A few ideas for how the philanthropic sector can support local R&D and technology-enabled growth
For my class at the University of Chicago’s Harris School of Public Policy, I calculated the amount of philanthropic dollars given to Chicago’s community of technology-oriented working spaces, incubators, and accelerators — I’ll call them collectively “entrepreneurial support organizations,” or ESOs — at about $50 million between 2011 to 2019.
Since nearly all of these ESOs are 501(c)3 nonprofits, I was able to calculate this figure from annual tax filings. I certainly may have missed a few organizations that fall under this umbrella, so consider $50 million to be an estimate and the minimum amount of money donated to these nonprofits in and around Chicago over that time period. Note that I did not include ESOs housed within a university. If I had, the $50 million estimate would double at the very least.
As with many causes, supporting entrepreneurs to launch and grow businesses is a noble endeavor, and perhaps it’s worth leaving it there. But if the public and philanthropic sectors are going to push so many taxpayer and tax-deductible dollars toward ESOs, I think we all have a right to expect that they demonstrate effectiveness. After all, these dollars could be taxed and given to public schools, roads, and research labs.
ESOs are not ends in and of themselves. A growing body of research is taking an inquisitive look into ESOs, if not flatly casting their effectiveness into doubt. In 2015, the Kauffman Foundation looked at three dozen academic articles assessing the effectiveness of business incubators, and could not find evidence that incubated businesses were significantly outperforming companies that did not go through an incubator. The Brookings Institution later credited business incubators and accelerators with increasing venture capital deal flow, but needed more evidence before declaring that they actually supported regional growth.
Yet the names on the doors of ESOs suggest the business model is still working. I want to be clear: I’m glad that they are. I am not out to undermine any nonprofit serving entrepreneurs. I am simply providing a warning.
In his irreverent book, “Winners Take All: The Elite Charade of Changing the World,” journalist Anand Giridharadas cautions against falling for the “win-win” narrative that seduces believers into thinking one can do good while at the same time advancing self interests. Far more frequently than not, the two *are* in conflict.
The reality is that the current market does not allow equal opportunity to start and grow a business, no matter how many nonprofits are offering eight-week programs to teach “lean” startup methodologies. (More on that later.)
Here are a few ideas for ensuring ESOs deliver some win-wins, or at least some wins for the entrepreneurs they serve and not simply the donors posted on the front doors:
Help license patented technology from local labs
The U.S. Department of Commerce’s “StatsAmerica” platform ranks cities by the volume and value of patents that diffuse into the local economy. Among the top 40 largest U.S. cities, the highest performers should not be a surprise among close observers of the American technology economy:
1. Austin-Round Rock, TX Metro Area (196.6)
2. San Jose-Sunnyvale-Santa Clara, CA Metro Area (196.6)
3. Seattle-Tacoma-Bellevue, WA Metro Area (195)
4. Minneapolis-St. Paul-Bloomington, MN-WI Metro Area (194.3)
5. Kansas City, MO-KS Metro Area (193.3)
6. Portland-Vancouver-Hillsboro, OR-WA Metro Area (191.3)
7. Dallas-Fort Worth-Arlington, TX Metro Area (185.4)
8. San Antonio-New Braunfels, TX Metro Area (183.7)
9. San Francisco-Oakland-Hayward, CA Metro Area (182.4)
10. Los Angeles-Long Beach-Anaheim, CA Metro Area (180.2)
San Francisco, Austin, and Seattle are superstar tech cities. Chicago is not. Chicago ranks 30th among the top 40 cities.
I have found a positive correlation between patenting and per capita growth and (more importantly) technology diffusion and per capita growth. That’s logical.
What are the ESOs doing to support technology transfer? Do they have local researchers giving presentations on their inventions, and ask local entrepreneurs to think of ways these inventions can be used in the commercial market? Do they have patenting attorneys on staff to help license inventions from local universities or federal laboratories?
They ought to.
Protect patents from Big Tech
In 2011, Barack Obama signed into law the America Invents Act, establishing the legal owner of a patent is the inventor who first files a patent, rather than the first to invent, the latter presenting opening for legal disputes over who — absent legal documentation — really was first.
The law seemed logical and aligned the United States with international peers. Yet as the Financial Times’ Rana Foroohar has found, Big Tech may have lent its hidden hand in getting the American Invents Act through Congress, and that’s never good.
I, John Oliver, and many others may have been duped by a scary tale of “patent trolls.” I’ll let Oliver tell one side of the story here:
Ok, but Oliver’s commentary includes this from a U.S. Patent and Trademark Office report, issued in 2013:
Yeah, that report is dubious at best. A Government Accountability Office report later found patent trolls were actually responsible for about 20 percent of patent lawsuits, a problematic but surely less alarming share of patent litigation.
Notable that the White House report came at a time when the U.S. Patent and Trademark Office was directed by Michelle Lee, Google’s former head of IP.
Indeed, if the goal of the America Invents Act was to reduce patent litigation, the results are clear. It failed.
As you can see, the America Invents Act has not decreased patent litigation. What it has done, according to Foroohar, is strengthen the hand of Big Tech to dispute ownership of patents, particularly in software, and squash much smaller insurgents or force them to settle for much less than the patents are worth.
This is repeatedly being done through the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board — a body created by the America Invents Act — which Big Tech has used as a “shield” to infringe on suppliers’ IP, according to Foroohar.
If ESOs want to help entrepreneurs that are commercializing their own technologies, they should help entrepreneurs protect IP — perhaps through pro bono legal support — that is rightfully theirs. That legal support should be provided through litigation, not simply in the early stages when a patent is filed.
Support open source communities
I would not be an overstatement to call the Free and Open-Source Software (FOSS) community as a movement. That’s a weighty word, invoking the more significant causes of recent history. I don’t use it lightly.
The FOSS community began in the 1980s as a small group of hobbyists that freely tinkered with and improved commercial software programs.
Four decades later the FOSS community can be credited with building the foundation of modern life. The databases, operating systems, and software that power our digital economy can trace their roots back to the FOSS community.
As Harvard Business School’s Frank Nagle explains:
FOSS underpins the entire digital economy in the form of operating systems (Linux, Android, etc.), databases (MySQL, PostgreSQL, MongoDB, etc.), and big data and artificial intelligence software (Hadoop, TensorFlow, etc.). Multi-billion dollar companies are regularly built on the back of FOSS.
There are now hundreds of FOSS communities with tens of thousands of developers across the world, working on new advances in machine learning, robotics, and a host of other software-enabled technologies. The potential value of FOSS will multiply as the economy moves into 5G networks connecting more and more autonomous systems.
(Note that I’m avoiding the distinction between free software and open-source software. There is one, and the difference is clarified here.)
ESOs should provide a platform for coders to collaborate on FOSS projects. Public agencies should be at the table too. So too should corporate partners. Indeed multinational corporations like Bosch and Microsoft are already lending engineers to FOSS ecosystems.
If ESOs are going to be advertised as a city’s convening force for local innovators, then that’s what they should be. But that will require supporting free and open-source innovation.
Answer that one difficult, awkward question
What’s the true intent of corporate and family office giving? Do they give with an unalloyed commitment to advance humanity and their community? Or are other motivations in play?
The U.S. tax code doesn’t require philanthropists to write checks based on the purist intentions. If regional and equitable growth is the reason for philanthropic giving, let’s collectively figure out how to best do that. If the goal is simply to provide a portal for advertising and business development, or to simply to reduce tax burdens, I’m not here to flip the apple cart and condemn folks who are simply responding to incentives the U.S. tax code has provided. But I think it’s probably best for those more focused on local growth to better devote time and resources to finding other partners.
I would also encourage philanthropic donors to look around the America we live in. Giving to ESOs cannot be done without an understanding of the vastly unequal economy. It’s much easier to quit your stable employment to start a business when you have a foundation of wealth to pay the bills if the business fails.
For many would-be Black entrepreneurs, the legacy of slavery, Jim Crow, and mass incarceration has systemically undermined the ability to build the kind of wealth necessary to launch entrepreneurial careers.
We should have race-conscious policies, and we should also have race-conscious philanthropic giving. We should also be conscious of the breakdown of anti-trust enforcement that has allowed four companies (Apple, Alphabet, Amazon, and Microsoft) to reach $1 trillion in market capitalization.
It is the height of ignorance to advertise entrepreneurship as a pathway to upward mobility without first recognizing systemic racism and monopoly dominance over our national economy.
Philanthropic gifts should be directed at the source of inequality. I am getting very concerned that philanthropic gifts to ESOs are instead being made by Big Tech monopolies, multi-millionaires, and billionaires to divert attention away from the inequality they enjoy.
-TD
— — —
Supplementary reads:
“Why Congress should invest in open software” by Frank Nagle (Brookings).
“Richard Stallman’s costly return to the Free Software Foundation,” by Tom Krazit (Protocol).
“‘Hack The Army’ Uncovers 238 Cyber Vulnerabilities,” by Brad D. Williams (Breaking Defense).
“Beefing Up Merger Enforcement by Banning Merger Remedies,” by Hal Singer (ProMarket).
“Two Years Later, Has the Business Roundtable Statement Transformed Capitalism?” by Alex Edmans (ProMarket).
