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Can the Bay State still make the big time?

One of the most pressing questions facing Massachusetts is how to cultivate, and keep, a new generation of billion-dollar companies. Much depends on the venture-capital community. But our new governor has a role to play too.

FOR THE INVESTMENT bankers who pocket handsome fees whenever they broker a deal to sell a company, Massachusetts has been the land of milk and honey over the past 15 years.

Onetime industry leaders such as John Hancock, Gillette, Lycos, Digital Equipment, Lotus Development Corp., Jordan's Furniture, BankBoston, Filene's, and have been gobbled up by larger entities headquartered outside of the region. (Even this paper was purchased by the New York Times Co., in 1993.) And more recently, some of the state's most innovative younger companies have been snapped up, like a promising pitching prospect, by far-off concerns. Just before the holidays, Publicis Groupe of France bought Boston-based Digitas, a publicly traded Internet ad agency, for $1.3 billion, and earlier in the year, Microsoft bought two Massachusetts software start-ups, Onfolio and Softricity.

Acquisitions are great news for investment bankers, as well as the executives and investors who've built those companies and can suddenly afford a second home on Nantucket, near Jack Welch's place. But for the long-term health of the state's economy, Massachusetts needs to cultivate a new generation of independent "pillar" companies, especially in forward-looking industries like technology, life sciences, clean energy, and financial services.

Pillar companies -- Boston Scientific, Fidelity, and EMC are three current examples -- influence entire industries, attract talented people to Massachusetts, and help retain recent college grads. They are usually publicly traded and tracked by Wall Street analysts, and work with broad networks of business partners around the world. These independent companies have strong local roots and offer jobs with a higher degree of security, whereas acquired companies often simply fade away once they're folded into a bigger business.

We're lucky that our state doesn't suffer from a dearth of innovative ideas, researchers, educational institutions, entrepreneurs, and investors, which are all important in spawning start-ups. What we lack are the billion-dollar behemoths -- companies like Google, which grew from two founders in 1998 to almost 10,000 employees in 2006, or Microsoft, which employs 70,000 people. Massachusetts has lots of saplings, but very few oaks.

That's a problem in an uncertain economy. "During different economic cycles, you want to have a balance of small start-ups and larger, established companies like Fidelity, which provide a foundation and a base," says Ross Gittell, a professor at the University of New Hampshire who also serves as forecast manager of the New England Economic Project.

The challenge facing the business community in Massachusetts, and Deval Patrick's administration, is how to ensure that the state remains a big-league competitor in the global economy -- not just a productive farm team. To do this, we need a fresh, high-energy approach to investing, mentorship, infrastructure, government responsiveness, salesmanship, and -- toughest of all -- encouraging companies to stay independent rather than selling out.

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To cultivate a diverse ecosystem of growing companies, the state's venture capitalists and angel investors need to shake off some of their conservatism, and invest in a broader range of industry sectors. They're comfortable investing in a start-up that's building a new piece of networking equipment, or a new medical device; less so investing in a company creating a consumer product, like the next iPod or TiVo.

That narrowness of focus may now mean that Massachusetts VCs are missing big opportunities. At a panel discussion at MIT's Venture Capital Conference in December, I asked two local venture capitalists from Atlas Venture and BCE Capital whether they'd have put money into YouTube, the Silicon Valley video-sharing site that was gobbled up by Google last year for $1.65 billion. They both admitted they'd have passed on the deal, saying the company's revenue prospects were too uncertain. Similarly, in the 1980s, a reluctance to invest in personal computer companies left Massachusetts without its own counterpart to Apple or Dell.

Massachusetts venture capitalists have racked up a successful track record investing in areas like biotech, business software, and data networking and storage equipment. But to hit home runs, rather than singles and doubles, they need to expand their scope -- perhaps by adding partners with experience in other fields, like retail, consumer electronics, renewable energy, or digital media -- and make riskier plays.

Once funded, entrepreneurs trying to transform small companies into global enterprises need guidance and mentorship from those who've already done so successfully. Governor Patrick and Dan O'Connell, his secretary of housing and economic development, ought to work with groups like the Greater Boston Chamber of Commerce, the Massachusetts Technology Leadership Council, and the Massachusetts Medical Device Industry Council to assemble a "Billion-Dollar Board" of current and former executives of large companies.

The board would meet quarterly, with a rotating cast of four or five members sitting on a panel, and offer an opportunity for entrepreneurs to present a business challenge they're facing, and get feedback and advice. Meetings would be private and off the record. Economic development officials might be present, too, in listening mode. The "Billion-Dollar Board" would act as a turbo-charged, high-level version of SCORE, the Service Corps of Retired Executives, which was launched in 1964 as part of the Small Business Administration.

Improving the state's transportation infrastructure and supply of affordable housing, two issues that are harped on perennially, are also important to investors and executives trying to build companies here, and recruit employees from around the Commonwealth or outside its borders. "It can be expensive to set up shop in Boston, if you're planning on building the next Cisco or HP," says Bob Davis, the founding CEO of Lycos and now a venture capitalist in Lexington. "It's an expensive place to do business, and housing costs are out of control."

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Beyond transportation and housing, Massachusetts also needs to shake its reputation of being hostile or indifferent to big businesses. As a candidate, Patrick put forth good ideas about increasing state government's responsiveness to business, promising that no state permitting or approval process would take longer than six months. Following through on that promise -- and offering applicants online status updates -- would send the right signal. An online database of "pre-permitted" development sites around the state would make it easier for existing businesses to grow here.

And there's more Patrick can and should do. Taking a cue from Governor Arnold Schwarzenegger of California, who touts his state's entertainment industry, agriculture, and tech sector everywhere he goes, Patrick should act as the state's global pitchman for technology, life sciences, renewable energy, and other leading-edge industries.

"[Economic development secretary] Ranch Kimball did a very effective job of selling the state during Romney's administration," says Michael Greeley, president of the New England Venture Capital Association, "but I give that administration mixed marks. You didn't hear from the very senior levels of the administration."

The Commonwealth could use some new branding, too. The shopworn moniker "Route 128" harkens back to the 1980s, and it excludes places like Worcester, Cape Cod, and Berkshire County. The "dot.commonwealth," a branding initiative from the late 1990s, didn't stick.

Patrick might talk about Massachusetts' vibrant culture as a wellspring of innovation. In the 19th century, inventors Thomas Edison and Alexander Graham Bell once worked in the same lab, just a stone's throw from the State House; these days, the inventor of the Web, Sir Timothy Berners-Lee, works at MIT, and the inventor of e-mail, Ray Tomlinson, has an office near the Red Line's Alewife stop.

The biggest challenge in creating the right conditions for a new generation of pillar companies in Massachusetts is changing the mind-set of executives and investors about building their companies "to flip," as the business writer Jim Collins once put it, rather than building them "to last."

For Boston Scientific, building to flip "was never the goal," cofounder John Abele told me last year. "The goal was to build something of value, something of substance."

Much like promoting abstinence to teenagers, it can be difficult to expect entrepreneurs and investors not to sell their company at the first appealing opportunity, but rather to remain independent. Here again, executives who've helped build successful stand-alone companies -- like Abele at Boston Scientific, Ned Johnson at Fidelity, George Hatsopoulos of Thermo Electron, Dick Egan and Roger Marino of EMC, or Staples founder Tom Stemberg -- might serve as role models, emphasizing the benefits of flying solo.

Many other states, including North Carolina, Michigan, New York, and Virginia, can dangle incentives and boast about their lower costs of living as a way of attracting branch offices, manufacturing plants, or other facilities. Massachusetts would be better off focusing on cultivating its own crop of pillar companies -- and tending to them carefully, so they get beyond the sapling stage -- in order to ensure that enough attractive, high-wage jobs are available to its citizens. Even if that means a bit less work for the investment bankers.

Scott Kirsner, a Globe business columnist, is the editor of "The Convergence Guide: Life Sciences in New England," published last fall.