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Tech Hubs as Incubators of Industrial Policy

May 29, 2024 Thomas Galvin

Tech Hubs as Incubators of Industrial Policy

Silicon Valley’s venture capital landscape has been an engine of economic growth for decades. Firms like Sequoia Capital and Kleiner Perkins have spurred investments into Apple and Google and created a virtuous cycle of innovation, leading to a capital influx that has stimulated further innovation.

Higher interest rates and the 2023 collapse of Silicon Valley Bank (SVB) have changed all that.

According to Ernst & Young, the nationwide venture capital market decreased by 35% in 2023 to its lowest level in four years. Low liquidity and high borrowing costs have led to a significant backlog of venture capital-backed companies seeking funding, and with the exception of artificial intelligence (AI) companies, there is no immediate rebound in sight.

A new initiative by the US government seeks to change the old startup ecosystem from one run by a narrow handful of privately traded venture capital firms for the benefit of Silicon Valley entrepreneurs to an ecosystem more aligned with national interests and across the whole of the country.

“For too long, economic growth and opportunity have clustered in a few cities on the coasts,” the White House announcement of 31 regional tech hubs read, making clear the program’s purpose: To decentralize venture capital out of Silicon Valley and distribute those benefits more equitably across the country.

The administration’s “Investing in America” agenda is designed to drive regional innovation and job creation into underserved markets and transform these regions into globally competitive innovation centers by focusing on each region’s strength.

The $10 billion in funding for this program primarily comes from federal allocations authorized by the CHIPS and Science Act of 2022. This act provided funding to revitalize the US semiconductor industry and other high-tech sectors. Additionally, state and local governments and private sector partnerships will contribute to creating these unexpected startup innovation ecosystems.

The US Economic Development Administration (EDA) plays a crucial role in disbursing these funds, ensuring that the selected hubs receive the support and funding they need to meet their strategic goals.

These Tech Hubs will focus on eight areas of national interest, focusing innovations to meet national security and climate goals while creating high-paying jobs outside traditional innovation clusters. Each of these areas offers insights into where the government will invest its resources in the near term and which industries will be the focus of a new age of industrial policy in the United States.

1. Enabling Safe and Effective Autonomous Systems

2. Maintaining Our Quantum Edge

3. Advancing Biotechnology in Drugs and Medical Devices

4. Advancing Biotechnology Precision and Prediction

5. Accelerating America’s Clean Energy Transition

6. Strengthening Our Critical Minerals Supply Chain

7. Regaining Leadership in Semiconductor Manufacturing

8. Growing the Future of Materials Manufacturing

Camoin Associates created the following tool to highlight each Tech Hub’s specialty and the private industry, state and local governments, institutions of higher education, labor unions, Tribal communities, and non-profit organizations that have contributed to its economic development goals. Click the double arrow icon in the lower right corner to view full screen.

The Tech Hubs Program has just begun. Phase 2 will award $40-$70 million each to 3-8 aligned projects from the first phase, and future years will bring $10 billion in authorized spending over the next five years.

The game has changed. We are in a new age of financial incentives, and industrial policy is set to restructure regional economies within targeted industries in targeted geographies completely.

Economic developers who have never faced such interventions will be in unfamiliar territory. Some key opportunities and challenges to consider over the coming decade include:

  • Understanding Government Intent: The highest priority for the CHIPS and Science Act is securing domestic semiconductors for defense and critical infrastructure. This is the focus of the “Regaining Leadership in Semiconductor Manufacturing” component of the Tech Hubs program. The key to receiving future funding is to understand how your region’s strengths align with broader national goals.
  • Equity and Inclusion: Industrial policy is a tool with both economic and political goals. Much of the grant funding of the Tech Hubs program was directed towards underserved communities to meet an expressly political, rather than economic, goal.
  • Niche Venture Capital: The failure of Silicon Valley Bank could wipe out a whole generation of startups, and smaller regional banks or niche local venture capital companies will need to fill this void. These are exactly the types of firms Tech Hubs have partnered with in their consortium lists: companies that specialize in addressing the risks specific to their region and their industry niche. This is a departure from the pre-pandemic startup landscape, which was characterized by Silicon Valley’s obsession with finding the next billion-dollar unicorn.
  • Bloom Where You Are Planted: Tech Hubs are partnered with local universities in largely rural and “second-tier” cities and away from the usual clusters of super-elite universities. Knowing the STEM program of your regional university can help you better prepare for homegrown entrepreneurs.

Is your community underserved in technical innovation or aspiring to become a Tech Hub? Camoin Associates can help. We are experts in market analysis and business accelerator feasibility. Our Real Estate Development Analytics and Advisory Team identifies current and future business sector needs. We collaborate with educational institutions, utilities, healthcare providers, and government leaders to assess accelerator potential and explore public and private funding sources. Learn more about our services.

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