Government experiments mean funding for small companies

For many young companies, private funding is the holy grail of growth. Venture capitalists and angel investors—in the uncertain early days of start-ups and small firms, these private investors can mean the difference between success and failure. But a unique phenomenon has begun to occur in the U.S. that is changing this. Recently, public institutions are expanding their role in the field of technological innovation by offering resource, policy, and infrastructure support. Government funding has now become a viable option for young companies, even if the technologies they’re developing aren’t a sure thing. In short, state governments, and not just private financiers, are willing to experiment in the hopes of boosting their local economies.

But it’s not enough for governments to offer this funding—especially if companies are unaware that it’s available. Daniel Armanios, assistant professor of engineering and public policy, along with Ph.D. student Dian Yu and co-author Lauren Lanahan of the University of Oregon, have compiled an experimental database of these resources using reporting from the State Science and Technology Institute (SSTI). They have detailed their methodology in a recent paper published in the journal of the Academy of Management Discoveries.

“We term this phenomenon as government experimentation,” the team explains in the paper. “Scholarship has tended to examine national efforts, yet local governments are in an ideal position to tailor programs to the local market context given their proximity.”

Local governments are in an ideal position to tailor programs to the local market context given their proximity.

Daniel Armanios, Assistant Professor , Engineering and Public Policy

To help companies understand and make use of public funding, the aim of their research is two-fold. First, it outlines the method by which they compiled their database. Second, it analyzes this local government experimentation, comparing each state’s policy portfolio, and separating the different ways in which state governments seek to support such experimental efforts into four distinct categories—hub specialists, public entrepreneurs, industry architects, and ecosystem designers. These four categories are intended to describe the different ways local governments experiment, based on two dimensions: first, what aspects of technology-based economic development they are trying to enhance, and second, what specific sectors they are trying to support in facilitating such development.

“Most prior approaches either simply counted the number of ways a state experiments or aggregated the total experimentation at the national level,” Armanios says. “What we found from our results is that this misses important distinctions between states. Even more problematic, aggregating to national levels may actually lead to differing—and potentially misleading—assumptions as to how states experiment.”

For entrepreneurs and small companies, this database will clarify what sort of technological developments their state is interested in supporting, thereby helping them better frame and target their technology initiatives to current state priorities. In particular, this database helps highlight what sectors their state seeks to involve in technology-based economic development, and around what aspects: training and human capital, physical infrastructure, or innovation in a broad or narrow set of technologies.

Empowered with this knowledge, the team hopes that future entrepreneurs and small companies will feel further empowered to seek funding not just from the private sector, but from the ever-expanding pool of public-sector funds.

Entrepreneurs, small business owners, and policymakers seeking to use the database can find it at: https://www.cmu.edu/epp/stategovexp/.

Funding support for this work was provided by the Ewing Marion Kauffman Foundation.