Category Archives: Entrepreneurialism

Tech, Carilion Launch VTC Innovation Fund

The VTC Innovation Fund will build the innovation ecosystem centered on the Jefferson College of Health Science.

The VTC Innovation Fund will build the innovation ecosystem centered on the Jefferson College of Health Science.

Virginia Tech and Carilion Clinic have teamed up to form a $15 million venture capital fund in the hope of accelerating the growth of biotech companies taking root around Blacksburg and Roanoke, reports the Roanoke Times.

The VTC Innovation Fund aims to close seven to 10 deals over the next 10 years. By leveraging its money from other financial sources, managers hope the average startup will be able to raise between $2 million and $10 million. About 60% of the deals will be in life sciences. Although the main focus will be the Roanoke-Blacksburg area, the fund will consider investments elsewhere in Virginia or enterprises with strong ties to Tech or Carilion.

“When we looked at our grand vision going forward, we see that the innovation ecosystem has a few holes in it,” Virginia Tech President Timothy Sands said. “One is in the venture capital area. It’s not the only one, but it’s one we identified that we could do something about.”

Virginia Tech and Carilion are partnering to build a medical school and research institute in Roanoke, the Jefferson College of Medical Sciences, which stands at the center of what they hope will evolve into a biomedical industry cluster. Tech also is building a cutting-edge interdisciplinary program in neuroscience.

The Tech/Carilion duo is following a parallel path to Inova Health System in Northern Virginia, which is collaborating with George Mason University and the University of Virginia to build an biomedical cluster at the Center for Personalized Medicine. Inova has pledged to put $100 million in to venture capital in support of the innovation ecosystem there.

A third partner in the VTC Innovation Fund is Middleland Capital, a Washington, D.C.-based investment firm, which will manage the Roanoke fund and invest $500,000 to $1.5 million of its own capital, reports the Washington Business Journal. Connections with experienced Washington-area venture investors likely will provide a depth of expertise and access to outside capital that entrepreneurs in the Roanoke-Blacksburg area previously lacked.

“We want to focus on the absolute best and the absolute brightest and the shining stars of the region,” said Scott Horner, managing director of Middleland. “We want groups from outside the region to be able to look here and say, ‘Yes there is good stuff in the region.’”

Scary Thought of the Day: Our Landfills Are Mountains of Dog Poop

Jacob Paarlberg demonstrates how his flushable dog-waste bags dissolve in water. Photo credit: Southside Daily.

Here’s a clever business idea that, astonishingly, does not require downloading an app: Jacob Paarlberg spotted a pressing need in American society — how to clean up the poop of the nation’s 70 to 80 million dogs. Each day untold tons of doggie waste ends up in landfills — comprising an unbelievable 4% of total volume!

“We hear about the impact of diapers on the environment, and families often opt for reusable diapers to reduce their impact, but this is is something no one thinks about,” said Paarlberg in an entrepreneurial event hosted by One Million Cups as reported by the Southside Daily. “A child uses diapers for two to four years, but dog waste bags are used for a dog’s entire life.”

The solution? Flushable dog-poop bags made from the same water-soluble plastic used in dishwasher pods. Other entrepreneurs have devised similar solutions but they suffer from a common problem. Tying off the bag to seal in the smell creates an air pocket, and the air pocket can cause the bag to get stuck in pipes.

Paarlberg has patented a tear-away strip that allows the pet owner to release the air pocket so the bag flushes cleanly. Said he: “We’re the bag that won’t clog your pipes.”

A member of the U.S. Coast Guard stationed in Yorktown, Paarlberg has chosen Hampton Roads as one of two initial markets. The other is Boston where his business partner runs a private-patent law firm. The start-up is looking for a manufacturer and hopes to have BagIt Flushables available at pet stores this summer.

Bacon’s bottom line: I love a great entrepreneurial story as much as the next guy. But this is the 21st century, not the 19th. Paarlberg’s business model is so old-fashioned. A successful businessman doesn’t just come up with a better idea these days, he gets a law enacted to put his competitors out of business. Paarlberg should have no trouble getting a local legislator willing to submit a bill that bans flushable dog-poop bags with air pockets. If he owns the market, he can scoop up millions in profits. That’s the new American way.

Hmm, hmm. Oreo-Infused Hornswoggler Beer!

Hornswoggler's new Oreo-infused beer

Hornswoggler’s new Oreo-infused beer

Let me start by saying, I love the name of Hornswoggler. If there’s anything that could move me to drink craft beer, it’s a name like that. And let me also say that, regardless of what the nutrition scolds have to say, I love Oreo cookies. But Oreo-infused beer? That just doesn’t seem right to me, and I’m not even a beer purist.

Richmond-based Veil Brewing Company debuted its new offering, Hornswoggler Chocolate Milk Stout with Oreos a week ago. Stated the company on its Instagram page: “We took our 7% robust chocolate milk stout Hornswoggler and conditioned it on hundreds of pounds of Oreo cookies. If you like Oreo cookies, this is a must try.”

Veil is shooting for the sale of 55 to 80 cases. I wish these gustatory innovators the best of luck. But I can’t help but wonder if Oreo-infused beer is a sure sign that we’ve reached Peak Craft Beer. What’s left to try? Kelp-infused beer?

Really, truly, I just made that up. Then I Googled “kelp beer.” And it seems that a craft brewery in Maine has already done it. I feel like we’re living in the End of Times!

How to Roll Back Regulations in Virginia

Does the Commonwealth of Virginia really need regulations to govern who gets to blow dry hair for a living ?

Does the Commonwealth of Virginia really need regulations to govern who gets to blow dry hair for a living?

A case study in regulation run amok: To earn a living blow drying customers’ hair in Virginia, one must acquire a license from the Virginia Department of Professional and Occupational Regulation. To acquire such a license, one must attend an accredited cosmetology school, the average cost of which is $14,887 nationally, not counting the time value of 1,500 hours of training. Only after completing the school program and procuring a license can a budding blow drier embark upon a glorious career that pays an average of about $20,000 a year.

That is just one example of how excessive regulation hampers job seekers, restricts labor competition, protects entrenched special interests, and generally hobbles Virginia’s economy, according to Tyler Foote, Virginia state director of Americans for Prosperity, in a Richmond Times-Dispatch op-ed today.

A dynamic economy continually introduces new products and services that get entangled in regulatory red tape. Sometimes the General Assembly wades in and deals with the problem, as it did by removing restrictions on food trucks from operating on Virginia-owned streets and, again, by creating an exemption from liquor laws so bed & breakfast guests can consume alcoholic beverages in shared spaces like living rooms and porches. (Foote also could have cited recent controversies over ride-hailing services like Uber and Lyft, taxation of Air BnB rentals, and retail restrictions on electric-vehicle manufacturer Tesla.)

Changing the law requires time and money, commodities in short supply for many entrepreneurs trying to build a business. But there is a remedy, says Foote. The Red Tape Reduction Act, sponsored by Del. Michael Webert, R-Marshall, and Del. Nick Freitas, R-Culpeper, would require every new regulatory requirement be offset by eliminating two existing regulatory requirements until the regulatory baseline has been reduced 35%. Once that threshold has been met, new regulations would be offset by a one-for-one reduction.

Foote argues that the bill was inspired by a similar measure implemented by the Canadian province of British Columbia, which had labored under economic growth 1.9 percent lower than the Canadian average. Following implementation of the rule-cutting law, growth jumped to 1.1 percent above the average. (That barely sounds like it’s worth the trouble. Perhaps Foote means growth is now 1.1 percentage points higher, which indeed would be impressive.)

Bacon’s bottom line: I have railed for years how excessive regulation hurts entrepreneurship, small business formation and economic growth in Virginia. I like the idea of rolling back regulations, especially those that restrict competition. (I’m open to regulations protecting the public safety and health, as long as they are subject to a rigorous cost-benefit analysis.) However, I worry that the Webert-Freitas approach would be arbitrary and mechanistic.

I understand the logic that we need to create a meta-rule to govern the lesser rules and keep them in check. Without such a law, new regulations will proliferate without let-up. But how do we know the optimal number of regulations for Virginia? How do we know that the sweet spot is 35% fewer rules than what we have now? What if lawmakers encounter a situation that truly justifies new regulations but find themselves stymied by this new law?

The fact is, we live in a complex society that is becoming more complex. Technology creates new opportunities — and challenges — by the day. When the first mobile phones appeared, people thought of them as substitutes for telephones. Wow, you mean you can carry your phone around with you? Awesome! Who imagined that one day mobile phones would become packaged with software that allowed people to send text messages and, even more astonishingly, that many people actually would prefer that form of communication over talking to one another? Further, who imagined that one day “texting” while driving would cause so many accidents, injuries and fatalities that laws and regulations would have to be passed to curtail the behavior?

Texting was not a problem when good ol’ Ma Bell exercised a telephone monopoly. How’s that for irony. Breaking up ATT and freeing the telecommunications industry from suffocating regulations created one of the great surges of innovation in American history…. which in turn created the need to regulate previously unimaginable behavior.

I agree that many regulations are harmful, and I sympathize with Foote’s frustration. But I prefer the old-fashioned way of doing things: legislators rewriting laws one at time, giving careful consideration to each one.

The Self-Employed as a Political Constituency

Will 3-D printers swell the ranks of self-employed manufacturers?

Will 3-D printers swell the ranks of self-employed manufacturers? Image credit: CNN

The maker movement is transforming the American economic landscape. The number of people who make a self-employed living making stuff is still small — almost imperceptible in a U.S. labor market of 160 million — but it is growing.

In 2014 more than 350,000 manufacturing establishments in the U.S. had no employee other than the owner, up almost 17% over ten years, according to Commerce Department data reported by the Wall Street Journal. By comparison, the 293,000 establishments with employees had experienced a 12% decline in number over the same period. Overall, there are roughly 12 million manufacturing jobs in the U.S.

The boom in self-employed manufacturing is most pronounced in the “food” category, but also notable in chemicals (including soaps and perfumes), transportation, leather, and beverages & tobacco.

I expect the movement to gain momentum as the revolt against mass, industrial-era standardization gives way to mass customization. Technologies such as Computer Aided Design and 3-D printers continue to gain in capability and come down in price, making them available to almost anyone. Many colleges have 3-D printers on campuses, and students are learning how to use them. Meanwhile, just as the Miller-Budweiser beer duopoly has given way to the craft beer revolution — the biggest advertising budgets in the country could not halt that consumer trend — we are seeing the revival of artisinal foods, beverages, and craft products.

The proliferation of self-employed, small-scale manufacturers is part of a larger trend toward the so-called “gig” economy. So far, the needs and aspirations of makers, hackers, craftsmen and free-lancers have gone mostly unrecognized by the political establishment. These self-employed workers are even more politically invisible than small business. They are unorganized politically. They don’t have trade associations, they don’t hire lobbyists, and they don’t donate money to politicians. Indeed, the only politician I can think of who takes them seriously is Sen. Mark Warner, D-Virginia. While the senator has performed a valuable service in highlighting the group and its unique needs, his interest in the topic does not appear to be widely shared, and he can cite few tangible accomplishments yet.

Making a living as a free-lance writer and blog publisher for the past 14 years, I feel a strong affinity for this group. In Virginia, there are hundreds of thousands of us. And as consumer tastes continue to shift from standardized products and services to personalized products and services — our numbers will grow.

We are the petite bourgeoisie. We are noted for our stubborn independence and our ornery attitude toward our “betters” who would tell us what to do. In my view (which, I concede, may not be universally shared), we don’t seek special treatment. We don’t want subsidies, tax breaks or special privileges. We just want a level playing field.

The most important legislative priority for self-employed workers is to gain more control over our health care insurance and retirement plans. Our health insurance should enjoy the same tax status as health plans provided by corporations and other major employers. Our pension vehicles should be portable as we move back and forth between conventional employment and self employment. Oh, and it wouldn’t hurt to keep a lid on taxes.

As I scan the political economy of Virginia, I don’t see anyone (other than Warner) representing the interests of the self-employed. Neither Democrats nor Republicans, beholden as they are to established corporate and bureaucratic interests, provide a natural home for us.

The Libertarian Party could become that home if it moved beyond articulating abstract principles to applying those principles to real-world problems. Indeed, if the Libertarian Party has a natural constituency, it would be the free-lancers and small businesses whose interests are routinely subordinated to those of better organized, more vocal groups who turn to the government for everything. As Libertarians run for office, they would do well to cultivate the large and growing ranks of the self-employed.

A Free Market Alternative to Payday Lenders

sasha_orloffby James A. Bacon

Most everyone recognizes that payday lenders create a poverty trap for poor and working class Virginians. While the lenders do provide a valuable service by extending short-term loans for emergency situations, the annualized interest rates are extremely high, and borrowers often find themselves rolling over their loans from month to month at considerable expense. On the other hand, half the U.S. population has a FICO score below 680, meaning they can’t be approved for credit by most banks. Say what you will about payday lenders, they aren’t as bad as Vito the Loan Shark. Even payday lenders don’t break borrowers’ kneecaps when they fall behind on their payments.

That’s why I have always opposed legislated restrictions on the lending of payday lenders. Taking away poor peoples’ only credit alternative, as unpalatable as it may be, may satiate the outrage felt by crusading social reformers, but it doesn’t actually do the poor people any favors. If the social reformers want to help, I have long suggested, perhaps they should get into the business themselves and provide a better deal.

Well, it appears that someone is doing just that.  LendUp, a lending institution backed by Silicon Valley money, has introduced a new approach to extending credit to the poor. The company came to my attention because it is opening an East Coast office in Chesterfield County to serve Eastern and Central time zones. The description provided by the Richmond Times-Dispatch article and the company website shows how the combination of innovation and competition is the best social reform one could ask for.

“We started LendUp because the traditional banking system wasn’t working for more than half of Americans and the payday market was fraught with abusive practices,” LendUp CEO and co-founder Sasha Orloff said in a statement. The RTD explains how the company works:

The company provides short-term loans to consumers with low credit scores through its LendUp Ladder product….

The process is handled entirely online — not at a store like most payday lenders operate — and decisions are usually made within five minutes, the company said on its website. If approved, consumers could have money in their account in about 15 minutes.

The company offers a single payment loan of between $100 and $250 that has to be repaid in seven to 30 days. It also offers an installment loan of between $260 and $500 that requires two payments and a credit check.

Annualized interest rates still can amount to 250%. LendUp offers the same justification as payday lenders: “Some customers do not pay us back and, like insurance, the interest covers what we lose.”

The difference is that LendUp allows borrowers to earn points to get larger loans at lower interest rates over time by making on-time payments, taking free financial education courses and referring friends to LendUp. The business model is built upon improving borrowers’ financial literacy, helping them build their credit scores, and ultimately charging them lower rates.

Ironically, although LendUp is locating its East Coast office in Virginia, the Old Dominion is not one of the states listed on the company’s website where the service is offered. The RTD article offered no explanation why that would be. Perhaps the company has more regulatory hoops to jump through here. If the social reformers want to accomplish some good, perhaps they could lend LendUp a hand.

Are Smaller Metros Becoming Competitive with Big Metros?

Governor Terry McAuliffe (left) and Steve Case

Governor Terry McAuliffe (left) and Steve Case. Photo credit: Richmond Times-Dispatch

by James A. Bacon

The flight of promising startup companies from smaller cities to big ones “is beginning to change,” AOL co-founder Steve Case said yesterday during an entrepreneurship event in downtown Richmond yesterday. Regions such as Richmond can avoid losing startups to bigger metros, he told the Richmond Times-Dispatch, “if you build up the right infrastructure in terms of capital and talent.”

You can take Case’s words with a heavy helping of salt — he was on a cross-country bus tour to promote entrepreneurship and his new book, “The Third Wave,” in which he argues that the third phase of the digital revolution is integrating the internet “in seamless, pervasive and sometimes even invisible ways” throughout our lives. This third wave, he contends, will revolutionize traditional sectors such as energy, health care, education, transportation, and food.

Currently, about 75% of all venture capital deals are consummated in just three states — California, New York and Massachusetts. “That does not reflect the distribution of great entrepreneurs with great ideas,” Case said. “There are a lot of great entrepreneurs in Virginia.”

The T-D article provided little explanation of why Case thinks why smaller cities will fare better than the past, other than citing the rise of crowd-funding, which allows average investors to find and invest in small startups.

Indeed, Case’s prognostication makes quite a contrast to a post I published earlier this week, “A New Map of Economic Growth,” which suggested new business formation is becoming more concentrated in a few large cities, not less. There is a large body of economic theory to suggest that, all other things being equal, larger metropolitan regions enjoy a big competitive advantage in the Knowledge Economy over smaller ones. Both job seekers and the companies that hire them prefer doing business in larger labor markets where they have more choices.

There wasn’t enough in the T-D article to make Case sound terribly persuasive. However, Case is one shrewd guy. He built AOL into an internet powerhouse and then, seeing that his subscription-driven business model was living on borrowed time, sold out to Time Warner at an extraordinary premium.

I’d like to think that there’s a strong case to be made for a smaller-metro revival in fortune. It just can’t be divined from Case’s remarks yesterday.

However, Governor Terry McAuliffe left no doubt in his remarks what he thought the secret is — a business-friendly environment and workforce training. He said his goal is to revamp high school education to produce graduates better prepared for the 21st century economy. “My goal is when every child gets out of high school that they have a skill to match the jobs that are out there today.”

Virginia Manufacturing Output Up, Jobs Down

There are more than 2,000 craft breweries in the U.S. now. Could artisan foods and beverages be the Next Big Thing in manufacturing?

There are more than 2,000 craft breweries in the U.S. now. Could artisan foods and beverages be the Next Big Thing in manufacturing?

by James A. Bacon

Manufacturing output in Virginia increased 3 percent between the 4th quarter of 2007 and the third quarter of 2015, yet manufacturing employment decreased more than 14% during the same period. Put another way, Virginia added $1 billion in manufacturing output, even after adjusting for inflation, but lost more than 40,000 manufacturing jobs, writes Aaron Williams in the Commonwealth Institute blog.

Overall Virginia employment is gaining steam. The state gained almost 20,000 jobs in the first quarter of 2016 and 100,000 jobs over the last year. But the gains were concentrated in service sectors like education, health and business services. The bastions of blue-collar employment such as construction, mining and manufacturing remained close to flat.

Williams’s commentary focuses on manufacturing. One possible explanation for increased output with declining employment is increasing productivity — the adoption of new technologies such as robotics to enable each person to produce more goods. While Williams doesn’t rule that out, he leans toward a second explanation: a turnover in manufacturing enterprises from low-value, high-labor intensive enterprises to high-value, low-labor businesses. “For example, high-end craft breweries and wineries replace textile mills and furniture factories,” he writes.

Between 2007 and 2013, food, beverage, and tobacco products manufacturing increased 40 percent while furniture manufacturing decreased 51 percent, textile mills decreased 57 percent, and petroleum and coal manufacturing decreased 65 percent. Simply put, manufacturing is a quickly changing sector in Virginia’s changing economy.

Bacon’s bottom line: Whether or not you except Williams’ analysis of the why manufacturing jobs are drying up, there is no disputing that manufacturing output is increasing while jobs are shrinking.

What does this mean for public policy? First, it calls into question the economic development priorities of the Commonwealth of Virginia — the Virginia Economic Development Partnership, regional economic development partnerships, the Tobacco Indemnification and Community Revitalization Commission, and time spent by Virginia governors on traditional economic development salesmanship — which have changed little since the model was perfected in America’s 1970s industrial-era heyday. If the goal is to create jobs, then pursuing manufacturing investment offers diminishing returns. Virginia still lands deals, but the deals offer less employment.

Another point: the high value-added model of breweries and wineries is a largely bottom-up phenomenon. While the Commonwealth has bolstered the wine industry through research, education and marketing under the auspices of the Virginia Wine Board — 2015 budget of $350,000 — please notice that the state is not in the business of subsidizing the start-up new vineyards and wineries. (Subsidies for craft breweries is a different matter, especially if they are big breweries coming from outside the state. Witness Stone Brewery.)

The trend toward local artisan food products is one that has occurred largely outside the eye of the traditional economic development apparatus, geared as it is to finding tenants for industrial parks. The Virginia’s Finest marketing campaign promoting craft food manufacturers is the exception that proves the rule. But, similar to the wine board, the support has been entirely at the level of branding and marketing… which is as it should be.

If Virginia wants to support the emerging craft economy, it needs to re-think its approach to economic development. I haven’t given much thought to which supporting structures are needed to boost the sector, but I’m pretty sure it’s not tax breaks and subsidies for individual enterprises, or industrial real estate development. The best approach may be thinking about reducing regulatory barriers and obstacles for entrepreneurs.

Hooville the Best Small City in Virginia to Start a Business?

Source: WalletHub

From the data geeks at WalletHub comes a new list of the best small cities in the country to start a business based on 15 metrics encompassing business environment, access to resources, and business costs. Here are the Virginia cities listed:

best_small_cities

The Virginia results are, shall we say politely, counter-intuitive. Northern Virginia’s “small cities” (in reality suburban communities) fare poorly while depressed cities such as Petersburg and Danville score near the top. The methodology gives brownie points to cities with low business costs, which could in theory should be helpful to any small business but in reality mostly reflects a lack of demand for real estate, labor and other business inputs.

Another issue I have is the need to distinguish between types of small business. A new Subway franchise and a cyber-security start-up are both small businesses. But the employment of the former will top out at about 15 or so low-wage employees, while the latter has the potential to grow to an enterprise with hundreds of highly compensated employees. Which one would you rather have in your community?

I see this list as being useful mainly for stimulating a discussion about the kinds of things we should measure to identify the important drivers of entrepreneurialism and economic growth.

— JAB

What Charlottsville Needs Is… More Charlottesville

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

There is nothing else in Virginia like Charlottesville’s Tom Tom Founders Festival, which launched a week-long series of events yesterday. Food trucks, craft beer, music concerts, an art bus, murals, films in the park, street dancing, a capella performances, craft cocktail competitions, a chili showdown, crowdfunding pitch night, and celebrations of arts, innovation and entrepreneurship — it’s all packed into one week.

The festival, now in its fifth year, “converges hundreds of bands, start-ups, artists, and visionaries with the purpose of celebrating creative founding,” says the Tom Tom website. “It’s a real opportunity to launch ventures amidst ideas and parties in one of America’s most beautiful and historic small cities.”

Charting a future as an arts-infused, tech-savvy economy was the theme of the Founder’s Forum opening event. “Speakers highlighted the importance of creativity as a means to boost Charlottesville’s attractiveness to businesses through education and culture,” reports Charlottesville Today.

“We will not succeed, I think, by trying to become Boulder or Raleigh,” said Mayor Mike Signer. “We will succeed by … becoming more Charlottesville.”

Bacon’s bottom line: The festival sounds like so much fun I wish I could be there. I’m envious — I want one in Richmond! Any region that can tap into the energy at the intersection of the arts, technology and entrepreneurship will thrive in today’s economy.

When I graduated from the University of Virginia in 1975, my experience at the university was so positive that I wanted nothing more than to move back to Charlottesville. At the age of 30 I managed to do so, taking a job in corporate communications for AMVEST Corporation in an idyllic location five minutes from UVa in the Boar’s Head Inn complex. But I discovered to my dismay that unless a newcomer was connected to UVa or had the bucks to join the Farmington Country Club, Charlottesville was no city for young professionals. It wasn’t long before I moved to Richmond, which I found much more to my liking. But times have changed in the past 30 years. Charlottesville looks like the kind of city where young professionals can sink roots and prosper. I foresee a great future for the region.

— JAB