Reports and Whitepapers
June 11, 2024
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A Historical Opportunity for Regional Innovation

Preface

The United States sits at a historical crossroads related to innovation, commercialization, and venture creation. China currently outpaces the U.S. in key R&D areas like semiconductors, biotechnology, and quantum computing. The Biden Administration has responded to this challenge with not only unprecedented funding for basic and applied science but also a new commitment to facilitating the growth of new regional innovation ecosystems. No longer do you need to live along the East or West Coast, or near a major city to conduct leading research or start a new venture around breakthrough technology. Access to innovation is being democratized in a truly historical way.

Why the U.S. Risks No Longer Being the Global Leader in R&D

Global competition around research and innovation is fierce. Although the U.S. still leads in total R&D spending with $709B in 2021,[1] other nations are beginning to close the gap.  China spent $405B for R&D in 2021,[2] and has averaged double-digit growth (15%) in R&D spending since the turn of the century. This compares to a meager 3% growth by the U.S. in that same period.[3] Reporting on federal research spend in China is sparse, but it is believed that China currently outpaces the U.S. in quantum information science (QIS) [4] and 5G [5] by at least three times over.

The significant increase in research spending has led to astonishing commercial outcomes for China. It has now built a substantial lead over the US in at least three dozen critical technology areas including bio-manufacturing, AI algorithms, quantum communications, and cybersecurity.[6] China has twice as many 6G and six times more deep-learning patent publications than the US. Chinese firms have also dominated the green energy industry in recent years capturing 70% of the solar panel and 40% of the wind turbines markets globally. To put things in perspective, the US only occupies 1% and 12% of the solar and wind turbines markets respectively. [7] It is time for the US to regain the lead in key technology frontiers like these.

Meeting the Moment: The Biden Administration and Congress Have Placed a Unique Bet on Regional Innovation as a Driver of Global Competitiveness

In response, the Biden Administration has launched the most comprehensive regional innovation strategy in history. FedTech currently counts no less than twelve programs operating across the government that aim to expand the innovation capacity of the U.S.  beyond traditional R&D centers, mainly on the coasts. Congress has responded, authorizing large funding programs via the CHIPS and Science Act of 2022, Inflation Reduction Act (2022), Infrastructure Investment and Jobs Act (2021), and other pieces of legislation.

The bet the Biden Administration and Congress are making rests on the concept that regional innovation ecosystems can be sparked by federal funding and ultimately become self-sufficient. Regional Innovation Systems (RIS) is an ecosystem-based approach that promotes linkages among innovation ecosystem actors in a region to attract resources, create jobs, and accelerate equitable economic growth. Geographical focus in historically underserved communities and strong interlinkages among the ecosystem actors are defining elements of this approach.

Key Federal Programs Promoting Regional Innovation

The federal entities have taken proactive steps in promoting regional innovation by supplementing existing initiatives with region-focused programs and creating new cross-cutting platforms. The newly formed Directorate for Technology Innovation and Partnership (TIP) at NSF is a case in point. TIP aims to bridge the “valley of death,” broadly understood as a period in a startup’s life-cycle when it has started operations but has not yet generated revenue, with a particular focus on regions that have not benefited substantially from the technology boom of the last few decades. TIP’s flagship National Science Foundation Regional Innovation Engines (NSF Engines) targets the fundamental research and R&D layer, which synchronizes with other RIS initiatives such as Economic Development Administration (EDA)’s Tech Hubs program that focuses on later-stage technology development and demonstration.

Chart depicting budget allocated to federal bodies for regional growth.

In between various federal initiatives, at least $41 billion has been allocated for the RIS approach over the next five years. Many of the recent RIS initiatives and programs are funded as a part of the CHIPS and Science Act of 2022 for which the Administration has allocated $52.7 billion to conduct semiconductor research and innovation activities.[8] Similarly, the formation of cross-cutting coalitions such as the Interagency Community Investment Committee (ICIC) has helped streamline federal efforts- worth tens of billions of dollars- targeting inclusive growth.

Five Federal Programs to Watch

Regional Innovation Engines Program (NSF Engines) | NSF

The NSF Engines is a flagship program aimed at boosting innovation capacity, creating sustainable innovation ecosystems, and promoting inclusive economic growth. NSF Engines, along with the Translation Accelerator Program, is allocated a total of $6.5 billion over the next five years. NSF will administer two types of awards under the NSF Engines program: Type-1 and Type-2. The Type-1 Awards have a cap of $1 million and can be executed over 2 years to lay the groundwork for establishing a new NSF Engine.  Similarly, each Type-2 Award has a cap of $160 million and is awarded in three phases to create and nurture a regional innovation ecosystem.[9]

Regional Technology and Innovation Hubs (Tech Hubs) | EDA

With $10 billion authorized over the next five years, EDA’s Tech Hubs program aims to promote regional economic development needs and growth opportunities by bringing together diverse ecosystem actors. It will be implemented in two phases: Phase-1 and Phase-2. In Phase-1, EDA will designate 20 regions as Tech Hubs and award approximately $15 million each for strategy development. EDA envisions making at least 5 Phase-2 grants to designated Tech Hubs for strategy implementation.[10]

Build to Scale Program (previously known as Regional Innovation Strategies program- RIS) | EDA

EDA, through Build to Scale (B2S), makes targeted investments to enhance regional capacity. Although the EDA allocated a total of $50 million for the program in 2022, annual funding for this initiative has increased substantially since 2014- when EDA first received $10 million for the RIS program.[11] The Venture Challenge component of the program funds organizations providing enabling support to startups, whereas the Capital Challenge component helps regional innovators access growth capital. [12]

Regional Clean Hydrogen Hubs | DOE

This Department of Energy (DOE) administered $8 billion program aims to establish up to 10 regional clean hydrogen hubs across the US. The proximity of the hydrogen producers and consumers and the connective infrastructure is a key aspect of the program that ensures its regional focus. It is a part of the Administration’s strategy to establish a fully clean electrical grid by 2035 and achieve net-zero carbon emissions by 2050.

Defense Manufacturing Community Support Program | DOD

This Department of Defense (DOD) program places a significant emphasis on regions to foster an overall defense innovation ecosystem. Around $270 million has been allocated for the program since it started in 2019- with $30 million allocated for 2023. Regional consortia that wish to receive the funding go through a two-step process. First, a regional community must be designated as a “Defense Manufacturing Community.”  Second, select designated communities receive grant awards upon further screening.[13]

A hydrogen production and logistics facility in Nevada

A hydrogen production and logistics facility in Nevada. Credit: Air Liquide

The table below summarizes key federal bodies and programs actively promoting the RIS approach.[14]

Table depicting key federal bodies and programs actively promoting the RIS approach.

FedTech’s Response to Regional Innovation Ecosystem Development

FedTech was founded as a spinoff of the NSF’s legendary I-Corps program and is built upon the idea that technology cannot change people’s lives for the better without entrepreneurs who want to build products and companies to commercialize. From its earliest days, FedTech sourced some of our best entrepreneurial talent from less developed regional ecosystems across the country. Our teams have always been more successful the more diverse our founding teams were in terms of skills, backgrounds, and perspective in democratizing access to the nation’s best R&D for commercialization is central to what makes every staff member come to work each day at our company. The wide range of programs that have grown through the Biden Administration have created new opportunities for FedTech to scale our impact across the country.

At FedTech, we sync our approach with the Administration's regional innovation ecosystem development model. Our programmatic offerings combine the regional competitive advantages with learnings from the best practices across the US and the globe. We enable and ensure active participation from community members right from the outset so that economic development is democratic and inclusive. The result is highly customized solutions for regional innovators to help them leapfrog the barriers and establish market-leading global ventures.

Chart depicting FedTech's programmatic offerings for regional innovation.

*As identified in the NSF Engines Program

Identify | 360 Discovery

Each regional innovation ecosystem has its unique competitive advantages and constraints, which in turn shapethe innovation potential of ventures based in that region. In the first phase, we work closely with entrepreneurs to discover the feasibility of innovation. This involves extensive discovery exercises not just with the entrepreneurs but also with other ecosystem actors such as educational institutions, corporations, and related agencies to get a comprehensive view of the ecosystem's needs.

Engage | Local Hub Activation

At this stage, we bring the relevant stakeholders together so that everyone has a voice at the table. Our focus is on building a culture of innovation within labs and academic institutions and connecting them with potential entrepreneurs through curated workshops, seminars, and networking sessions. This ensures symbiotic relationships are nurtured right from the outset, which pays long-term dividends in creating vibrant innovation ecosystems.

Incubate | Startup Studios

Our signature Startup Studio solution enables early-stage innovators to find a problem-solution fit. Key features of the program include tailored topical curriculum, rapid iteration support, and mentorship from industry experts. We also promote events and opportunities for active collaboration among Local Hub members to ensure that innovators are ready to launch ventures and find solid market traction.

Enhance | Accelerators

For high-growth potential ventures, our Accelerators help achieve super-charged growth. We host regular networking events in the form of speaker series, seminars, and meetups, where regional innovators get ample opportunities to meet mentors, future team members, fellow entrepreneurs, industry partners, and investors. Similarly, our capacity-building support through upskilling and reskilling of human resources and developing robust operational practices ensure startups have a robust internal base to scale nationally and globally.

Thrive | Bespoke Solutions

We combine our in-house expertise and leverage partnerships to provide bespoke solutions such as market expansion, talent management, funding, and compliance for late-stage startups. These services are intended to support startups’ growth journey and help them thrive in different market ecosystems across the globe.

Future Articles

In the upcoming articles, we will delve deeper into two regions, where we have been helping create vibrant innovation ecosystems. The first is the Inland Empire region in Southern California. Here we will share about the visionary leaders inside the government and the local universities who are transforming the Inland Empire from a transportation and logistics hub to a region that builds and accelerates tech ventures focused on national security.

Second, we will focus on the wonderful ecosystem being built in Albuquerque, New Mexico. Albuquerque is situated in some of the most beautiful geography in the country and is inhabited by the friendliest and most creative people. The region brings together a rich R&D tradition through Sandia National Laboratories and Air Force Research Lab with a burgeoning startup community doing important work in computing, commercial space and material science.

Stay tuned for these upcoming articles.

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