Editor’s note: This is the second in an exclusive in-depth look at the NCTDA.

Related story: Where NCTDA incubates business:www.localtechwire.com/article.cfm?u=2253&k=18&I=05 When the North Carolina Technological Development Authority was established in the mid-1980s, economic development was a foreign concept to the state, which for years subsisted on the pillar industries of agriculture, furniture and textiles.

During its tenure as part of the state Department of Commerce and, for the past 11 years as an independent nonprofit agency, the TDA cut a wide swath across development initiatives:

  • The agency was responsible for creating a network of incubators that provided the support needed to nurture small businesses.
  • It operated a venture capital fund that provided seed money to entrepreneurs trying to build a technology company around an idea.
  • It administered federal grants to provide rural development loans.
  • And it assisted universities in commercializing laboratory research.

But as North Carolina’s pillar industries have eroded in recent years and more emphasis has been put on economic development – and developing technology companies, in particular – other initiatives have sprung up to speed the state’s transition from an agrarian, blue-collar economy into a high-tech, white-collar one. They include the following:

  • Rural Internet Access Authority, which is funding the creation of high-speed data networks in rural portions of the state, as well as programs to train residents how to use computers and take advantage of the new system.
  • Dogwood Equity, an $80 million venture capital fund that invests only in businesses located outside the state’s metro areas.
  • .

  • Academy Funds, a venture firm that funds technology startups that are built upon research that has spun out of the state’s universities.
  • Golden LEAF, which distributes a portion of the state’s proceeds from the national tobacco litigation settlement, recently pledged spending about $85 million to develop biotechnology and biomanufacturing companies in rural counties, including providing venture capital investments and funding job training programs.

The growing array of alternatives has some people questioning TDA’s future role in economic development and, given the criticisms of the agency’s spending by the State Auditor’s Office, whether the legislature should continue to fund it.

Small business services needed

Already, state lawmakers are forming a committee to study the future of TDA’s 23 business incubators and could solicit proposals from other groups to run them, says Rep. Bill Owens, an Elizabeth City Democrat who chairs the House Appropriations Committee subcommittee that oversees the TDA.

“The incubators are important to the state,” Owens says. “We’ve had such negative feelings with the TDA, and it’s not something you get over in a day or a month. … They have some proving to do for a lot of people.”

TDA President Dave Emmett says he’s up to that challenge. As he trots out statistics pointing to the agency’s past impacts on the state’s economy – an estimated 1,700 new jobs and more than $900 million in growth, for example, from the incubators, venture investments, rural loans and technology transfer initiatives. Emmett also says the need for those services is greater now than ever before.

Emmett points to national surveys that place the Research Triangle region among the top five metro areas nationally in churning out engineering and science graduates. But the area ranked only 48th nationwide in the number of technology jobs for those graduates.

“We’ve turned ourselves into an exporter of talent,” he says. “Let’s be about focusing our resources on making the environment better for the next SAS or the next Cree Research. These are the kind of companies that, not only do they employ a lot of people and pay a lot of taxes, but the wealth is here.”

Others also see a need for the TDA’s continued involvement in its various programs, where it can work in tandem with the newer initiatives.

“I’ve always felt these other entities could use the expertise the TDA has developed rather than reinventing the wheel,” TDA Chairman John McConnell says. “There needs to be a major focus in the state on establishing new business.”

Commerce Secretary Jim Fain is trying to map out a statewide strategy for encouraging entrepreneurial activity and business growth and sees the TDA playing a role in it, spokesman Tad Boggs says.

End of venture fund?

Former State Treasurer Harlan Boyles, who recently joined the TDA board, says the agency’s future direction “will probably have to recognize these new undertakings.” He wants to see more collaboration between the TDA and North Carolina universities, the N.C. Biotechnology Center and research centers like MCNC.

“There are a lot of things the TDA could be involved in, yet under the current circumstances, there are a limited number of things they can do,” Boyles says. “We need to join hands to help all of those aspiring to emerge in the new economy.”

One of the groups he wants the TDA to work with is venture capital firms, saying the agency should abandon its efforts to operate a venture fund because of the current slack market and the lack of state funding.

Jane Patterson thinks a move like that would be a mistake. Patterson, who served as technology adviser to former Gov. Jim Hunt and now heads the Rural Internet Access Authority, says TDA is a critical component to early-stage corporate financing in the state, noting that the agency helped found both Aurora Funds and Academy Funds in addition to providing seed funding to a number of technology companies.

“They prime the pump to get the water flowing (from other venture firms) later on,” she says. “The tech transfer money and effort we have today wouldn’t be there without the TDA.”

Emmett says he would like to take the campus-based incubator concept the TDA has operated at N.C. State University over the past few years and replicate it at other North Carolina universities, providing the early money and support to transform academic research into viable businesses.

But he acknowledges that the TDA’s investment days may be over if the state refuses to fund the agency in the future. Although officials plan to pursue federal and foundation money to continue operations, most of it likely would be restricted to paying for services like running the incubators rather than making risky venture bets, he says.

Gov. Mike Easley and State Auditor Ralph Campbell remain firm in their stance against providing the TDA with any more state support, and the Auditor’s Office has called for a timetable for the TDA to become self-sufficient if state funding is restored.

More emphasis needed

Boyles says he believes the TDA could survive without state support by charging fees for its services, much as MCNC has done since it was weaned off of public support three years ago. But Emmett says that financial structure wouldn’t work because the TDA deals primarily with cash-poor startups.

“We’re not seeing any competition from the for-profit sector to come out here and provide space to companies with very weak balance sheets,” Emmett says. “Our model has always been one of state support. It has never been our goal to replace or remove ourselves from that state mandate of state support.”

Other TDA supporters say they are irritated by the whole notion of having to beg for a small appropriation from state officials who seem more concerned by the costs of some dinners and convention trips than the impact of shutting down an agency that has helped hundreds of small businesses gain a foothold in the state economy.

“If the state is only interested in funding an initiative like the TDA to the tune of about $1.5 million a year, why even waste the money?” McConnell says. “This shows how little significance the state places on developing industry and helping little companies grow.”

As recent as the mid-1990s, North Carolina was among the national leaders in science and technology funding, according to Patterson, who says the state now is “lucky if we’re in the middle of the pack.” Other states have copied the model created by the TDA and other agencies and have scaled it to a higher level, she says.

“Science and technology development is where it’s at in the future for both urban and rural areas,” she says. “We as a state need to rededicate ourselves to that … and support groups like the TDA.”

Coming Wednesday: Dave Emmett, in the eye of the storm

Part One: Clock Is Ticking on TDA …www.localtechwire.com/article.cfm?u=2244