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Rebuilding state's tech economy

SO THE STATE budget season is upon us once again. As the governor and Legislature work to jump-start the sluggish economy, I hope they understand that the Massachusetts technology economy needs help.

Recent US Census estimates suggest that Massachusetts is losing population for the first time in a decade and one of the groups leaving the state in significant numbers -- folks between 18 to 49 years old -- includes a generation of young, ambitious technologists and leaders. Higher paying jobs also are exiting. According to recent estimates, real median household income for Massachusetts technology workers is in decline, with fewer families able to keep pace with rising real estate costs, healthcare and day-to-day cost of living.

The fact that we have 46,000 fewer jobs than in January 2003 should raise a red flag for legislators.

So what can be done to reverse these trends?

Create a culture for entrepreneurship. Although most media attention is focused on larger, mature companies, a substantial number of people in Massachusetts make their living in entrepreneurial settings. This is part of a national trend. In the United States, more than 500,000 new businesses are created each year and more than 10 percent of working adults now are either starting a business or working at one that is less than 3½ years old.

Census figures indicate that most net new jobs are created by start-up activity or companies in rapid expansion phase. Entrepreneurs who will create these new businesses are a scrappy bunch. Conventional funding, including SBA-sponsored, asset-based loans, typically are unavailable to them. Only a few start-ups (typically fewer than 7 percent overall) will receive venture capital financing.

Instead, most entrepreneurs fund their new ventures through credit card debt, second mortgages, and other means. In fact, over the past few years, more than 80 percent of Inc. Magazine's Fast 1000 companies have been started with about $50,000 or less. Legislative stimulus proposals should be redirected to ''seed capital" for real entrepreneurial efforts. These might include a $10 million technology fund for loans of up to $100,000 to eligible entrepreneurs or a similar size state business innovation research fund that matches federal grants of up to $50,000 for new technologies. Tax incentives could be similarly aligned.

Ease the regulatory burden and facilitate the flow of capital. Legislators also ought to remove barriers to the flow of private investment dollars.

Early stage funding can come from private sources, most significantly from the Commonwealth's wealthiest citizens, sometimes called ''angel" investors.

However, these folks cannot invest in new opportunities if they cannot find them. Serendipity and networking only go so far, particularly for first-time entrepreneurs and those located in the far reaches of the state.

Current state securities rules disfavor the payment of any commission when seed capital is raised.

The Commonwealth needs new, definitive, less burdensome rules for ''finders," those individuals who make money by connecting investors and companies. In addition, a new intrastate digital network should be created to introduce wealthy investors and ''angel" groups to local companies statewide.

Similar national efforts such as the ACE-Net angel network failed in large part because of burdensome application procedures and a failure to understand the basics of ''angel investing": Local investors like local investment opportunities. A more streamlined, focused approach on in-state opportunities would be far more effective.

Invest in people. Massachusetts will attract new businesses, out-of-state talent, and investment dollars only so long as it remains a technology leader. A highly skilled and educated workforce is essential.

Private colleges should not be the only alternative for a sound education in the state. Our public colleges and universities are the gateway for many of the state's neediest citizens and also for those interested in retooling for a new career.

Massachusetts appropriations for public higher education are falling far behind other leading ''technology-oriented" states, according to recent reports.

This must change. A $185 million investment in state colleges and universities might yield exponentially larger returns in terms of skilled workers, innovation, and new technologies than would be gained by paying a larger corporation $10,000 for each low-paying job it creates.

As lawmakers convene on the budget, let us all hope that they can focus on creating greater opportunities and more entrepreneurs.

Lawrence Gennari is an adjunct professor at Boston College Law School, and editor of Starting Up and Advising and Emerging Massachusetts Business.

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