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Innovation Economy

Even in difficult times, entrepreneurs will emerge

By Scott Kirsner
October 5, 2008
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Amidst dot-com carnage, terrorist attacks, and mortgage-induced financial crises, entrepreneurs blindly continue to do one thing: start and build companies.

"What's the other choice?" asks Bob Metcalfe, an entrepreneur-turned-venture capitalist who works at Polaris Venture Partners in Waltham. "When it gets ugly or tough or scary, one instinct is to throw up your hands and run around screaming. The other instinct, which I really like, is to hunker down and take care of your knitting."

What's most encouraging about the regional economy right now is that there are so many different clusters of growth in New England - newly emerging industry sectors like video games, medical diagnostic tests, clean tech, and robotics. Money is still flowing in, new products are still being developed, companies are still hiring, and research-and-development is still happening. It's these areas that offer entrepreneurs, their employees, and their investors opportunities to have an impact - and earn a return - even in gloomy times.

"The economy here is much more diverse than it used to be," says Jeffrey Bussgang, an ex-entrepreneur who now invests on behalf of Flybridge Capital Partners in Boston. "There's a much longer list of sectors that are interesting for entrepreneurs or venture capitalists to invest in."

What produces a healthy cluster? You need research labs (academic and commercial) where new ideas can percolate, big companies, lots of start-up ventures, investors willing to put capital to work, and a networking group or social gathering that brings people together.

Bussgang says that he doesn't much expect the current global financial jitters to affect the innovation economy. "The Boston VC community is full of money right now, and that doesn't change when the market goes down a few hundred points," he says. Companies may not be able to go public for the foreseeable future, but Bussgang believes that initial public offerings will resume at some point.

That inability for entrepreneurs and their backers to get repaid for their risk-taking by the public markets can wreak some havoc, observes John Landry. "Venture guys have got to carry their companies for longer periods of time," says Landry, pouring more money in. That can limit the time and money they have for new investments.

But Landry, who has a long history of starting and working for Internet and software companies going back to the days of McCormick & Dodge in the early 1970s (considered the first company to sell "packaged" software for mainframe computers), says that he's encouraged when he sees newly established "pillar" companies in Massachusetts, like iRobot Corp., spinning off new start-ups in related areas.

"You're starting to get the food chain effect, of people leaving to start new companies, and that's a good thing," he says.

I'm often asked by people looking for their next job where the action is - where they should be focusing. Here's my list of the clusters of innovation in New England that look most promising:

Biotech and pharma - With 10,000 employees and a new research lab in Framingham, Genzyme Corp. is the anchor tenant of the region's biotech industry. Pharma companies like Novartis AG and Merck & Co. have planted their own labs around the Boston area to build teams of smart scientists. And the Broad Institute in Cambridge earlier this month received a $400 million donation that will likely produce genomic insights that companies large and small will try to turn into treatments for diseases such as cancer, malaria, and schizophrenia.

Clean tech - Companies seeking to wring energy from the sun, wind, water, and plant matter? New England has them. A123 Systems of Watertown, a maker of batteries for power tools and hybrid cars, will be a bellwether: In August, it filed papers to raise as much as $175 million in an IPO. Several companies, like Cambridge's Mascoma Corp., are working on biofuels that aren't made from corn or other food crops.

Robotics - New England companies are developing robots that work in warehouses, greenhouses, on battlefields, and in living rooms. IRobot is the biggest, with more than 400 employees, but even the small companies are working on incredible stuff: BigDog, a gasoline-powered walking robot developed for the military by Waltham-based Boston Dynamics, has become a star on YouTube. Both companies were founded by MIT researchers; all eyes now are on Heartland Robotics of Cambridge, the latest MIT spin-out, launched by robotics pioneer Rodney Brooks and focusing on a new generation of 'bots for manufacturing.

Cloud computing and virtualization - Cloud computing is the idea of running applications and storing data on a distant server. One example is Carbonite Inc., a Boston company that offers online backup for $50 a year. Virtualization is being able to carve up a single server, storage devices, or other computing resources into multiple slices, to get more efficiency from them. EMC Corp. of Hopkinton made a big bet on virtualization with its $635 million acquisition of VMware five years ago. But EMC's CEO booted VMware's CEO last summer, and there has been an executive exodus lately.

Devices and diagnostics - Device companies are trying to come up with more effective and less-invasive ways to treat diseases like obesity; GI Dynamics of Lexington is testing a sleeve that can be easily inserted into the small intestine, achieving many of the same benefits of gastric bypass surgery. On the diagnostics side, the goal is cheaper and more accurate tests that can offer earlier warnings of impending health problems.

Video games - Harmonix Music Systems, which developed both Guitar Hero and Rock Band, is the biggest success story yet on the local video game scene; it's now part of Sumner Redstone's Viacom empire. Entrepreneurs and game designers gather every month for a schmooze-fest dubbed Boston Post Mortem.

Mobile communications - Start-ups are working on cellphone-based Internet search, multimedia delivery, and (look out) advertising. And Airvana Inc. in Chelmsford is pioneering femtocells - tiny little cellphone towers intended to improve your reception at home.

E-Healthcare - For decades, Massachusetts companies have been developing software aimed at making hospitals, doctors, and insurers more efficient. Watertown-based Athenahealth Inc., which makes online tools for physicians, had a successful IPO last year and in August announced it would acquire a Georgia company for $7.7 million. But real breakthroughs - ones that actually have an impact on how much we spend on healthcare as individuals and a country - remain elusive.

Web 2.0/Digital media - There's no "pillar" company here yet, but rather lots of start-ups hoping their websites and Facebook applications will catch fire. Earlier this month, Punchbowl Software, which operates a website that aims to improve the way people plan parties, raised $2.1 million in funding; the company has just seven full-time employees, with an eighth starting soon.

Consumer electronics - Framingham-based Bose Corp. is an insular kingdom, and entrepreneurs complain that venture capitalists won't fund consumer device companies. But stubborn start-ups persist; the newest on my radar screen is FluidVoice, developing a "wearable" remote control for home electronics that responds to spoken commands.

Scott Kirsner can be reached at kirsner@pobox.com.

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