In many small- and mid-sized regions, the focus of economic development remains embedded in the traditional “tool kit” of bricks and mortar and associated debt instrument financing. Smart regions are realizing that entrepreneurial-driven technology firms are less interested in the physical structure of those facilities than with what is within those facilities. For example, emerging bioscience firms often need assistance with the financing of leasehold improvements such as laboratory, air and water systems. Most often, sources of financing for these firms to develop and introduce their products into the marketplace, or equity capital, is their single largest priority.

The problem small- and mid-sized regions face is not simply a lack of venture capital – equity financing once a firm has a product and is near going public or other otherwise exiting – but a paucity of risk equity capital needed prior to when more traditional venture capital is available.

Smart regions are finding solutions to this private sector funding gap, generally referred to as pre-seed to seed funding, through angel funds, private placement expertise, tax credits and other approaches. Angel networks are an important way to build private-public partnerships. In other cases, attracting a fund focused on small- to medium-sized regions is an avenue in which to focus, as Peoria has done. In other instances, the formation of a regional fund focused at this early stage has made a significant difference, as happened in Alabama.

Innovation-driven economies increasingly will need to help create privately managed risk pools that build on a track record of successful entrepreneurs – pools with sufficient funds to syndicate deals with the national venture funds that are still focused predominantly on investments on the coasts. Adjusting their economic tool kits to make equity investments, for example, to address leasehold improvement financing for wet labs, some states and regions purchase insurance, others offer tax credits, and some take equity for the improvements.

Getting Started: Lessons for Smaller Metro Regions in Building Innovation Economies

What finally makes a difference in a region or community’s success is having local champions and leaders with a plan for the implementation tasks of catalyzing, brokering and connecting – day-to-day hard work.

This requires regions to address three key actions:

• A game plan or road map for the region. Hazelton-Scranton-Wilkes Barre, St. Louis, and Peoria all benefited from having gone through a four- to six-month process of self-diagnosis leading to a consensus game plan for building an innovation-driven economy. In each case, entrepreneurship components were front and center in communities historically characterized as focused on industrial recruitment. Small- and medium-sized regions are actually in a better position to do a game plan than American’s largest regions, due to issues of scale, physical distances and institutional complexity.

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