Reading the tea leaves of future economic development policy
Rhode Island as Culinary Valley appears to trump strategic investment in biomedical industry sector
The hidden defect – the inherent vice – in the news media’s economic reporting is that they have a strong incentive in maintaining the status quo, promoting the currency of their advertisers. Call it our culture’s weapon of mass distraction.
Just look at the media dizziness around inflated and deflated footballs, and all the bad puns surrounding who handled the balls, how they handled them, and what were the results.
Translated, if a station’s traffic reports are sponsored by Burger King or by Dunkin Donuts, how serious will its coverage be about the plague of obesity and Type 2 diabetes?
PASCOAG – The economic news so far this January has been encouraging, from a quick scan of the headlines, according to traditional metrics.
Rhode Island’s unemployment rate dropped in December 2014 to 6.8 percent, the lowest rate for the Ocean State since March of 2008, some seven years ago.
In total, 7,700 jobs were added to the state’s economy in 2014, the largest annual gain in 14 years, since 2000, when some 9,500 jobs were added, according the R.I. Department of Labor and Training.
The price of a gallon of gasoline keeps falling, now hovering around $2 a gallon for regular, a drop in price of about $1.50 a gallon from last year.
In the last year, the Dow Jones Industrial Average rose more than 1,500 points, to 17,813 on Jan. 22, compared to 16,373 on Jan. 22, 2014.
In the real estate market, December 2014 sales of single family homes in Rhode Island rose compared to December 2013 sales, with a slight increase in the median price for those homes sold.
More than $124 million was invested by venture capitalists in Rhode Island companies in 2014, the largest amount to date, according to a national report.
Perhaps, there is some credence to the glass-half-full optimistic view of former Gov. Lincoln D. Chafee, who proclaimed, “We did it!” in spite of Rhode Island’s penchant for nay saying.
On the not-so-rosy side, Rhode Island Kids Count issued a briefing paper on Jan. 22 that showed that Rhode Island’s rate for children living in poverty was the highest in New England, at 21 percent, with some 10 percent of the state’s children living in severe poverty.
The briefing paper offered a detailed analysis of the growing structural poverty in Rhode Island, undercutting the popular presumption that a stronger economy lifts all boats. There are a lot of folks who are not making it in Rhode Island, despite the economic up tick.
RI’s emerging biomedical sector
If you drill deeper into the details of venture capital investment in Rhode Island companies, you will uncover two critical threads:
• The biomedical and health industry sectors – with Nabsys, at $25.5 million, Neurotech, at $12.9 million, IlluminOss Medical, at $17 million, and Care Thread, at $100,000, received a total of $55.5 million – almost half [45 percent] of the venture capital invested in Rhode Island companies in 2014.
• All these companies received initial investments from the Slater Technology Fund, as did many of the other software and technology firms on the 2014 list, including Voltserver, Absolute Commerce Group, and Enhanced Energy Group.
And, the numbers in the 2014 list do not include the $450 million VC investment in Moderna Therapeutics in Cambridge, Mass., announced the first week in January of 2015, reportedly the largest VC investment ever in a biotech company.
One of the investors in Moderna Therapeutics is Alexion Pharmaceuticals, headquartered in Chesire, Conn., which has a manufacturing facility in Smithfield, R.I.
Alexion had previously invested $25 million in equity in Moderna as well as another $100 million for the exclusive option to license 10 investigational drugs for rare diseases using Moderna’s mRNA therapeutics platform.
Nor does the number integrate or calculate the successes of Cherrystone Angel Group, an angel investment group based in Rhode Island, which has about half of its portfolio invested in the biomedical sector, including its investment in Boston Heart Diagnostics, a Framingham, Mass., company that was recently acquired by Eurofins for $140 million.
The growth of venture capital and angel investment in the emerging biomedical sector and health sector in Rhode Island signals the emergence of these sectors in Rhode Island’s innovation ecosystem.
The question is: how will Gov. Gina Raimondo and her new CommerceRI secretary, Stefan Pryor, choose to capitalize on the emerging promise of this industry sector as part of its plan to make it in Rhode Island?
To date, the signs have not been very encouraging. Health innovation and the emerging biomedical sector were completely left out of the discussion at Raimondo’s jobs summit, despite the health industry being the largest private employer in Rhode Island. [See link to ConvergenceRI article below.]
Targeting Rhode Island’s biomedical industry sector would, it seems, be congruent with Raimondo’s announced economic vision: to grow the economy through investment, focused on workforce development, to attract new entrepreneurs and investors to Rhode Island, and to promote innovation in government.
The importance of Slater
In a recent interview, Pryor said that while Rhode Island has the assets, it doesn’t have the “adequate tools” to attract businesses from elsewhere or to encourage expansion of local companies, according to Kate Bramson’s story in The Providence Journal.
Really? Perhaps Pryor should schedule a meeting with the Slater Technology Fund, which, as noted earlier, has served as a common thread in most of the venture capital investments made in Rhode Island companies in 2014. Slater played a key role in making the initial startup investments in most of these companies.
The tools are there; what’s missing, it seems, is a lack of assets to make investments, a problem that Slater is also seeking to remedy by building new public-private partnership funds.
Slater has compiled an excellent track record in making sound investments, supported in large part by state of Rhode Island, which has pumped some $40 million into the technology fund since its inception.
But this year, no state money has been allocated to Slater, marking the ongoing transition of Slater from a state-financed investment fund to a series of public-private partnership funds. [See link to ConvergenceRI article below.]
CommerceRI has recently chosen to invest about $3 million from its pool of $8.5 million in the state’s Renewable Energy Fund into a new energy investment fund at Slater. The decision recognized that the agency lacks the specific expertise to make good loan investments in early-stage companies to receive loans, something that Slater does very well.
The allocation of the money, collected on charges on consumers’ electric bills, also recognized that Rhode Island needs to ramp its investment in renewable, clean energy by supporting the development of such early-stage technology companies in the state.
The new energy investment fund, which will be seeking additional private capital for investment, is the first of several potential funds that Slater may choose to undertake. [Federal securities law prevents Slater from discussing the type of funds, the kind or size of investments, according to Slater officials.]
As an interim “bridge” strategy, Slater had been relying on federal financing, in particular, the federal State Small Business Credit Initiative. Only about $1.9 million of the promised $9 million in federal money has been delivered to Slater to date – with the rest tied up in a federal audit.
That audit has now been completed; a significant tranche of the promised federal funds has been received by CommerceRI from the federal government. What remains is for the money to be transferred to Slater. A news release announcing the transfer is said to be imminent.
Since the nomination of Stefan Pryor to head CommerceRI was first announced on Dec. 16, and Pryor was introduced at Raimondo’s jobs summit with some 100 thought leaders, ConvergenceRI has requested, every week for the past six weeks, a sit-down interview with the new head of economic development in Rhode Island, without any success.
For whatever reason, the Raimondo administration has chosen not to make Pryor accessible – a strategy that may hopefully change following his confirmation hearings to be held on Tuesday, Jan. 27, by the R.I. Senate Commerce Committee.
What was offered instead was an opportunity to join with Raimondo and Pryor on Jan. 22 at the first of many “Make It in RI” tours, at the Daniele, Inc., $62 million food processing facility in Pascoag.
Bow-wow-wow, oink oink, applause
The tour was very much a dog-and-pony show [or, perhaps, more aptly, a dog-and-hog show] for the news media, given that Daniele produces fine charcuterie from “hogs raised on New England farms.” [A security dog, named Seventeen, after the Boston Celtics’ 17 championships, and her handler, greeted the guests in the parking lot.]
Among those who gathered for the tour were a coterie of Rhode Island foodies, including Jessie Rye, co-executive director of the Food System Enterprise at Farm Fresh Rhode Island, and David Dadekian, from Eat Drink RI. The reporters included Steve Klamkin from WPRO, Mark Curtis from ABC 6, and Paul Grimaldi from the Providence Journal.
Raimondo and Pryor arrived 20 minutes late after the announced start time. To fill the time, Davide Dukcevich, one of the family owners of Daniele, offered his view of the economic opportunity for food in Rhode Island, all the while holding his 18-month-old daughter, Carolina.
In Dukcevich’s view, Rhode Island is poised to become what he called “Culinary Valley.”
“I think we have all the ingredients here,” he said. “We have great farms, great people who make food, like Narragansett Creamery, great restaurants. We have Johnson & Wales, a top culinary school in the country.”
Looking at the strengths that Rhode Island has, Dukcevich said, “I can’t think of a greater strength than food.”
The great thing about the concept of Rhode Island becoming Culinary Valley, he continued, is “that it doesn’t crowd anything out. If anything, the better the food culture is, the more other companies want to come. Information technology people want to live where the food is great.”
The other important concept that Dukcevich stressed was the role of technology in Daniele’s new food production factory. “It’s not an old, archaic industry; it’s incredibly cutting edge. On the tour, you’re going to see robotics.”
Indeed, just outside the new facility were six arrays of solar photovoltaic panels, which provide enough electricity to power the offices at the plant, Dukcevich said.
Dukcevich, whose business card said “Sales,” touted the new Raimondo administration. “We’re hopeful, that’s the state motto. Our future is pinned on Rhode Island, our growth here. We think the future’s going to get better and better,” he continued, pointing out a new Daniele product that is scheduled to hit Target stores nationwide – a healthy snack pack of meat, cheese and almonds.
Dukcevich would have been happy to continue talking, but Joy Fox, Raimondo’s communications director, interrupted him, asking him to talk privately with her, apparently so that Dukcevich would not inadvertently steal the Governor’s thunder. Dyana Koelsch, who handles communications for her client, Daniele, had not yet arrived.
Did the staged media tour work? Apparently. Serious reporting on economic development issues did not occur. The big take-away by a Providence Journal reporter, it seemed, was writing about the difference in styles between Raimondo, who is a "hugger," and Pryor, who is not.
Command and control
The Commerce Corporation of Rhode Island board of directors canceled its scheduled meeting on Monday evening, Jan. 26.
It was to have been the first meeting chaired by Raimondo, who by state law, chairs the 13-member board.
Pryor had been scheduled to be introduced by Raimondo at the meeting. On the agenda had been eight Renewable Energy Fund grants, as well as matters pertaining to 38 Studios. The next scheduled meeting is a month away, on Feb. 23.