Thursday, November 10, 2011

Guest Column: Juicing Maryland's Investment in Startups and Innovation // Plus, a Quick Note on Youth Voting Rights

In response to yesterday's article, Maryland & MoCo in 2020: Business Leaders Make "Altruistic" Suggestions As Defense Jobs Bubble Bursts, a Maryland Juice reader submitted a lengthy response in the comments. I've decided to publish Tim Hwang's note as Maryland Juice's second-ever guest column. Our first guest post was from Pee Wee Herman's Chairy, so this one might be a little bit more dignified.

Tim Hwang previously served as the Student Member of the Montgomery County Board of Education (aka SMOB). He comes from a long line of politically involved, intelligent SMOB's. The My High School Journalism website in October 2009 noted this history of the student Board position:
The Student Member of the Board is a 31-year-old appeasement for students. In 1977, the Maryland General Assembly created a nonvoting seat on the Board of Education, and a year later, David Naimon was elected as the first student member of the Montgomery County Board of Education....
In 1989, Maryland’s General Assembly gave the student member a limited vote within the board..... When the General Assembly gave “limited voting rights,” they meant it. The Student Member may not vote on “budget items, negative personnel matters, school closings/openings, and boundary changes,” according to the Montgomery County Public Schools website....

Our current student member, Tim Hwang, hopes to bring a new era for student representation. Mr. Hwang certainly has an impressive résumé. He founded and is currently the head of an international non-profit organization fighting poverty and homelessness. He worked for President Obama’s campaign. He has been involved in the county SGA since his freshman year. He has worked with the state SGA, the Democratic Party, the Maryland Youth Advisory Committee, and the list goes on.
Indeed, the preceding article appears (in hindsight) to have been one of the opening salvos in the (as of yet) unsuccessful SMOB voting rights campaign that followed. Notably, the students want full voting privileges, but their proposal also includes a compromise preventing them from casting tie-breaking (ie: decisive) votes. 7 out of 8 "grownup" Board of Education members supported the students, and their bill was sponsored by MoCo Senators Jamie Raskin & Rich Madaleno, along with Delegates Anne Kaiser, Tom Hucker and Ana Sol Gutierrez. According to The Gazette, the bill has been stalled by opponents in the Senate this year. Without further ado, here is Tim Hwang's response to Maryland Juice's latest diatribe on Maryland tax policy:

Juicing Maryland's Investment in Startups and Innovation

Hi Juice,

As usual a very well thought out policy analysis and overview of some of the current challenges that the state and region faces as we come up in the next couple of years. I do disagree on some points.

Although I agree with the sentiment surrounding the decrease in defense spending, ultimately I think the solution is going to come from the private sector. And this is where I think Maryland is lacking. It isn’t necessarily a tax incentive or a simple tinkering of regulatory changes that will make any difference (though some may disagree – there is much research to support that they don’t make that much of a difference). Personally, I think businesses have a right to be "self-interested" - its what causes them to hire more workers, to create better and innovative products, to compete against each other for the best products, etc. I just think they're asking for the wrong things. These are only temporary fixes, especially if you want to foster the growth of the next Apple, Merck, Google, etc. we have to look long term. We’re going to have to revamp the entire business ecosystem and slowly shift to a “startup culture” of entrepreneurship and value creation. You’re right. We can’t compete on taxes. But we can compete on programs, on culture, etc.

Entrepreneurship has been shown to be the only way to create new jobs. According to the Kauffman Foundation, startups annually create about 3 million jobs, while other companies lose 1 million jobs in the same time span. Here's a quote from the White House this year: “Startups are engines of job creation. Entrepreneurs intent on growing their businesses create the lion’s share of new jobs, in every part of the country and in every industry. And it is entrepreneurs in clean energy, medicine, advanced manufacturing, information technology, and other innovative fields who will build the new industries of the 21st century, and solve some of our toughest global challenges.” This comes almost intuitively for many of us who have been witness to companies like Facebook, Google, Apple, etc. starting off as an idea in a university dorm room and growing to become some of the largest companies in the world. This is where I disagree with you. I don’t think its fair to put ALL corporations in the same basket. Yes, you get companies like Bechtel – but that money, I think, should have gone to creating jobs through entrepreneurship because in the long run STARTUPS are the only companies that have a net increase in jobs. These are the types of companies you should be actively trying to recruit and fight for because they have the potential for high-growth and high value, which translates into an expanded tax base, high value creation, and a "race to the top" in terms of labor (in San Francisco companies are trying their hardest to out-recruit each other for the best and brightest engineers).

Not only does entrepreneurship create jobs, but it has the potential to solve some of our region’s biggest problems. Last week, I was talking with an entrepreneur who was working on developing a smart app to create long-run algorithms about traffic patterns around the state and put the information on a GUI interface easy to use on an iPhone in addition to an engineer-entrepreneur who was working on developing a more efficient way of converting trash into energy. The problem with Maryland isn’t that we don’t have the talent or expertise to develop this kind of technology – its that there are just no incentives and safety nets for entrepreneurs to make the jump, create value, and distribute their products on the open market to get it to the people.

The $100 million in the new InvestMaryland is great but it’s definitely not enough. As you’ve stated before, the educated workforce, the access to high quality schools, etc. all matter, but once again it’s not enough. We have to fundamentally change the culture of the state to move towards innovation and entrepreneurship.

In two recent Presidential Memorandums, the President ordered all federal agencies, including high-tech agencies such as the National Institute of Health and the Department of Energy, to cut the time of tech transfers by 50% to spur on innovation and job creation among private companies. And for the past several months, the White House has been coordinating a privately driven movement, Startup America, with some of the entrepreneurial community’s biggest hitters (Steve Case, Michael Dell, Reed Hastings, Reid Hoffman, Frederick Smith, etc) to take a grassroots approach to connecting entrepreneurs with resources such as venture capital, providing them with much needed mentors, lobbying for targeted tax incentives, and cutting suffocating red tape for startup companies.

I think this is a signal from the White House that “yes, we are going to face huge cuts but we want to mitigate that by making it easier to get access to federal agency research and resources by the private sector” – an implicit nod of the head for many federal workers to go out and start their own companies. The challenge now is: where are all the jobs and the companies going to go?

In any startup there are three things that matter: land, labor, and capital (and how to obtain and manage them like accounting, legal, human resources, etc). Put yourself in the position of an entrepreneur: you have a great idea and you are looking to minimize costs for all of these and maximize access to resources in your critical early stages. Maryland and Virginia are on par for labor and in many cases labor is better in Maryland (given the abundance of agencies like NIH, DoE, and FDA that are all located here). As for land, I think Montgomery County, in particular, has done an excellent job in terms of providing special commercial zones as well as government incubation programs (free or subsidized land for startups through its business innovation network) and this is certainly an area that the rest of the state can improve in.

The last one, in my opinion, is the deal breaker. Capital. The fact that the STATE of Maryland had to come in and create a fund is testament to the lack of private venture capital in the state (not just in comparison to Virginia but to other major hubs like San Francisco – which by the way is the only other hub that isn’t facing the high unemployment rates that the rest of the country faces, New York, etc). Capital is the lifeblood of startup companies and cashflow is everything. But here’s what you got: you have a barren venture capital field, you have no organized networks for entrepreneurs (networking events where you could bump into your next investor or your next cofounder – trust me! This happens!), you have no established angel networks, etc. If I were an entrepreneur (and I’ve been in this position before with my own startup), I would be scared to death by the prospect of not being able to get capital for my business and having to go completely into debt and bootstrap my business all the way though. The problem then isn’t that we’re losing companies, it’s the fact that given our schools, our labor, our land, our technology (especially given the new increased tech transfers we’re going to see) we aren’t unleashing the full potential of our regional economy. That is the real problem. But in order to solve it we need to change the entire way our economic ecosystem works. A race for capital against a state like Virginia would essentially be a race to the top in terms of the free flow of capital and institutional investors and this is where we have to compete.

We have to create a strong DEMAND for venture capital (including their networks and expertise) to come to our state and start accelerating startups, we have to encourage a culture of entrepreneurship, we have to facilitate mentorship and resource networks, etc.

As an influx of highly skilled workers look for work apart from the federal government, we can turn this into an opportunity to transition our economy, to create incentives for people to pursue their own interests, and move our state forward. Lets make sure the next big thing is created in Maryland and make it a major competitor to Silicon Valley in California. I think if we want, we have the potential to raise a generation of leaders and visionaries who have the potential to create millions of jobs, solve society’s deepest problems, and move the state forward.

Tim Hwang

Editor's Note: I completely agree with Mr. Hwang on the role of innovation and startups, and I am really glad he brought that into the mix. The stars must be aligning, because my employer Demand Progress is currently fighting bi-partisan Internet censorship legislation in Congress that would hobble innovation and startups. Google, Yahoo, venture capitalists, net neutrality advocates (and even the Tea Party) are going wild about the bill. I hope members of the Maryland Congressional delegation might see this note and think carefully about the legislation (note: it is called Protect IP in the Senate and SOPA in the House). Indeed, I'd never spoken to a venture capitalist in my life until recently. Strange shifts happening in the world right now....

P.S. The current SMOB, Alan Xie, is a MoCo curfew opponent. :)

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