From the Advocate

By Tara Lynn Gray 

April 2023

California’s Model for Ecosystem Acceleration

Last month, I met a tech investor from Israel visiting California on a mission for his firm. His trip and the event we were both attending just happened to coincide with the Silicon Valley Bank closure and the federal intervention to secure its deposits. So I asked him, considering the headlines, if he was second-guessing his California scouting trip. “Oh no,” he shrugged. “Israel is the Startup Nation. But this is California. The ecosystem here is like no other place.”

In that moment, with everyone else hyperventilating, I felt reassured by his nonchalance: that’s right, this is California.

Silicon Valley has ruled as the world’s #1 startup ecosystem since 2017 in a widely quoted report from Startup Genome, ranking #1 in every evaluated category: Performance, Funding, Connectedness, Market Reach, Knowledge and Talent. In the 2022 report, Los Angeles ranks #6 and San Diego #13. (Tel Aviv is #7.)

This is why Pitchbook reports that California has received over 51 percent of all venture capital invested in the United States since 2000.

But that’s no excuse to take California’s dominance for granted or to stop pushing the envelope, two things Governor Newsom has consistently refused to do. Instead the Newsom administration is investing in the State’s innovation ecosystem, leveraging that success and know-how so obvious to my new friend from Israel.

The latest example coming out of my office is called Accelerate California and it’s designed to expand the reach of that California ecosystem to include more diverse founders, support new technology sectors, drive growth and create high-quality jobs in geographies beyond the coastline.

Accelerate California is just one example.

The $35 million Dream Fund last year paid out seed grants of $5,000 to $10,000 to startup founders who completed a rigorous entrepreneurship training and successfully licensed and permitted their new business. It was the most successful business start program the state has ever done, resulting in seed capital to over 4500 businesses and driving huge engagement with the state’s Small Business Center network that managed the program.

The State is also applying $200 million, provided by the U.S. Treasury through the State Small Business Credit Initiative, for the IBank Expanding Venture Capital Access Program. As noted above, California gets its fair share of venture monies, but the State is aiming for a more inclusive venture capital ecosystem:

• Supporting underrepresented venture capital managers.
• Investing in underrepresented and underserved entrepreneurs and business owners.
• Investing in geographic areas that are socio-economically disadvantaged or that receive very limited venture capital funding.
• Promoting climate equity and climate justice.

There are successful examples of venture programs in other states, but this is the first time that California has tried it.

Accelerate California also boasts a “first time” feature: a $6.5 million for Acceleration Grants to support a portfolio of scalable firms incubated in geographically isolated and historically underserved communities.

We first launched Accelerate California last year with $2.5 million in programmatic funding for 10 Inclusive Innovation Hubs.

In the current budget year, Senate Bill 193 grew that funding to $19.5 million: $13 million in new programmatic funding for an increased network of 13 hubs and $6.5 million in Acceleration Grants.

All 13 will be selected through a new competitive RFP process. The funding Request for Proposal for Round 1 – intended for the existing 10 designations that choose to rebid again — was released on March 30 and applications are due on May 4. This will be followed by a second round for brand new proposals.

Every proposal will be evaluated for its ability to catalyze growth and expand the reach of California’s innovation ecosystem.

This is California’s secret sauce! We know the ingredients for success here:

• Talent (an existing workforce with the industry-appropriate skills and education or the ability to train and grow such a workforce)
• Capital (access to equity capital for the appropriate stage of growth from pre-seed to Early Stage)
• Anchor institutions (colleges and universities, private or public research labs, any entity that has a significant and stable presence including large employers, hospitals and military bases)
• Places to work (co-working spaces or accessible commercial real estate)
• Availability of technical assistance (counseling and training) and business service providers (lawyers, accountants, graphic designers, marketing firms)

Beginning in Q1 of Year 2 of the program, the Acceleration Grants will become the cherry on top.

Here’s why I believe we can drive innovation by relying on this formula, a formula that other countries have studied here and successfully applied there.

When Startup Genome first published its Global Startup Ecosystem Report in 2012, six of the top 10 hubs were in the United States, and just one Asian city broke the top-20 ranking. Almost two-thirds of early-stage funding was concentrated in North America. Now Asia is home to 30 percent of the Top 30 Global Ecosystems compared to 20 percent in 2012. San Diego moved up eight places in a single year in 2022, thanks to growth in its Life Sciences sub-sector. Silicon Valley now commands a smaller percentage of early-stage investment than it used to, but this statistic says more about the growth of tech in other places than what is happening here.

I know this topic may bring out the “decline” nay-sayers.

For you, Negative Nicholas, I’ll point out that — contrary to the ever-popular narrative about business dysfunction and exodus — the San Francisco Bay area accounts for 78 percent of the market capitalization of all publicly traded companies in California, up from 70 percent five years ago. Yes, there have been a lot of layoffs recently and I empathize with those who had this experience. But I also have to point out that Silicon Valley added 88,000 jobs from mid-2021 to mid-2022, a growth rate of 5 percent that has outpaced the nation.

I also want to remind you that “innovation” means to renew, improve, or invent something new. It means identifying new solutions to known problems. Rapid and unpredictable change is kind of the whole point.

If cities in Asia and Europe and South America can emulate the formula for ecosystem development that California invented, then we can do the same in the Central Valley and the North State and the Inland Empire. My goodness, the term “unicorn” wasn’t even coined until 2013!

Accelerate California is one of the most exciting programs my office has ever done: stay tuned ‘cause California leads and is definitely still accelerating.