Geography of Angel Investors

Update: If you would like to learn more about the geography of innovation, watch the webcast for the Pittsburgh Technology Council / Innovation Works Public Policy Forum detailing President Obama’s “Innovation Strategy” on Thursday, November 19 fro 8:30 to 9:30 a.m.

Urban agglomeration is one of the defining features of globalization. People and firms will bear very high costs in order to benefit from the proximity advantage. I think this is a function of trust. Deals happen and knowledge exchange occurs thanks to a face-to-face interaction. A story about angel investors in The Business Journal is a great example of this kind of behavior:

Angel investors bless entrepreneurs with capital and the know-how to build successful companies, and bless communities with new jobs. Securing funding from angel investors, however, is no easy task, says Catherine V. Mott (WATCH VIDEO), president, CEO and founder of BlueTree Capital Group and BlueTree Allied Angels in Wexford, Pa., a suburb of Pittsburgh.

Mott, who holds an MBA in finance from Youngstown State University, returned to her alma mater Nov. 17 to discuss angel venture capital with students, faculty and members of the community as part of the Williamson Symposium series. ...

... BlueTree Allied Angels focus on “early stage technology companies,” 50% of which are in the healthcare and life sciences fields. That’s because there is a heavy concentration of companies in those disciplines in the Pittsburgh area and angel investers typically invest “in their own backyard,” Mott said.

They invest in the company’s very early stages, “right after family, friends and fools,” and want to be involved in the business to help ensure its success and a return on their investment, Mott stressed. So, she explained, they typically don’t invest in companies outside of a two-to-four hour’s drive. “They want to be able to ride past and see that the lights are on.” Mott described the angels’ involvement in the startups they fund as “an active watching of their money.”

That reach would make angels less risk averse than your typical venture capitalist, many who employ the 20-minute rule:

Meet the “20-minute rule” that guides fateful decisions in Silicon Valley. Craig Johnson, managing director of Concept2Company Ventures, a venture capital firm in Palo Alto, Calif., who has 30 years of experience in early-stage financings, said he knew many venture capitalists who adhered to this doctrine: if a start-up company seeking venture capital is not within a 20-minute drive of the venture firm’s offices, it will not be funded.

Mr. Johnson explained that close proximity permits the investor to provide in-person guidance; initially, that may entail many meetings each week before investor and entrepreneur come to know each other well enough to rely mostly on the phone for updates. Those initial interactions are fateful. “Starting a company is like launching a rocket,” Mr. Johnson said. “If you’re a tenth of a degree off at launch, you may be 1,000 miles off downrange.”

Capital and attention are lavished on entrepreneurs in the Valley as in no other place. Ten years ago, when Dow Jones VentureOne began a quarterly survey of where venture investments landed, one-third of all deals in the country went to the San Francisco Bay Area. Since then, the same share of deals has gone to the same place, almost without variation. Most recently, in the first six months of this year, Silicon Valley still pulled in 32 percent; the region with the second-largest total, New England, was far behind, at 10 percent.

The concentration of venture capital in a few places is textbook urban agglomeration. There are downsides to this economic geography. First, the cost of living or doing business goes up dramatically as more ambitious people cram into an innovation hub. Second, the investment market is limited and dramatic returns are increasingly rare. How might some of this money find its way out of Silicon Valley and well beyond the 20-minute limit?

AnnaLee Saxenian answered this question in her book "The New Argonauts". Foreign born entrepreneurs in Silicon Valley would return home and take the trust of venture capitalists with them. Of course, some of them are the venture capitalists. They move to Israel or India in order to be closer to the investment. On the backs of these cosmopolites, Silicon Valley expands its reach.

Which brings me back to Catherine V. Mott. She represents an opportunity for Pittsburgh venture capital to explore the Mahoning Valley. Mott leaving Youngstown could be a good thing if locals understood her willingness to give back to this community. Her success in another city should be cause for celebration. Mott is the exception to the proximity rule, which is what Greater Youngstown 2.0 is all about.

Study Abroad in Ohio

International education is big business. Ohio is no exception. But the global churn of highly-skilled talent is also vital for local economic development:

"It's really critical to the economic future of Ohio because the businesses that operate in Ohio know they have to compete globally for customers and sales," Chancellor Eric D. Fingerhut said yesterday. "They need employees who can work with their international counterparts and students who have global exposure and understanding."

Too bad the Ohio leadership doesn't apply this framework to domestic migration. The talent exchanges with other states are just as important as the global connections. Brain drain hysteria tends to rule even the most open and well-educated minds.

Regardless, there is a more pressing issue:

In his office, Dr. Snider pulls out a placard and points to a shaded zone representing a 30-minute drive to campus, the area responsible for more than 80 percent of the campus enrollment. The problem, he says, is population in that zone is projected to decline by 12 percent through 2016.

"We have got to supplement that with other populations," Dr. Snider said. "International students, because of the value they add through diversity, are a terrific opportunity."

I'm still struck by the obvious about face from the typical brain drain narrative. Why is the attraction imperative so obvious to university administrators but lost on politicians? Declining student populations are a big threat to the eds and meds economy. This puts a different spin on Pittsburgh's proposed tuition tax, which seeks to meet ballooning municipal pension obligations via the local higher education industry.

I doubt this surcharge would affect enrollment, but it does make clear the struggles to reconcile a shrinking city with vibrant local universities and colleges. We're still not sure how to best leverage these regional knowledge engines given the growing disconnect between those locally trained and those locally employed. There seems to be little interest in the network located outside of the state and the economic opportunities it presents.

I'll just keep scratching my head.

Get Your Globalization Game On

Jon Meacham ends his introduction to the November 23rd issue of Newsweek with the following sentence:

Globalization is not a zero-sum game, but we need to hone our skills to stay in play.

This month, I've been looking to the Greater Youngstown media to help the Mahoning Valley hone its skills for the globalization game. A column in the Sunday Vindicator suggests that the local reporters are not up to the task. Bertram de Souza thinks that US President Barack Obama should intercede on the Valley's behalf concerning the location of V&M Star's pending expansion. Read Eric Planey's comment, which explains the fundamental misunderstanding of the situation informing the opinion piece.

Houston is one of the sites in the running. Another option is Muskogee, Oklahoma. Given this report, also in the Vindicator, the reader might wonder if all the incentives are necessary. That issue deserves some commentary. Consider what James Duderstadt (director of the University of Michigan's Millennium Project) has to say about such an approach to economic development:

It's basically stupid. We hear over and over from companies thinking of moving here that they don't relocate because of tax breaks. People are going to move here for other reasons, such as the quality of life. Or access to markets. Or because it's a beautiful place to be.

Duderstadt knows a lot about globalization. I'd weigh his words carefully. The article by David Skolnick indicates that the access to markets is very important to V&M Star:

Top officials with the Vallourec Group, V&M’s parent company, met Nov. 2 with Youngstown Mayor Jay Williams at its Paris world headquarters to discuss the proposal. ...

... Among the areas mentioned, Williams said the Valley best suits the company’s needs if it expands.

Williams said Vallourec officials mentioned those assets during the Nov. 2 meeting: the company already has a facility here that employs more workers than its two other North American locations combined; the Valley workforce; the financial incentives put together by Youngstown, Girard and the state; and the proximity of Youngstown to V&M’s main customers in New England, New York, Pennsylvania and the Carolinas.

V&M manufactures seamless tubes used mostly in the oil and gas industry.

To me, that sounds like a slam dunk; and I don't mean the financial incentives. I'm still waiting to read how the Marcellus Shale natural gas play is factoring into V&M Star's plans. Perhaps I'm connecting the wrong dots, but the Mahoning Valley journalists are doing little to flesh out a billion dollar story. The scale of context is too small.

Brain Drain and Globalization

Akin to the benefits derived from the liberalization of trade, increasing geographic mobility can improve economic development. Of course, as is the case with globalization, there are perils. Losing talent to another region is costly. Protectionism, which is often more destructive than the alternative, isn't the answer. Instead of impeding out-migration, work with the established flows:

There is much more here – it’s a great collection of news and resources that will be of interest to Donegal people at home and abroad. If only more counties would produce such resources – this is a model that would be very useful throughout Ireland.

Read the publication online on the Donegal County Council website.

Donegal, a rural and isolated part of Ireland, isn't going to reverse the demographic trends. Born of necessity, the region has developed an innovative form diaspora economics. I'm amazed that US communities experiencing similar population decline haven't noticed. One can't embrace the shrinking city paradigm and launch a crusade to plug the brain drain. The factories will not return. Neither will the numbers of people seen during the peak of industrialization.

Diaspora means scattered. The community is dislocated from its place of birth. That kind of consciousness isn't fostered in the Rust Belt. This perception is divorced from a global context. The rest of the world is something to be held at bay. Those who leave are lost in an abyss. The result is that globalization continues to ravage the Midwest and brain drain stifles innovation. Opportunity is some place else.

Undermining the Youngstown Advantage

I'm going to break with the globalization and international migration theme to address a situation of grave concern. First, you should be made aware of the emerging economic redevelopment paradigm of urban frontier. To say that this understanding of shrinking city opportunity resonates with a lot of people is an understatement:

From the I'm-going-to-find-a-rainbow-in-this-dark-cloud-if-it-kills-me school of journalism comes this celebration of the disaster that is Detroit.

Titled Urban "Laboratory and the New American Frontier," it sees the crumbling city as an opportunity to be seized on.

One thing this massive failure has made possible is the ability to come up with radical ideas for the city, and potentially to even implement some of them. Places like Flint and Youngstown might be attracting new ideas and moving forward, but it is big cities that inspire the big, audacious dreams. And that is Detroit. Its size, scale, and powerful brand image are attracting not just the region’s but the world’s attention. It may just be that some of the most important urban innovations in 21st century America end up coming not from Portland or New York, but places like Youngstown and, yes, Detroit. ...

... Maybe it's not for everybody, but that's the whole point. The American frontier wasn't for everybody, either, just the ambitious, the adventurous or the desperate. Such is Detroit.

Detroit isn't the archetype of the urban frontier. That designation goes to Youngstown. However, Tyler Clark suggests that this unique opportunity landscape is under siege:

Last week it was announced that the City of Youngstown received a grant to pursue a deconstruction program related to the dismantling of vacant structures. Steve Novotny, currently interning with the city while finishing his degree at Youngstown State, wrote the $39,000 grant proposal for management of the project and is being looked at to lead the program. ...

... I think the key paragraph comes in the last part of the quoted Vindicator article: David Bozanich "defended the plan to hire Novotny." Defended against whom? Nowhere is there an assertion that anyone is questioning Novotny's fitness to lead the program. Anyone except The Vindicator, perhaps.

Notice, too, the title of the article: "Youngstown council to weigh plan to hire YSU student." It suggests, "Read me, you may find out about another questionable expenditure of funds at City Hall." Yet, no funds are being spent except those Novotny himself applied for and won. And no one is quoted as objecting to or even hinted at questioning the decision to hire the 24-year-old for the program.

Also, note Eric Planey's response to Tyler's blog post:

The area cant grow if there is no risk taking. There will be no risk taking if we as an area collectively assault the new. Some senior at YSU took an initiative on urban planning? Good for him/her. The city wants to hire that person? Sounds good to me...fresh minds / fresh ideas.

For Youngstown to stand out in a region littered with cities of declining population, then it needs to promote itself as a place where such ambition is encouraged. I'd expect the squelching of unproven talent in Cleveland or Pittsburgh, but not Youngstown. However, I'm not as concerned about the journalism employed to write the story.

On the contrary, I applaud the Vindicator for its approach. The nature of the reporting reveals the substantial resistance to urban frontier Youngstown. It reminds me of the soap opera surrounding the V&M Star expansion. There are many residents of the Mahoning Valley who didn't like how the deal was going down. Is it better to sweep these parochial attitudes under the rug?

The key is bloggers such as Tyler to pick up the ball and run with it. If Novotny doesn't get the job, a lot of us will be asking questions. The situation is high profile and politically charged. It won't be business as usual for the patronage network.

The other side of the story is that the newspaper serves all readers, even those who would disparage the hiring of someone so young and inexperienced. If the Vindicator is generating controversy where none existed, then it is behaving in an unethical manner. I suspect that the editor and reporter took a risk in airing the opinions of unnamed sources. But that's what I read in between the lines.

YSU Global Business School

If you want to run with the big dogs:

The purpose of the Centers for International Business Education (CIBE) Program is to coordinate programs of the Federal government in the areas of research, education, and training in international business and trade competitiveness; and to provide grants to pay the Federal share of the cost of planning, establishing, and operating Centers for International Business Education that will– 1. Be national resources for the teaching of improved business techniques, strategies, and methodologies that emphasize the international context in which business is transacted; 2. Provide instruction in critical foreign languages and international fields needed to provide an understanding of the cultures and customs of United States trading partners; 3. Provide research and training in the international aspects of trade, commerce, and other fields of study; 4. Provide training to students enrolled in the institution, or combinations of institutions, in which a center is located; 5. Serve as regional resources to businesses proximately located by offering programs and providing research designed to meet the international training needs of these businesses; and 6. Serve other faculty, students, and institutions of higher education located within their region.

Your move, Youngstown.

Immigration Stimulus

I'll start this post by writing that the Cool Cities approach to urban revitalization isn't effective. At least, I'm deeply skeptical that it can work. I bring this up concerning the immigrant talent advantage that many Sun Belt cities currently enjoy. The Sound of Ideas recently hosted a panel that explored what the Rust Belt could do to steal some of this economically vital talent:

John Austin Brookings Institution

Richard Herman immigration attorney, co-author Immigrant, Inc.: Why Immigrant Entrepreneurs Are Driving the New Economy (and how they will save the American worker)

Reka Barabash Executive Director TiE Ohio

Ratanjit Sondhe entrepreneur, author, board member Cleveland Foundation

One of the strategies suggested is to make your community more welcoming to immigrants. In other words, increase one of Richard Florida's key variables: Tolerance. I doubt southern cities are attracting more immigrants than Rust Belt cities because they are more tolerant. Short of policy change at the federal level (notoriously difficult), what can shrinking cities such as Youngstown do?

I suggest targeting foreign-born secondary migration, which has benefited many cities in Eastern Pennsylvania thanks mostly to the proximity to New York City. Reading's Cool City credentials didn't catalyze more immigration. In fact, look no further to Hazleton to grasp the tolerance climate in that part of the United States. Instead of committing resources to local social transformation, fund a campaign to attract immigrant talent thriving in the DC Metro area or Chicago.

Business Journal Daily Kudos

Great follow up story on the V&M Star expansion and the steel pipe tariffs in today's online edition of the Youngstown Business Journal:

At the request of V&M executives, Youngstown Mayor Jay Williams and [U.S. Rep. Tim Ryan] are scheduled to testify at a congressional hearing next month looking at trade policies and their impact on communities like the Mahoning Valley. Williams met with senior V&M officials last week in Paris to make his case for the proposed expansion.

Another example of news you can use comes from NEOtropolis. I am thrilled to discover that I can watch this program online. I'm a junkie for quality information and this show delivers.

Now, if I can get these two media outlets to target a diaspora audience ...

Hidden Assets at Youngstown State

Janko e-mailed to me an interesting article in this morning's Business Journal online edition. He knows me well enough to highlight the passage that resonates with my interest in talent migration:

The company’s executive team also includes an Ohio State University alumnus. Foreign students who studied in U.S. schools and return to their home counties are the best U.S. ambassadors, he said. “They loved their experience in the states, want to work for American companies abroad and have a global view we need to have,“ Planey remarked.

These New Argonauts are featured in Richard Herman's new book, "Immigrant, Inc." Eric Planey is taking full advantage of reverse brain drain, also known as boomerang migration. Of course, Planey himself is a boomerang migrant back to Youngstown. As Herman might say, "He already thinks like an immigrant."

Something else that caught my eye is the tapping of alumnus from Ohio State. Janko recently told me that many of the foreign born students at Youngstown State University because it is the most inexpensive place for them to study in the entire United States. The Valley could do a much better job of leveraging this comparative advantage. These students are links to global business opportunities, just like the ones the Regional Chamber is exploring in China. Something to think about as the new business school gets cranked up.

Breaking News: US Tariff for Chinese Steel Pipes

First, a reminder about the Mayor Williams in Paris story:

Last week, the U.S. International Trade Commission voted 6-0 to approve an investigation into imports of $380 million in subsidized steel pipe from China. The investigation, which could result in duties of nearly 100% on the imports, followed a petition filed by V&M and other domestic steel companies.

Williams said he would be testifying in December on the “first-hand impact” of unfair trade practices on communities like Youngstown and the Mahoning Valley, and why duties and countervailing measures should be implemented “should China continue these actions,” he said.

“Favorable trade rulings are another important component that V&M is looking at as they determine whether or not to expand here,“ said Walt Good, vice president of economic development, business retention and expansion for the Youngstown/Warren Regional Chamber.

About 30-minutes ago, the Financial Times issued this report:

The US hit China with another big trade action on Thursday as it slapped ­preliminary anti-dumping duties on $2.6bn worth of Chinese pipe imports.

The commerce department’s decision to impose duties of up to 99 per cent on imports of some steel pipes is the latest in a string of trade spats between over tyres, cars and chickens. It comes less than a fortnight before President Barack Obama’s first visit to China.

The ruling will affect more imports by value than Mr Obama’s recent move to impose duties on Chinese tyres, which sparked an international row in which Beijing accused the US of “rampant protectionism”.

The decision was a victory for steel companies, including US Steel Corporation, that petitioned for the duties in April. The United Steelworkers union said the decision was “an overdue message for thousands of American laid-off workers that trade laws are being enforced”. It says nearly half the domestic industry’s workers have been laid off.

I still think V&M Star intended all along to expand in Youngstown. But given Walt Good's comments, the prospects look even brighter.

WTO, China and Youngstown

Taking yesterday's post to heart, the story missing from today's Mahoning Valley headlines:

The US, European Union and Mexico have asked for a World Trade Organisation dispute panel to investigate Chinese restrictions on exports of specialised raw materials used in industry, the latest indication that the global slowdown is leading to greater international action against China’s trade policies.

The request to the WTO claims that China’s restraints on exports of bauxite, magnesium and other raw materials, which are used to make steel, aluminium and some chemicals, is driving up the price of those end products.

If I was King of Youngstown, then every kid coming out of the local high schools would know the fundamentals of global civics and international political economy. Students should be able to understand how a WTO ruling could affect their lives. At the very least, Valley citizens should be able to read about it in the newspaper.

The Business Journal (a great newspaper that everyone interested in the TechBelt should be reading) does a good job of staying on top of global issues. But if they have a journalist dedicated to issues of globalization, I'm unaware of who she or he is. As the article about Mayor Williams meeting with V&M Star executives in Paris highlighted, international trade disputes involving China impact local employment. Today's news about the WTO investigation is a great opportunity to follow up that angle and clue readers in on an important development.

Why Youngstown Should Care About Strikes in Germany

Geography as a subject of study is more often than not misunderstood. Geographers are masters at seeing the links between things that no one else notices. In the future, I think all journalists should have a college degree in geography. That way the following makes the cut in various Mahoning Valley news outlets:

Industrial union IG Metall said workers at Opel's four German plants would halt work - so-called "warning strikes" - on Thursday. Other plants in Europe would follow on Friday, it said.

Perhaps this is the value add we bloggers provide. I don't expect the Vindicator to have foreign correspondents on the payroll. However, I do demand that local beat writers help us readers make the necessary connections. If you don't see stories about globalization in the paper or on the TV news, then where can you get this kind of information with that valuable parochial slant?You won't find it in the Financial Times or the Economist.

General Motors is an important employer in the Mahoning Valley. GM's reneging on the sale of Opel sent shock waves of anger through Germany and elation through the United Kingdom. How might it affect workers in Lordstown? It may be irrelevant, but I'd feel better if a reporter or two could track that down for me. I'd figure struggling newspapers would be scrambling to fill any available niche. No doubt I'm wrong about that.

Steel Pipe Geopolitics: Youngstown, France

Mayor Jay Williams in Paris after a meeting in Berlin is a great example of the globalization of local politics. National governments are cut out of the conversation. That doesn't mean that the nation-state is retreating from the international stage. However, subnational regions must have a coherent geopolitical strategy. The lesson from V&M Star:

“Obviously the market forces need to be trending in a direction that makes sense, and there’s a lot of things that go into that, but there was a sense of optimism as they looked out over the time horizon,” Williams said.

Along with the specific site and project, Williams said he also discussed with the executives the company’s overall strategy, market forces and other factors involving the decision and their timeline. “But I feel very comfortable that the Mahoning Valley site is very high up on their agenda and their radar screen,“ he said.

One of V&Ms concerns is with the unfair trading practices used by some of its international competitors, such as China, they said, and company officials hope that the United States will take “appropriate action,” according to Williams.

Last week, the U.S. International Trade Commission voted 6-0 to approve an investigation into imports of $380 million in subsidized steel pipe from China. The investigation, which could result in duties of nearly 100% on the imports, followed a petition filed by V&M and other domestic steel companies.

Williams said he would be testifying in December on the “first-hand impact” of unfair trade practices on communities like Youngstown and the Mahoning Valley, and why duties and countervailing measures should be implemented “should China continue these actions,” he said.

A company headquartered in France is demanding US protectionism on imports from China. Impacts on the economic geography of the Mahoning Valley are complicated. A bit of good news for Pittsburg, CA could be bad news for Youngstown:

In a welcome contrast to local factory closures, a venture of manufacturing companies from the United States and South Korea has opened a $135 million East Bay plant here that will make big pipes for the energy industry.

United Spiral Pipe's new state-of-the-art factory in Pittsburg will employ about 150 people, with room to expand.

The plant produces large-diameter pipes used for transmission of natural gas and oil.

The 340,000-square-foot welded pipe factory is a joint venture of American steel titan U.S. Steel Corp., South Korean steel maker POSCO and South Korean tube products maker SeAH Steel Corp.

The opening of the new plant comes at a time when the looming shutdown of the NUMMI auto factory in Fremont has ripped open numerous economic wounds.

"These are good jobs and these are well-paying jobs," said Pittsburg Mayor Nancy Parent.

Sound familiar? It should. I see a connection between the V&M Star expansion in Youngstown and the natural gas boom headquartered in Pittsburgh, PA. In other words, I'd be shocked if the plant ended up anywhere else but in the Mahoning Valley. Williams can help the company in Paris push the United States to punish cheap steal made in China. The POSCO deal in the Bay Area reveals the bluff. Domestic production is still a strong bet despite the accusation of unfair trade practices.

Youngstown holds all the cards.

Why Not Move to Youngstown?

In anticipation of Richard Herman's book launch party, I'm dedicating all blogging during November to issues of international migration and globalization. As you may be aware, Herman is a tireless advocate for immigrants and the value they bring to the Northeast Ohio community. Read more about the Talent Blueprint Project here. And there is a wealth of information available at the "Immigrant, Inc." website.

The book aims to teach people how to think like an immigrant in order to act as a driver for the regional economy. Resonating with major themes of both of my own blogs, migrant as risk taker:

Immigrant business success has a lot to do with high risk tolerance. Risk tolerance is the core common value shared by both immigrants and entrepreneurs. Reflecting this commonality, MIT Professor Edward Robert has said, “To immigrate is an entrepreneurial act.”

A very small percentage of people in the world ask themselves “why not?” move to another country, and then actually take the plunge, uprooting themselves from the only place and people they have ever known. If they had actually listened to the “why” voices in their head and those around them, they never would have made the move. Try to anticipate future trends in your industry, try to identify big opportunities before anyone else does (even if it labels you a contrarian or a little crazy), and place a big bet or two on an which you are passionate about.

If immigration were a place, it would be Youngstown. Rust Belt refugees already think like the immigrants whom Herman interviewed. Long distance moves during an economic crisis is the definition of risky. People just didn't leave America's centers of manufacturing. They built, from the ground up, boomtowns such as Charlotte. That's how I would rewrite Richard's book, telling the stories of successful Rust Belt refugees. The challenge now is put that talent to work back in the homeland.