In San Diego, Connect is the non-profit organization that reaches into most corners of the local innovation community. Connect likes to say that it has assisted in the formation of more than 3,000 technology and life sciences companies in the area, and more than 50 cities around the world have emulated its programs for mentoring entrepreneurs and supporting startups.

Under CEO (and San Diego Xconomist) Duane Roth, Connect began issuing a quarterly report in 2009 to provide a more comprehensive measure of the relative health and wealth of San Diego’s innovation economy. Connect also hired a full-time lobbyist early last year to represent the interests of San Diego’s innovation community before legislators in both Sacramento and Washington, D.C.

These two things have come together in the latest innovation report, under a section in the full report that outlines “Seven Innovation Policy Ideas to Spark an American Recovery.” Roth tells me they encompass recommendations that San Diego’s life sciences and high-tech leaders have pulled together over the past two months as legislative priorities to be pursued over the next year.

Yet as Jessie Womble, Connect’s associate director for public policy, puts it, “We can’t expect to get anything passed that’s just for San Diego, so this is part of a national agenda.” In other words, these ideas should also be good medicine for the health of other U.S. regions with innovation clusters.

I’ve distilled the seven ideas with some background information from Connect below:

—Increase the monetary cap on direct public offerings by small companies to allow new opportunities for emerging companies to raise capital.
The SEC adopted “Regulation A” to provide smaller companies a less burdensome process to raise capital through direct public offerings. The cost of compliance with regulatory burdens, however, makes the $5 million cap unworkable and little-used. Proposed legislation would increase the outdated cap under Regulation A from $5 million to $50 million, allowing emerging companies to raise new capital through “mini-offerings.”

—Create an incentive for U.S. corporations to “repatriate” their foreign earnings from overseas and direct the capital flow into emerging technology research and commercialization.
H.R. 1036—the Job Creation and Innovation Investment Act of 2011—accomplishes this by setting a zero percent tax rate for global companies that return their … Next Page »

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Last year I had a chance to visit Washington D.C. and tour the Washington Monument. I later learned that this magnificent national icon was, in fact, an early example of crowd funding. Crowd funding is the process of aggregating small amounts of money from a large number of people in order to accomplish great things.

It turns out that the construction of Washington Monument was crowd funded by small contributions from individuals across the country. Fund-raisers even placed donation boxes (like the one in the photo) next to ballot boxes on election day in 1860, when voters chose Illinois congressman Abraham Lincoln as president.

Leveraging the power of crowds is not a new concept. The quest to find a vaccine for polio was a “march of dimes,” and we’re all familiar with the fundraising “thermometer” technique used by many nonprofits to raise money for a particular cause or goal.

However, the Securities Act of 1933 and the Exchange Act of 1934 introduced significant regulation to large scale collective fundraising activities. While donations were excluded from regulation, investments in debt and equity securities became subject to the purview of the Securities and Exchange Commission (SEC).

I have worked on numerous public company audits and can attest to the extensive SEC compliance requirements. While these regulations provide significant safeguards to prevent fraud and increase marketplace integrity, they also have the unintended consequence of limiting capital formation options for smaller companies, including startups developing innovative technologies. In other words, you’re not going to spend $2 million dollars on legal and accounting fees if your startup is trying to raise $1 million for an equity offering.

The SEC does have several safe harbors that provide exemptions from securities registration. However, most of these exemptions become invalid once “general solicitation” (i.e. public advertising) occurs. Of course, the dawn of social media and massive connectivity tools was never anticipated in the early 1930′s when the SEC rules were established.

On November 3rd, the House of Representatives passed the “Entrepreneur Access to Capital Act” (HR 2930). The bill, authored by Representative Patrick McHenry (R-N.C.), enjoyed widespread bipartisan support, along with backing from the White House (a .pdf file declaring the President’s support is here.) It passed easily by a vote of 407 – 17. HR 2930 provides a crowd funding exemption from SEC registration with a few caveats:

—A $10,000 limit per investor (or 10 percent of annual income, whichever is less).

—A cap on the amount a company can raise of $1 million per offering (and up to $2 million if audited financial statements are provided).

—No limit on the number of accredited or unaccredited investors.

With startup companies struggling to raise funds and the capital markets still reeling from the banking crisis of 2008, the advent of crowd funding may well find a welcome home in business plans throughout the U.S. This new capital formation pathway needs to be balanced with safeguards to prevent fraud and protect the investing public. Thankfully, newer (and crowd-based) tools to monitor online reputations are emerging. Either way, the potential to unleash untold numbers of new ventures is certainly exciting for would-be entrepreneurs. Up next for crowd funding—the U.S. Senate.

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A Boston-area security tech company and the University of Michigan are involved in one of the most ambitious—and potentially controversial—transportation projects of our time. It could have major impact on federal legislation, and almost everyone you know.

Picture this: You’re driving in your car, approaching an intersection. Maybe you’re speeding a little, going 40 mph in a 35 zone, say. Unbeknownst to you, another driver is racing down the cross street and is about to run a red light (probably texting or something). This could spell disaster. But instead, your car picks up a wireless signal from the other vehicle. A beeping sound or flashing light on your dashboard alerts you to slow down, so you hit the brakes. Disaster averted.

Now let’s take it a step further. Maybe the alert is hooked into your car’s control system, so if you don’t put on the brakes, your car does it automatically. And maybe that’s fine with you. But you might be a little worried about giving up that kind of control in life-and-death situations. After all, computers get hacked and software crashes. Not to mention, you might not want your car broadcasting its speed and location out there for all to see (especially not the cops, since you were speeding).

This scenario isn’t the future. It’s happening already—at least the driver-alert part. In six cities around the U.S., trials of about 100 drivers each are underway to see how people react to in-car alerts (such as collision warnings, do not pass, and vehicle stopped ahead). But the next step is bigger. In Ann Arbor, MI, some 3,000 cars will be equipped with onboard wireless devices for communicating with each other and signaling to drivers when there’s an imminent hazard. This 12-month pilot study, which was announced recently and starts next August, is being led by the University of Michigan’s Transportation Research Institute (UMTRI) through a $14.9 million contract from the U.S. Department of Transportation. The state of Michigan has been heavily involved as well.

The goal of the federal initiative is, ultimately, to save lives. In the U.S., auto accidents are the leading cause of death for people aged 15 to 34; more than 30,000 people are killed on the nation’s roadways each year. The hope is that with new early-warning systems in place, a sizable fraction of would-be victims could be saved—some say 80 percent of non-alcohol-related cases—especially when high speed is involved.

The idea of wirelessly connected cars isn’t new, of course. The field of vehicle telematics has been around for years, with applications in fleet management, tracking, and safety. But advances in GPS location technologies, wireless communications, sensors, hardware, and algorithms are enabling smarter, better-connected vehicles to be tested on a bigger scale. And recent breakthroughs such as autonomous road-racing vehicles and Google’s self-driving car are starting to propel the technology into the mainstream.

Nevertheless, the Michigan study raises some serious real-world concerns. “This is a massive system with tremendous security and privacy implications,” says Ed Adams, the chief executive of Security Innovation in Wilmington, MA. And that’s exactly where his software security firm comes in.

Security Innovation developed the mobile software being used in the U-M study to … Next Page »

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After giving my best attempt at an objective summary of Proposition 23 to a colleague, he asked rhetorically, “How can something like this even make it onto the ballot?” He was, of course, familiar with the process that allows any proposition that gathers enough signatures to make it to the ballot in, but the question was really addressing a more fundamental issue: how can something so transparently bad for California even make it to the ballot?

Proposition 23 is the legislative version of the flickering neon sign that reads “lower your standards for global environmental quality to protect state oil interests.”

To recap, Proposition 23 suspends AB 32, otherwise known as California’s Global Warming Solutions Act of 2006, until the state unemployment drops to 5.5% for four consecutive quarters (otherwise known as a year). AB 32 requires that California lower its overall greenhouse gas emissions to 1990 levels by the year 2020—an ambitious goal that may require certain sacrifices. However, the issue requires further investigation.

The author of this proposition is the linguistic equivalent of David Copperfield. First, the wording may lead one to believe that climate legislation and unemployment are somehow correlated. The proposition even seems to imply that climate legislation is causing unemployment and removal of the legislation may lower the unemployment rate.

This misdirects the conversation from the real issue, which is that the oil industry is attempting to self-regulate. The Yes side argues 23 would create a million and a half jobs. I argue that 23 would destroy an entire industry—the nascent clean technology business that so many courageous startups have begun to explore—and that any initial economic uptick would be short lived. Who is right? It doesn’t matter. The conversation has been moved to the only area where proposition 23 actually makes sense: the imaginary.

Proposition 23 will kill the Global Warming Solutions Act for a period of time. It is, literally, a proposition to suspend a solution. But the oil industry is not merely content to delay implementation of clean air standards in California. They would prefer to prevent it altogether, which is where Proposition 26 comes in.

Proposition 26 would cripple AB 32 with legislative bureaucracy, potentially rendering it ineffective. Proposition 26 is as damaging as 23 to the clean technology industry and air quality standards. Yet because of its subtle and often sleep-inducing wording, much of the fight has been focused on 23.

If Proposition 23 is all about flash, Proposition 26 will be the legislation to pull a quarter from behind your ear. Magicians often use sleight of hand techniques to misdirect the attention of audience participants in order to trick them. Proposition 23 may be the distraction, while 26 accomplishes the same goals right from behind our collective ear. Californians should ignore the oil industry illusionists and vote no on both.

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The City of Seattle and Dearborn, MI-based Ford Motor Company have teamed up to prepare the city for the operation of electric vehicles, the automaker said today. The partnership will include the joint development of consumer outreach and education programs on electric cars, as well as collaboration on information regarding charging requirements of electric vehicles to ensure the grid is prepared to support the added demand. The two organizations will also work with state and local governments on issues of permitting, future regulations and legislation, and raising support for electric vehicle tax incentives. The collaboration is part of Ford’s 14-city “Charging into the Future Tour,” which kicked off in Portland, OR earlier this week.

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Part of the point of opening Xconomy San Francisco last month was to put our ear to the ground in the world capital of venture investing. Toward that end, I sat down earlier this week with Kate Mitchell and Rory O’Driscoll. They’re both general partners at Scale Venture Partners, a Foster City, CA-based firm that focuses on helping startups through the middle stage of their growth—after they’ve proved that there are at least a few customers for their products, but before they’ve shown that there are lots of them.

That’s an unusual and tricky place for a venture firm to dwell, and it means that Scale’s team is heavy on partners with operating experience, especially in sales, marketing, and business development. In fact, Mitchell herself co-founded the firm in 1996 after working at Bank of America, where she had guided the development of the bank’s first Internet offerings. (Scale was known as BA Venture Partners through 2006, reflecting Bank of America’s majority ownership in its early funds. The bank has been a minority partner in Scale’s last two funds, a $400 million fund launched in 2007 and a $255 million fund launched this year.) O’Driscoll, meanwhile, has a background in manufacturing and has been a venture investor for nearly two decades, working with mobile, Internet, and enterprise software companies from Omniture to Box.net.

Lately, Mitchell has had a second job as well: chairing the National Venture Capital Association, the main trade association representing the venture industry in Washington, D.C. In that role, she’ll face many of the same challenges as her predecessor, Polaris Venture Partners’ general partner Terry McGuire. It’s her responsibility now to promote legislative changes such as immigration reform that the association sees as key to boosting innovation and entrepreneurship, while at the same time working to prevent changes that she says could make venture investing a less attractive career path, such as proposals to raise taxes on carried interest.

She’ll also have to help the industry through what’s likely to be a rough patch in the next two or three years, as limited partners react to the subpar investment returns of the past decade by pulling money out of this risky asset class. It’s a shakeout that Mitchell describes as necessary and healthy, but it’s one that will likely be painful for venture firms and entrepreneurs outside the Silicon Valley and Boston corridors, where the venture ecosystem is bigger and more likely to be able to weather the shakeout.

We had a wide-ranging conversation that focused first on the overarching trends and policy issues affecting the venture industry, and then on the way Scale picks its investments and works with the companies in its portfolio. I’ve divided my writeup of the conversation in the same way. In Part 1, published here, Mitchell and O’Driscoll tackle my questions about the health of the venture industry. In Part 2, coming next week, the conversation will focus on the unique challenges facing companies in the middle stages of their growth, and how Scale helps them scale up (hence its name).

Xconomy: Let me ask you to put your NVCA hat on first and talk about the big picture for the venture industry. How would you describe it right now?

Kate Mitchell: This is one of the greatest times, but it’s also one of the worst times. It’s a bit of both. It’s a record low time for money coming into the industry, but it’s probably the best time to invest.

Our thesis is that we are finally getting the excess capital out of the industry. We created too many competitors, too many entrepreneurs chasing the same opportunity, so they had to compete on price. We need to trim the tree or go on a diet, whichever metaphor you like. You never want to be the limb that gets pruned or the pound that gets lost, but we all know we’ll be healthier at the end of the process.

The only negative right now is that in many regions, venture fundraising has become much more of a challenge. In any place except Boston and Silicon Valley, it’s harder. I was in Michigan recently. I met with the Michigan Venture Capital Association, and they are worried. The average VC fund size in Michigan is $39 million, and they are worried about … Next Page »

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As Congress weighs legislation to address persistent concerns about high unemployment, the construction sector in particular demands urgent attention. With investment in new homes and commercial buildings stalled at historically low levels, the unemployment rate for skilled construction workers is now more than twice the national average. The Bureau of Labor Statistics estimates that 1.9 million construction jobs have dried up since December 2007, and even as the overall unemployment rate has dropped below 10 percent, about one in five American construction workers now face the frightening prospect of long-term unemployment.

Fortunately, a viable solution to this crisis is now moving through Congress. The Home Star Retrofit Act of 2010, which was approved by the House of Representatives in May and now resides in the Senate, was conceived as a cost-effective two-year plan to stimulate rapid job creation in construction and manufacturing while helping Americans save money on their energy bills.

The basic idea behind Home Star is to generate an immediate spike in the market for cost-effective home energy retrofits—insulation, weatherization, HVAC upgrades and the like—by offering short-term consumer incentives and longer-term energy improvement financing options. Participating homeowners would permanently reduce their household energy costs (and consequently contribute to lower overall generation costs for public utilities), while the increased demand for skilled home improvement work would create good, living-wage jobs for tens of thousands of construction workers who have been sidelined by the recession.

The benefits of this plan are numerous. First, energy retrofits require site-specific labor that cannot be outsourced overseas, and idled construction workers can easily and quickly be retrained to do the work. Second, the caulking, insulation, sheet metal, HVAC equipment and other manufactured goods used in energy retrofits are overwhelmingly produced by American mills and factories, so growth in this sector would create additional jobs in construction-related manufacturing and retail. And while Home Star was primarily conceived as a cost-effective way to breathe life back into the construction industry, the program also would help to control rising energy costs for American consumers, significantly reduce building-related greenhouse gas emissions, and promote national security by reducing our dependence on imported energy.

Home Star has the potential to create an estimated 168,000 new jobs in construction and related industries over the next two years, with the ultimate goal of jump-starting a prosperous private industry that can stand on its own two feet and continue to provide construction industry employment long after the incentives have been phased out.

This bipartisan legislation has gained strong support from a broad coalition of policymakers, business leaders, trade associations, environmental groups and nonprofit organizations, ranging from local contractors and HVAC services to the Sierra Club and the United States Chamber of Commerce. Much of the hiring would be done by small business owners in all 50 states who are already engaged in saving American homeowners money on their energy bills, and are poised to grow as soon as the Home Star program become a reality.

Despite widespread national support for the proposal, Home Star has made little progress in the Senate since May, but the program will be in included in a pared-down Senate energy bill outlined this week by Senate Majority Leader Harry Reid. Speedy passage of this important legislation is key to getting our economy back on track, for the sooner we can get Home Star signed into law, the sooner we’ll be able to get hardworking Americans off the unemployment rolls and back in productive jobs that are good for the nation and good for the environment.

To learn more about the Home Star legislation and how you can support its passage, please visit www.efficiencyfirst.org/homestar and www.homestarcoalition.org.

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This month a group of 50 clean energy CEOs, investors and executives from New England traveled to Washington D.C. to deliver a common message to our leaders in the nation’s capitol: comprehensive energy and climate legislation is critical for building the clean energy economy here in New England and across the United States. The Kerry-Lieberman ‘American Power Act’ has the potential to kick-start our shared vision for the nation’s future. It draws upon many elements of the House’s Waxman-Markey legislation and Senate’s Cantwell-Collins proposal to deliver the market signals that will accelerate private sector investment, speed the transition to a clean, sustainable energy future, and create millions of quality jobs in the U.S. And, as we watch the situation unfold in the Gulf of Mexico and are reminded of our dependency on oil, it couldn’t have come at a more critical juncture.

New England and its business leaders have the ability to effect change. The clean energy sector already includes more than 2,000 Massachusetts companies and 26,000 jobs. It is the fastest growing industry in the region. Clean energy may be the largest opportunity we have ever had to grow new companies, create new jobs and build thriving regional and national economies. However, the clean energy industry in New England is different from its predecessors—textiles, computer hardware and software, Internet business – in scale, timeframes and the amount of investment required.

By now, many of us have heard the numbers. Energy is a $6 trillion global industry that will grow by tens of trillions of dollars during the next 30 years. But clean energy involves capital-intensive manufacturing or projects that produce commodities such as fuel, electricity or clean materials. This combination requires an alignment of policy and public-sector investment with private capital and entrepreneurial activity. The market dictates that company growth and jobs will disproportionally be placed in regions with clear, long-term policies, pricing signals, and a willingness to adopt early.

New England already has some of ingredients to drive private investment. Regional policies such as RGGI (the Regional Greenhouse Gas Initiative), state Renewable Portfolio Standards, advanced building codes, utility energy efficiency programs, and other initiatives have contributed to the growth of the sector. Massachusetts clean energy companies have brought in $1.1 billion in venture capital and private investment deals from 2007-2009, trailing only California, according to Bloomberg New Energy Finance data and a recent Clean Edge report.

Despite our progress, a recent Pew Charitable Trusts study concluded that in 2009, China invested twice as much as the U.S. in clean energy—$34.6 billion versus $18.6 billion. In addition, in relative terms, the UK invested three times more than … Next Page »

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Intellectual property battles are a perennial hot-button topic in the tech world. Recently we’ve been hearing a lot about so-called “patent trolls,” companies that don’t produce goods or services but rather acquire patents and then try to extract licensing fees from firms they say are infringing on those patents. Most of these disputes involve lawsuits, and an increasing percentage of all patent litigation cases involve patent trolls—roughly 15 percent, according to some sources.

John Amster and his company, San Francisco-based RPX, are trying to do something about this. First, some background. Before co-founding RPX in 2008, Amster spent three years at Intellectual Ventures, the Bellevue, WA-based invention firm led by former Microsoft chief technology officer Nathan Myhrvold. Amster was IV’s general manager of strategic acquisitions and vice president of licensing, based in San Francisco.

Amster started RPX together with co-CEO Geoffrey Barker, another former Intellectual Ventures vice president of licensing, and Eran Zur, the firm’s president. RPX is focused on “defensive patent aggregation.” It buys up patents across a wide range of tech areas, including consumer electronics, mobile handsets, telecommunications, software, Internet, and e-commerce, and charges companies for access to the intellectual property. The idea is to take those patents out of the arsenal of patent trolls, and grant tech companies licenses to the IP stockpile so they can defend themselves more efficiently. Companies pay RPX an annual fee ranging from $40,000 to $5 million, depending on their size.

RPX has been on a tear lately, signing up big customers like Cisco Systems, IBM, Intel, Microsoft, Hewlett-Packard, Nokia, Sony, Samsung, LG, and HTC. A couple of weeks ago, the company announced it has added Dell and Acer to its list of “members,” which now includes 42 firms. So far, it has spent more than $200 million to acquire more than 1,300 patents. RPX is venture backed by Kleiner Perkins Caufield & Byers, Charles River Ventures, and Index Ventures. The company has 40-some employees—three in the Seattle area (including co-CEO Barker)—and it is actively hiring.

Some observers have called RPX a competitor to Intellectual Ventures, but Amster challenges that premise. “We’re completely different. We have two very different visions and goals,” he says. “[Intellectual Ventures] has raised a vast amount of money and has a very diverse set of businesses, from early-stage invention all the way through patents. It’s a totally different business-model vision. They’re a private equity fund for invention. The patent piece is small.”

I recently spoke with Amster by phone to hear about RPX’s progress against patent trolls, and to get his thoughts on where the marketplace for intellectual property is headed. To me, it’s really interesting that defensive “protection” companies are sprouting up to serve the tech community—and where is the line between defensive firms and the trolls?

Here are Amster’s responses to three of my questions, edited for length and context:

Xconomy: Tell me about your vision for RPX and how it’s unique in the world of technology and IP.

John Amster: The basic idea was looking at this problem of patent trolls, or non-practicing entities (NPEs). The difference between [the terms] “patent troll” and “NPE” is important. Why has this thing been phrased as a negative thing? Why is it pejorative? The philosophical view of a lot of companies is that something’s wrong with that. That’s not really true though—at the end of the day, patents are … Next Page »

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All this week, the venture capitalists over at OVP Venture Partners in Kirkland, WA, have been posting their thoughts on 2009—such as the biggest surprises in tech and life sciences—as well as their predictions for 2010. It’s a common theme these days, sure, but it’s always fun to get VCs on the record about such things.

Here are a few observations that jumped out at me:

—Chad Waite is as amazed as I am that Facebook has so rapidly become a mainstream means of communication, “in spite of NO visible business model.” (I think “visible” is the key word there.) He predicts that in 2010, there will be thousands of complete human genome sequences compiled, as the field goes commercial.

—Rick LeFaivre was surprised by the “vehemence of the negative reaction” from people opposed to both U.S. healthcare reform and energy legislation this year. He remains optimistic that “comprehensive” legislation will be passed in 2010 in both areas. The latter “would put the U.S. on a path towards energy independence and environmental sustainability,” he writes.

—Gerry Langeler noted with surprise the fast rise of Android-based phones, and says we might end up seeing a fundamental Google vs. Apple dynamic in the mobile space, somewhat like PC vs. Mac. He also thinks the iPhone’s “lead in applications won’t last that long.”

—Carl Weissman says the economic recovery has taken longer than he expected, given the current transparency of government and financial institutions. “All of us could see on a real-time basis the reaction of the government and the banks and the financial infrastructure to the crisis, and whether you agreed politically or not, there was little doubt that heroic efforts were being made to ensure the stability of the system,” he writes. “This created confidence, no matter how tenuous, and has allowed money and credit to flow, albeit cautiously, on a time scale that is orders of magnitude faster than in the Great Depression. My surprise is that the underlying structural weakness has been sufficient to keep the recovery modest.”

Lastly, Weissman gave my beloved Red Sox the kiss of death by predicting they’d win the 2010 World Series. What is it with Seattle investors and Boston sports teams? (Andy Sack already jinxed the Patriots here.) Leave my teams out of it, will ya?

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Massachusetts Governor Deval Patrick signed legislation this week that gives the Renewable Energy Trust, formerly a unit of the quasi-public Massachusetts Technology Collaborative, a new home: the Massachusetts Clean Energy Center. The Renewable Energy Trust—an investment fund that comes from surcharge on Massachusetts electrical consumers of about $6 per ratepayer per year—supports a range of alternative energy projects, while the Clean Energy Center, the energy sector’s complement to the Massachusetts Life Sciences Center, is charged with supporting R&D, entrepreneurship, and workforce training in the cleantech industries. The bill that created the center in 2008 specified that it would be funded in party by reallocating Renewable Energy Trust revenues, as Massachusetts Secretary of Energy and Environmental Affairs explained in an interview with Xconomy this week. “This legislation merges the work of two quasi-public state entities with complementary missions, consolidating staff and resources while establishing the Clean Energy Center as the primary agency responsible for growing the Massachusetts clean energy industry,” Governor Patrick said in a statement released today.

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[Update, 12:05 p.m., 10/23/09: The time for President Obama's speech has been pushed back to 12:25 p.m., according to the White House. It appears that MIT's video servers are being overwhelmed by traffic; if you want to watch the speech online, we recommend trying the White House's own live video stream.]

When Air Force One touches down at Logan Airport at 11:30 a.m. today, there will already be a small crowd of students, faculty members, and local technology leaders waiting inside MIT’s Kresge Auditorium for President Barack Obama to arrive.

In his noontime speech at Kresge, announced just three days ago, Mr. Obama is expected to call for stronger U.S. leadership on clean energy research and press for passage of the Senate energy bill, S. 1733, co-sponsored by Massachusetts Senator John Kerry and California Senator Barbara Boxer.

Invitations to the MIT speech are the most coveted tickets in town today. While Kresge seats some 1,300 people, only about 60 students and 40 faculty members have been invited, according to estimates by The Tech, MIT’s student newspaper. The White House has also issued invitations to a hand-picked group of local leaders in energy entrepreneurship and investing.

The President will meet briefly before the speech with a select group of MIT energy researchers, according to the MIT News Office.

Massachusetts Governor Deval Patrick will be on stage with the President, who is expected to attend a campaign fundraising luncheon for the governor at the Westin Copley Hotel in Boston before returning to Washington. In a video published on his campaign website this week, Governor Patrick said, “In many ways our agenda here in Massachusetts is very closely aligned with the agenda of the Obama Administration.” He included a reference to “our work to expand innovation industries that will create the opportunities for tomorrow, like IT and clean energy and biotech.”

If you weren’t one of the lucky few who won an invitation to attend the President’s speech in person, here are a few ways you can follow his visit:

—MIT will share a live webcast of the speech at http://amps-web.mit.edu/public/amps/webcast/2009/obama-2009oct23/

—The White House will also offer a live video stream at http://www.whitehouse.gov/live/, and CNN says it will stream the event live.

—If you can make it to Cambridge, MIT will be showing a closed-circuit broadcast of the speech in various rooms around campus (4-237, 1-190, 26-100, 32-141, 32-155, and E51-315) as well as the MIT Museum.

—Xconomy has recruited a posse of local students, investors, and technology leaders who scored tickets to the speech to write to us with their impressions of the event, and we’ll be compiling their contributions in a post early this afternoon.

—Organizers of the Fifth Conference on Clean Energy, to be held in Boston November 12-13, will be sharing real-time posts about the speech on Twitter using the hash tag #CCE-2009.

—Finally, MIT will post a recording of the speech late this afternoon on its video portal site, MIT World.

According to the MIT News Office, today’s visit marks only the second time a sitting U.S. president has visited MIT. President Bill Clinton was MIT’s commencement speaker in 1998.

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Back in August, Connect CEO Duane Roth outlined an initiative to address a dearth of venture capital investment by seeking to develop alternative funding sources for San Diego’s early-stage technology companies. A key part of the non-profit group’s initiative is to pursue additional federal support—and now that effort is facing its first major test as Congress takes up a bill that would provide funding through the Small Business Administration for equity investments in certain types of technology startups.

A House bill dubbed “The Small Business Early Stage Investment Act of 2009” would basically make the federal government a limited partner in qualified investment firms that make venture capital investments in early-stage companies in targeted industries. Roth tells me the bill, which was introduced by Democratic Rep. Glenn Nye of Virginia, fits his initiative “perfectly.”

Roth says he also helped recruit Martin Sabarsky, the San Diego-based chief operating officer for biofuels startup HR BioPetroleum, to testify yesterday before the House Small Business Committee in support of the bill. Roth describes HR BioPetroleum as an ideal case study that explains why federal funding is needed to boost venture investing. The company, which has offices in Hawaii and San Diego, saw its plans to build a commercial algae facility on Maui indefinitely postponed in September 2008, when financing for the project collapsed amid the free fall on Wall Street.

“Our subsequent attempts to attract additional venture capital/private equity investment to continue development in the midst of the continuing financial crisis have thus far failed,” Sabarsky said in his prepared testimony, which was submitted on behalf of BIO, the Biotechnology Industry Organization. BIO contends in a recent statement that venture investors have become especially risk averse when it comes to providing capital to small, early-stage biotechs and biofuels startups.

“Even in more ‘normal’ financial times, the private equity and capital markets have increasingly failed to fund promising, early stage scientific research beyond the basic research stage and before the revenue-generation stage,” Sabarsky said in his testimony.

The bill that Sabarsky, BIO, and Connect are supporting is H.R. 3738, which was introduced last week, and would amend the Small Business Investment Act of 1958 to provide funding for investments in technology startups in eight targeted industries: energy; environmental; life sciences, information technology; digital media; cleantech; and defense. The measure authorizes $250 million in federal funding for the first fiscal year after enactment, but Roth says sponsors want to provide $3 billion to $5 billion for venture investments over a five-year period.

To get federal funding, a participating investment firm must make all of its investments in small businesses, with at least half in early-stage small businesses in the eight targeted industries.

Connect’s Roth says the Early Stage Investment Act would also reinstate the federal government’s Small Business Investment Company (SBIC) program, which provided federal funding to certain venture funds.

Roth says firms that participated in the SBIC program in the 1990s incurred huge losses when the dot-com crash hit, and the federal government was forced to write off much of its funding. “The Bush Administration got nervous and stopped funding the program in 2004,” Roth says. “So now the Obama Administration is trying to revisit this with lots” of federal stimulus funding.

Roth, who was back in Washington, D.C., last week when the bill was marked up, says he’s “guardedly optimistic” about the measure’s prospects. So far, the bill seems to have bipartisan support, and Roth says there’s no indication that anyone intends to oppose the measure.

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In an informal discussion with technology leaders from industry and academia this morning at Microsoft’s New England Research and Development Center in Cambridge, Massachusetts Attorney General Martha Coakley and staff members from her office covered a range of issues affecting technology businesses and consumers, from cybercrime to the need to overhaul the state’s laws regarding noncompete agreements. Overregulation and outdated regulations were a major theme, with Coakley acknowledging in jest that “we love statutes and regulations in Massachusetts” and saying that in a time of severe budgetary constraints, changing and updating the law is one thing the state government can do to help businesses and entrepreneurs.

The meeting, the first of its kind between representatives of the technology community and the state’s top law enforcement officer, was intended to start a discussion about what sorts of changes to put on the agenda. “We can’t make decisions in the abstract,” Coakley told the gathering of about 30 people from Massachusetts companies and universities. “In a variety of areas where we’ve approached these issues—what technology means for government, for public safety, for privacy—part of what I want to do is get some feedback from you. What are we doing and not doing, and how can we be more helpful?”

Coakley poked a bit of fun at herself, confessing that as late as the mid-1990s, when she was chief of the Child Abuse Prosecution Unit of the Middlesex District Attorney’s Office, she did not know how to turn on her computer to retrieve her e-mail. But after she became DA herself, she said, she got a crash course in computers and the Internet during the prosecution of Michael McDermott, who killed seven colleagues at Edgewater Technology in December 2000 and was convicted of murder after it was revealed that he had used Google to search for information on how to fake mental illness. As Massachusetts attorney general, she led settlement negotiations with Framingham, MA-based TJX to resolve claims around its massive data breach in 2007, and to make sure adequate safeguards are in place to protect consumer data in the future.

“I really like being attorney general, somewhat to my surprise,” Coakley said, “because it’s a great opportunity to learn about a whole range of issues, like where we should be going and how we can help businesses do well in Massachusetts, and how to protect consumers and protect the environment.”

The first issue raised by technology community members was whether Massachusetts should be doing more to make sure that some federal stimulus money reaches small businesses, rather than going exclusively to large corporations and public works projects. “From where I sit it’s been very disappointing to see the [slow] pace of the stimulus money and to see how restricted it is,” Coakley responded. “My focus on the stimulus money is to make sure it goes where it should” and to see that distribution of the funds isn’t mired in paperwork and graft. “It’s an example of big government trying to do big things and not necessarily being effective,” she said, but added, “I don’t know how much discretion we have” to channel the funds to small businesses or players other than those identified in stimulus legislation.

Early into the discussion, attendees raised the controversial issue of noncompete agreements in employment contracts in Massachusetts. Noncompetes (as we’ve written) are seen by many local companies as an essential way to protect trade secrets, but they’re seen by many entrepreneurs and investors as an impediment to employee mobility and innovation. Coakley said … Next Page »

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A new draft bill that would limit but not outlaw noncompete agreements in employment contracts in Massachusetts is being floated by two members of the state’s House of Representatives.

The bill combines elements of separate bills introduced earlier this year by Representatives William Brownsberger of the 24th Middlesex district and Lori Ehrlich of the 8th Essex district. Brownsberger told Xconomy this morning that the new bill is intended in part to head off objections among business leaders to his earlier bill, which would have outlawed noncompete agreements altogether.

Many employers in the state believe that noncompete agreements are needed to keep employees from leaving with company secrets and starting directly competitive businesses. Some venture capitalists and technology executives, on the other hand, argue that the agreements punish budding entrepreneurs and harm the local economy, by forcing employees either to stay with their current companies and forego starting new ventures, or to abandon Massachusetts for places like California, where noncompete agreements are unenforceable.

The compromise bill, which adopts much of the language in Ehrlich’s first bill, will likely be heard by the House Committee on Labor and Workforce Development this fall. Unlike Brownsberger’s original proposal, it allows companies to require workers to sign noncompete agreements as a condition of employment. But it creates incentives for employers to limit the terms of these agreements to 6 months, down from the 12 months in typical employment contracts today. It also cuts out restrictions that judges in contract dispute cases might see as overreaching—and it automatically awards attorneys’ fees to employees in such cases.

For employees who make less than $100,000 a year but more than $50,000, the bill limits the acceptable rationale for enforcing noncompete agreements to just two: protecting trade secrets or confidential information. And for employees who make under $50,000 a year, the bill makes noncompete agreements unenforceable for any reason.

At this point, Brownsberger’s earlier blanket proposal to outlaw noncompete agreements—a proposal endorsed by a coalition of venture capital partners, company executives, and industry associations—would seem to be dead in the water. But the new proposal would still bring significant changes to Massachusetts employment law, and probably has a much greater chance of surviving the coming legislative debate.

“We got a very positive response [to the earlier bill] from the VC community and from employees who had had bad experiences, but we got a very negative response, particularly from smaller businesses and many of the smaller high-tech companies,” Brownsberger says. “Companies are very emotional about this issue and feel very strongly that we were taking away from them protections that are vital to their survivability. So we listened carefully to those concerns and attempted to craft a bill that would improve the venture climate, provide employees with some real relief from overreaching noncompete agreements, yet at the same time allow businesses—particularly small businesses—to protect what they feel is vital to their survival.”

The Brownsberger-Ehrlich bill appeases employers by preserving most of the existing legal levers available to them when enforcing noncompete agreements in court. A noncompete agreement should be seen as valid, the bill says, whenever it’s needed to protect an employer’s trade secrets, confidential information such as product development plans and marketing strategies, or “goodwill,” meaning customer relationships.

But there are exceptions in the bill: the goodwill argument can’t be applied to employees making under $100,000, and employees making under $50,000 are exempted altogether. To keep employers from imposing draconian terms, the bill would award attorney’s fees to employees in any cases where a judge finds that the employer has overreached. And the bill explicitly scraps a legal argument sometimes used to keep ex-employees from going to work for competing companies, even in the absence of a signed noncompete agreement: the “inevitable disclosure doctrine,” under which courts presumed that any departing employee would betray trade secrets.

“What we’ve done in the final legislation is give employers very strong incentives to draft only the most reasonable noncompete agreements,” says Brownsberger, who represents a district including Belmont, north Cambridge, and east Arlington. What’s considered reasonable? The bill spells that out, too: “Number one, they can be no more than 6 months in duration,” Brownsberger says. “Number two, … Next Page »

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Next week, the U.S. Senate is expected to take up debate on health care reform. Regardless of what happens in Washington DC, the impact will be felt on virtually every business and individual in Washington State.

Without question, a simple solution to our health care crisis is elusive, and in the coming days and weeks many complicated and important issues will be debated, but from where I stand today, there is one key health care issue with no room for debate.

The issue is the development of a pathway for regulatory approval of biosimilars by the Food and Drug Administration (FDA). Biosimilars, as the name implies, are drugs that are similar to, but not the same as, innovator biologics. Biologics are molecular structures that can be hundreds of times more complex. That’s why copycat versions of biologics aren’t called “generics.” Biotechnology-based therapies that fight diseases such as cancer, diabetes, and Alzheimer’s are made from living cells—a process far more complex than the one used to manufacture chemical-based drugs such as aspirin.

The illustration below helps to put into perspective the differences between small molecule drugs and biologics:

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To give a sense of size, same-scale computer models of three drugs—aspirin (a small molecule), somatropin (human growth hormone), and Herceptin (an antibody)—are presented as an example of the relative complexity: The molecules are to scale and the objects are not, but the objects (bike, car, private jet) indicate relative size and complexity of these molecules. Used with Permission. Source: Genentech
http://www.gene.com/gene/about/views/followon-biologics.html

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Here in Washington State, we are fortunate to have great leadership on this issue from Representative Jay Inslee (D, WA-1). Rep. Inslee is one of the lead sponsors of the Pathway for Biosimilars Act (H.R. 1548), bipartisan legislation that protects patient safety and strikes the appropriate balance between increasing competition and maintaining our nation’s status as the world’s leader in science and innovation.

Rep. Inslee wants to make sure that biosimilar manufacturers are required to provide the FDA with clinical data on the safety and efficacy of their medicines. And his legislation preserves incentives for … Next Page »

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Until now, the only way to read the 400-plus-page American Recovery and Reinvestment Act of 2009 (otherwise known as the Stimulus Bill) has been to download a 13-megabyte PDF version or scroll through messy, unpaginated HTML versions. But now Tizra, the Providence, RI online publishing company we profiled in February, has used its platform to create a searchable online version of the bill that breaks the giant document into easily navigable sections.

The Tizra version preserves the bill’s original formatting and page numbers, allowing users to reference or bookmark specific sections. The idea is to make the whole bill more Web-friendly—for example, by making it easier to cite specific spending provisions in the bill via social bookmarking sites such as Digg or Delicious. Tizra has also added a commenting function that lets users share their thoughts about specific pages of the bill.

“There is no single piece of information or legislation that has gained so much attention in recent times, yet there was clearly a lack of easy and useful access to this historic bill,” Tizra’s chief operating officer, Abe Dane, said in a statement. “With the media focusing so much attention on who actually read the bill, we thought it would be helpful to see how easy it was for the public, media and lawmakers to access and research it.”

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Massachusetts Representative Will Brownsberger filed a bill today calling on the state legislature to outlaw the non-compete agreements that prevent many Massachusetts residents who leave their employers from finding work at similar companies.

The brief bill, entitled “An Act to Prohibit Restrictive Employment Covenents,” would amend Section 19 of Chapter 149 of the General Laws of Massachusetts, which deals with general employment provisions. It renders void and unenforceable “any written or oral contract or agreement arising out of an employment relationship that prohibits, impairs, restrains, restricts, or places any condition on, a person’s ability to seek, engage in or accept any type of employment or independent contractor work, for any period of time after an employment relationship has ended.” Violators would be liable for the affected employee’s attorney fees. (We’ve reproduced the full text of the bill on Page 2.)

I first wrote about the pending bill last month. Brownsberger, who represents the 24th Middlesex district, including parts of Belmont, Cambridge, and Arlington, said then that he’s primarily interested in helping service workers such as telephone agents, who often leave their positions only to find that the non-compete clauses in the employment agreements prohibit them from finding comparable positions in their industries. “I’m concerned that these agreements are often entered into by employees who are at a substantial bargaining disadvantage,” Brownsberger said.

But non-compete agreements are also the subject of debate in the entrepreneurial community. Critics such as Bijan Sabet, a general partner at Spark Capital in Boston, have said that they retard innovation and hurt Massachusetts startups relative to their rivals in states like California, where non-compete agreements are illegal.

In a recent blog post, Richard Tibbetts, a co-founder and software architect at Lexington, MA-based StreamBase Systems, called Brownsberger’s proposal “a simple legislative change which will cost the government little and have a big impact on Massachusetts competitiveness.” Tibbetts posted the text of a letter he wrote to his Congressional representative, Sean Garballey, urging him to support Brownsberger’s effort. The letter says in part:

In some cases, potential employees have declined to pursue discussions with me, fearing legal repercussions from their previous employer. In other cases, employees have requested that they not work with certain customers or on certain lines of business, in order to avoid the appearance of impropriety…While these agreements are seldom enforced, their existence and the legal grey areas surrounding them are a drain on our economy. They hurt workers, who are not able to change jobs freely and make use of their skills in the best jobs possible. And they hurt companies, making it harder to recruit the best employees. Removing noncompetes will help everyone in Massachusetts benefit more from our skilled workforce.

According to Tibbett’s post, Massachusetts Senator Patricia Jehlen plans to sponsor a Senate version of Brownsberg’s bill. Other legislators wishing to co-sponsor the anti-non-compete bill have until February 6 to add their names to the bill. The bill is expected to be referred to the House Committee on Labor and Workforce Development, which will likely hold a hearing on the proposal this spring, Brownsberger said last month.

Update, January 16, 2009: New blog posts applauding Brownsberger’s initiative have been published this week by Scott Kirsner of the Boston Globe and Angelo Santinelli of Dakin Management and North Bridge Venture Partners.
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In case anyone didn’t get the memo, energy prices are going up.

This trend will most likely continue for two very simple reasons: Worldwide energy demand is rising, and global fossil fuel supplies are tightening.

Add to this the need for critical action on the part of all nations to reduce their greenhouse gas (GHG) emissions in response to what is now a preponderance of evidence that continued reliance on fossil fuels will result in catastrophic changes to our climate and eco-systems.

It has been prophesied by some that taking state-level legislative action on climate change by capping allowable GHG emissions would place a tremendous burden on our local economy—especially at a time when the economic outlook is not all that rosy to begin with. The thesis is that, by forcing our businesses to pursue energy-saving measures, and adding more expensive renewable energy into the supply stream, we will greatly add to their expense burden, thus reducing their competitiveness.

Don’t believe it. And here’s why:

Let us, for a moment, take a cap on GHGs off the table, and look at the long term. Assuming a continued, steady rise in energy prices over the coming decades (something many experts now predict), our businesses are going to be faced with a sizable expense burden as energy prices become a larger and larger line item on their balance sheets. What’s worse, there is nothing to suggest that it will level off—and why should it? The basic laws of supply and demand dictate that that when supply is constrained in the face of surging demand, prices shoot skyward.

While Bay State businesses will inevitably respond to these market signals by implementing energy efficiency measures on their own, there is an opportunity here to move faster—and in doing so, provide our businesses and our economy with two substantial benefits.

So let’s now put GHGs back on the table, and talk specifically about why Massachusetts should pass the Global Warming Solutions Act (GWSA, or Senate Bill 2531)—which calls for a reduction in greenhouse gas emissions to 20% below 1990 levels by 2020, and 80% below 1990 levels by 2050.

Benefit number one: Global competitiveness.

If we simply wait until federal legislation caps GHGs for us (and I think we all know federal legislation is coming), then the bulk of Massachusetts companies will move with the crowd. Under the GWSA, our companies will be ahead of the curve, streamlining their operations in advance of the federal mandate, and gaining first-mover advantage in the process. As energy prices rise, our companies will be better prepared to keep energy expenses under control through early action and better planning. The bottom line: our companies will ultimately be stronger and healthier competitors as a result of this legislation.

Furthermore, as the GWSA (and the Green Communities Act, Massachusetts’ comprehensive energy bill now in conference committee) substantially increases the amount of electricity derived from renewable energy, we will start to create a hedge against rising fossil fuel prices. While it won’t happen tomorrow, renewable energy will, at some point, be cheaper than traditional sources, and having a strong local supply of clean energy will allow us to pay less (perhaps significantly less) in the future.

Benefit number two: Sector leadership.

Energy transformation is non-optional—at the state level, at the national level, and worldwide. In short, we must develop technologies to replace fossil fuels not only because of climate change, but because they are finite resources. But here’s the good news: If we implement a cap on GHGs, we will unleash what is perhaps the greatest economic asset of the Commonwealth of Massachusetts—our ability to innovate.

The Global Warming Solutions Act, the Green Communities Act, and the Green Jobs Act (which includes funding for clean energy R&D and entrepreneurship) will catalyze a tremendous increase in clean energy investment and new venture creation, which in turn will create jobs and grow our local economy.

Skeptical? Consider this: In a report to Governor Schwarzenegger and the Legislature, a multi-agency Climate Action Team led by the California EPA projected that California’s Global Warming Solutions Act of 2006 (AB32) will increase Californians’ personal income by roughly $4 billion and create approximately 83,000 jobs.

Worldwide, clean energy was a $77 billion market in 2007, and is expected to grow to $1 trillion by 2030. Roughly a dozen U.S. states are working aggressively to claim their piece of this prize; while Massachusetts certainly boasts all of the ingredients required to compete, let us not be complacent.

The Global Warming Solutions Act, the Green Communities Act, and the Green Jobs Act will substantially up the odds that we will establish a strong, growing cluster of clean energy companies here in the Commonwealth, and emerge as a leader in what will inevitably one of the largest technology markets in history.

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Cell Therapeutics got its way in Washington DC today. The Senate voted 69-30 in favor of a Medicare bill that includes a provision extending the current reimbursement rate for doctors who prescribe Zevalin, a drug for non-Hodgkin’s lymphoma, which happens to be the Seattle biotech company’s sole marketed product. Medicare had proposed a new reimbursement system that would have paid prescribers less for the drug, said company spokesman Dan Eramian.

Zevalin is the first of two drugs approved in the U.S. that combine an antibody that can seek out tumors with a dose of radiation to give it extra tumor-killing kick. The drug has shown striking results in clinical trials, yet has never taken off commercially, partly because of wrangling between payers and doctors over its cost.

Researchers at the American Society of Hematology presented data from a clinical trial in December that showed a single shot of Zevalin caused tumors to completely disappear for 76 percent of patients. Yet it only generated $16.4 million in sales in 2006, its fifth year on the market. One reason: Medicare typically pays less for the drug than it costs hospitals to administer it, researchers told me last December while I was at Bloomberg News.

The proposed changes would have only exacerbated the problem.

The vote by the Senate means the Medicare bill now goes to the desk of President Bush, Eramian said. It basically allows for an 18-month extension of 2007 reimbursement rates, which pay $21,000 a patient for the drug. If Congress had agreed with Medicare, the new rate would have been about $15,000 a patient. Now it will be up to Cell Therapeutics to see if it can actually get doctors to start using it.

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