How is the innovation economy in Massachusetts doing in 2018? In the world of biotech, there’s fretting about whether we’re in the midst of a bubble for private and public company valuations. In tech, e-commerce, and other emerging sectors, there’s the ever-present worry about being outpaced by what’s happening in Silicon Valley and even (gasp) New York.
Let’s look at some recent data points and see whether they leave you feeling “coffee mug half full and still hot” or “coffee mug half empty and tepid.”
Twelve Massachusetts biotech companies made their stock market debuts in 2017. Most are still developing — rather than selling — new medicines, and most are still small. The biggest biotech stock offering in the state last year was Waltham-based Deciphera Pharmaceuticals. It raised $128 million from investors — but the company had fewer than 50 employees at the time it filed to go public. Biotech companies often produce innovative treatments, but don’t look to them to produce thousands (or even hundreds) of jobs.
Of the 15 tech companies that went public on major US exchanges last year, many make software for business use, like MongoDB and Alteryx. That’s a big strength for Massachusetts tech companies, but the largest tech IPO in the state in 2017 was Cambridge-based CarGurus, which helps consumers shop for new and used vehicles. Its founder and CEO is Langley Steinert, who had previously co-founded TripAdvisor, the most highly-trafficked network of travel websites. A second Massachusetts company, Casa Systems of Andover, which sells software to broadband service providers, also went public, in mid-December.
The insider term “unicorn” refers to companies that are still privately-held, but are worth $1 billion or more — at least on paper, according to their investors. At the top of the list are startups like Uber and Airbnb, which have made it simpler to catch a ride to the airport and find a unique place to stay at your destination. You have to go into the double-digits on the list of most highly-valued private startups to find one based in Massachusetts. That would be Moderna Therapeutics, which is using a specific kind of RNA molecule called “messenger RNA” to design new drugs. Cambridge-based Moderna in February raised $500 million from investors, which likely moves it up to 11th place on the list of US-based unicorns.
Venture capital firm General Catalyst, also based in Cambridge, is in the midst of raising a $1 billion pool of capital to put into startups. That’s good news for local entrepreneurs, though General Catalyst has been increasingly active in Silicon Valley since it opened an office out west in 2011. It is an investor in Snapchat, Airbnb, the payment service Stripe, and The Honest Company, founded by actress Jessica Alba. All those firms are based in California, although General Catalyst is also a backer of Circle, a cryptocurrency startup, and Lola, a travel planning app, both based in Boston.
Massachusetts fares less well on the latest Boston Consulting Group of “Most Innovative Companies 2018.” There, among 50 companies like Apple, BMW, Adidas, and Disney, we occupy one spot: General Electric at #18. And under its new CEO, John Flannery, GE is just beginning a brutal round of cost cutting. Flannery has cut the stock’s dividend in half, and is mulling which businesses to sell or spin off to help make the company nimbler. Will Flannery’s moves help GE climb the list? We’ll see. So far, Flannery hasn’t halted the erosion of GE’s stock price, which is down 46 percent since he took the wheel last August.
Where are we #1? The Bloomberg Innovation Index ranks Massachusetts as the most innovative state in the country, ahead of California, using measures like the concentration of science and engineering employment, productivity, and patent activity.
About $6.7 billion in total venture capital funding went into Massachusetts startups in 2017. That number is up about $500 million from the year prior, but a little but lower than it was in 2015, when investors put $6.8 billion into startups here. More money is going to fewer startups, too: almost 500 companies received funding in 2015, a number that has been trending downward, to 406 in 2017, according to data from PwC/CB Insights MoneyTree. And according to the Massachusetts Biotechnology Council, a growing share of that funding — nearly half — now goes to life sciences companies.
So what does all the data mean? At least 48 other states — and hundreds of foreign countries — envy the innovation economy we’ve built here, which is no small thing. But I do worry that we have fallen into the rut of being an innovation supermarket for shoppers who are headquartered elsewhere. We take the ideas out of Massachusetts universities, fund them as startups, and then sell them to IBM, Oracle, or Sanofi. Dozens of large companies headquartered elsewhere have set up research outposts in Massachusetts to hire smart graduates of those universities, too.
Are we creating enough of our own successful, stand-alone companies that will control their own destinies? I don’t think so.
Entrepreneur and angel investor Andy Palmer agrees. “The ‘flip’ mentality became part of the Boston early-stage culture,” says Palmer, CEO of the Cambridge tech company Tamr. When young entrepreneurs see older entrepreneurs selling their companies rather than staying at the helm, they have “no role models of people building independent businesses. After a few decades, it becomes dogma.”
But Semyon Dukach, a venture capitalist who runs the One Way Ventures, focused on backing immigrant founders, thinks I’m being too parochial in worrying about Massachusetts’ standing relative to other places. “Don’t you think that obsessive regional comparison might be a sign of weakness?” he asks via e-mail. “I take a more global view, personally.”
Paul Maeder, managing partner at the venture capital firm Highland Capital Partners in Cambridge, acknowledges that the state missed out on a few key “cycles” of technology, including social networking and mobile apps. But he believes that 1636 is another key number to consider. That’s the year that the school located midway between Tufts and MIT was founded.
Ten years ago, Maeder says, he felt that “a big part of our problem was that we had one institution fighting above its weight, MIT, when it came to entrepreneurship, and one that was a no-show, Harvard. But that completely changed under [outgoing Harvard president] Drew Faust.” The school is also investing $1 billion in its new Allston science and engineering campus, which will eventually be larger than the campus on the Cambridge side of the Charles River.
“Harvard is becoming an engineering powerhouse, and Harvard Business School is becoming an entrepreneurial powerhouse,” Maeder says. “Those two drivers are going to have an impact for the next 30 years.”
As with all predictions, I’m interested to see how that plays out.
Correction: An earlier version of this story misstated the number of Massachusetts tech companies that went public in 2017.