However, given the durable track record of places like Silicon Valley, it is hard to bet that they will lose their position in the world of technology and investment.
- Leaders of companies in places like California and Massachusetts have the connections and street smarts to attract and cultivate investors. The close relationships and confidence that has been established over the years between technology leaders and financial institutions will continue to be the most important factor in determining where investments are made.
Other potential explanations could be given to the question of why support for innovation and investment in innovation seem to be disconnected. Given the data set this analysis is focused on the US. However, the questions presented by this data are valuable for investors, local governments, companies and industry leaders to consider.
Dale Ford is the Vice President of Thought Leadership for IHS Technology
Posted on 14 March 2016
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