CP - Advantage - CNDI 2024

Advantage CP’s Wave 2 – CNDI 2024
Public/Private Partnership CP
1NC
1NC – CP
CP Text: The United States federal government should establish government-sponsored venture capital programs designed to promote economic innovation.
Mixed government and private funding leads to better success in innovation and enterprises.
Brander et al. 11 [James Alan Brander (born 1953) is a Canadian economist and a professor of Asia-Pacific International Trade, University of British Columbia. He is known as co-author of a seminal 1986 article in The American Economic Review, with Tracy R. Lewis, on "Oligopoly and Financial Structure: The Limited Liability Effect", as well as his work in international trade with Barbara Spencer, particularly the Brander–Spencer model, in which a government can enhance national welfare by subsidizing domestic firms to aid in their competition against foreign markets. Qianqian Du studies a common organizational structure of venture capital investments: syndication and networks. She also examines the role of government in venture capital investments and this study was included in the private equity report of the 2010 World Economic Forum in Davos. For her study of financial analysts, she shows sharing the same cultural backgrounds with the covered firms could improve an analyst’s forecasting performance. This paper won the CICF Best Paper Award and the TCFA Award for the Best Paper on Corporate Finance in 2013. In her recent research, she examines the implications of extreme analyst forecasts. Dr. Thomas Hellmann is a Professor of Entrepreneurship and Innovation at the Saïd School of Business, University of Oxford. He is the Academic Director of SBS Entrepreneurship Centre and the Academic Advisor of the Oxford Foundry.; Review of Finance (2015); pgs. 571-572; “The Effects of Government-Sponsored Venture Capital: International Evidence.”]
This article examines enterprises funded by government-sponsored venture capitalists (GVCs). We find that enterprises funded by both GVCs and private venture capitalists (PVCs) obtain more investment than enterprises funded purely by PVCs, and much more than those funded purely by GVCs. Also, markets with more GVC funding have more VC funding per enterprise and more VC-funded enterprises, suggesting that GVC finance largely augments rather than displaces PVC finance. There is also a positive association between mixed GVC/PVC funding and successful exits, as measured by initial public offerings (IPOs) and acquisitions, attributable largely to the additional investment. 1. Introduction Governments around the world have taken a strong interest in venture capital (VC). This interest stems in part from the important role venture capitalists have played in the development of some of the world’s most influential enterprises. More broadly, VC provides significant support in many countries for entrepreneurial enterprises that are major sources of innovation, employment, and productivity growth. In addition, there is a sizable body of research in economics emphasizing potential market failures associated with innovation and entrepreneurial finance—market failures that might create a reasonable economic rationale for government intervention in VC markets. 2 It is therefore not surprising that many governments encourage the provision of VC finance to entrepreneurial ventures. The global public sector commitment to VC is substantial, including forgone taxes, outright subsidies, preferential regulation, and public provision of investment capital. In our data, VC firms owned or supported by governments invested over $4 billion per year in privately held enterprises around the world. Over a quarter of all enterprises financed by VC received some government sponsored VC funding. However, there is also considerable resistance, or at least scepticism, regarding the role of government in VC finance as expressed, for example, in Cohen and Noll (1991) and Lerner (2009). Critics doubt whether governments can improve upon private sector VC activity and many fear that government activity in VC markets might be associated with problems arising from political pressures, rent-seeking, and general bureaucratic inefficiency.
Canada proves – Public-private venture capital investment supports startups and boosts innovation.
ISED 22—Innovation, Science and Economic Development Canada, an organization under the purview of the Canadian government; SME Research and Statistics; “Venture Capital Action Plan”; 8/2/24; https://ised-isde.canada.ca/site/sme-research-statistics/en
Venture Capital Action Plan In 2013, the Government announced the Venture Capital Action Plan (VCAP). It is a market oriented approach to put Canada's VC industry on the path to sustainability, make it more globally competitive, and increase the availability of financing for innovative Canadian firms. Under VCAP, the Government is deploying $390 million in new capital. In particular, VCAP has made available: $340 million to establish and recapitalize four large scale private sector-led funds of funds in partnership with institutional and corporate strategic investors, as well as interested provinces; and $50 million in four existing high-performing VC funds in Canada. The four VCAP funds-of-funds attracted significant investments from a diverse set of investors that included pension funds, high-net-worth individuals, corporations, banks, and the Governments of Ontario and Quebec. Including the federal government investment, the four funds-of-funds raised $1.356 billion. Of that, $904 million came from private sector investors. Funds-of-funds selected under VCAP Northleaf Venture Catalyst Fund Teralys Capital Innovation Fund Kensington Venture Fund HarbourVest Canada Growth Fund High-performing funds selected under VCAP Lumira Capital II Real Ventures III CTI Life Sciences II Relay Ventures III VCAP data and impact VCAP capital is now flowing to leading VC funds to help high-potential start-ups grow and innovate. The Department of Innovation, Science and Economic Development Canada will be releasing regular updates on how the funds raised under VCAP are being distributed, and the companies benefiting from these funds.
2NC/1NR Blocks
2NC/1NR – AT: Solvency Deficit
Government investment and cooperation creates more impactful tech.
Sykora 19 — Luke Sykora is Head of Content with STVP, the Stanford Engineering Entrepreneurship Center; Stanford Technology Ventures Program; “Is Government Funding Good for Your Startup”; 7/3/19; https://ecorner.stanford.edu/articles/is-government-funding-good-for-your-startup/
As an Air Force Captain charged with distributing R&D money to private companies, Jason Rathje observed plenty of overlap between the innovations that the military, industry leaders and academic institutions were pursuing. He even helped create a consortium to bring these groups together. Still, he found that the set of firms interested in partnering with the government was often surprisingly narrow. Which made him wonder: What was holding companies back from pursuing relationships with the government? “I went around and interviewed a bunch of VC groups,” he says as he sits in a Stanford coffee shop nursing a mid-afternoon coffee. “And they told me: ‘If you’re a startup, one: Don’t ever have the government as your first customer. And two: Only go to the government after you have a complete product to sell.’” Clearly, the sense from Silicon Valley venture capitalists was that early-stage startups had more to lose by partnering with the government than they had to gain. But given his experiences funding private firms from the government side, Rathje suspected that the actual picture was more complicated. Government funding sometimes offers more than just money, including access to advanced national laboratories and internal government information. To dig into quantitative data about public-private partnerships, Rathje came to Stanford University’s Ph.D program in Management Science and Engineering. Working with his advisor Riitta Katila, a professor of Management Science and Engineering, he focused his research on how governments and private companies (particularly startups) interact when pursuing technological innovation. Here’s what we already know: Government and private companies have worked together to advance recent technologies like autonomous vehicles (Ford engineers David Hall and Jim McBride introduced rotating lidar in 2005 via DARPA’s Grand Challenge). Government funding sometimes offers more than just money, including access to advanced national laboratories and internal government information. Government funding often leads to more government funding, and can result in firms that are less engaged with the broader commercial market. “Mission-based” agencies like the Department of Defense and NASA — which have significant purchasing power — can serve as the lead market for new technologies. Recently, companies in sectors like AI (Palantir) and private space exploration (SpaceX) have been able to leverage early government funding to find competitive advantages and simultaneously grow both public and private business streams. Measuring the Effects of Government Funding So when is it a good idea for a young firm to pursue government funding? In a recent working paper, Rathje set out to investigate how public-private R&D partnerships affect innovation, in particular. Innovation might, on the surface, seem like an easy thing to measure, but it’s actually quite difficult. Innovation isn’t a linear path, and a technology that seems revolutionary in a cultural sense can be very simple on a technical level. Public-private R&D collaborations that emerge from government grants tend to produce more disruptive invention than private firms inventing on their own. To map innovation, Rathje turned to one of the few massive and — crucially — interlinked datasets that captures technical innovation: patents. Individually, a patent is a description of a single unique invention. But almost every patent cites previous patents, and is in turn cited by subsequent patents, sometimes hundreds of them. The result is a complex web that serves as an imperfect but useful map of how technology advances. Examining US patent data from 1982 to 2012, he studied over 33,000 patents that resulted from public-private R&D collaborations. He then analyzed the data by tracking patterns in patent citations, an accepted standard for determining the nature of the emergent technology. Two of his findings, in particular, will catch the ears of early-stage startups: Public-private R&D collaborations that emerge from government grants tend to produce more disruptive invention than private firms inventing on their own. Public-private R&D collaborations that emerge from cooperative agreements lead to more impactful innovation than a private firm acting on its own. Impactful technologies, Rathje explains, generate direct market value. A disruptive technology, on the other hand, radically changes the technological field and makes previous technology effectively obsolete. A simpler way to think about it: When you’re pursuing an impactful technology, your goal is to design a more effective ball. A disruptor, by contrast, is proposing an entirely new kind of ball that will require changing the rules of the game. Government funding comes in many forms, but much of Rathje’s research focuses on the implications of three sorts of R&D funding: grants, cooperative agreements and contracts. Each type of relationship, he finds, has important implications for companies that partner with government funders. Disruption: Granted If you’re imagining an aspiring disruptor as a lone figure with a singular, novel view of the future, think again. In actuality, disruptors often travel in packs. “Even in nascent markets, everybody has competitors,” says Rathje. There are always a few players swirling around the same opportunity, working on similar products and approaching the problem in similar ways. In academic circles, that’s called “isomorphism” — the tendency of companies in a particular ecosystem to gravitate toward similar solutions. And that, Rathje finds, is where government grants can be useful. “Instead of, ‘How can the government fund what I want to do?’, it’s: ‘How can I engage with the government to do something different?’” he observes. Grants tend to emerge from science organizations like the National Science Foundation and the National Institute of Health, and focus on reporting scientific results rather than delivering fully realized products. “When you fund science, there’s a lot less restrictions,” Rathje observes. Beyond the required reporting, there are no concrete deliverables. Because they’re geared toward scientific exploration rather than commercial product development, a common misperception is that most grant opportunities go to research institutions rather than private firms. The reason grants tend to generate novel, disruptive inventions, Rathje suspects, is because of that very scientific autonomy. Companies can tailor their scientific research to explore concepts beyond the scope of their core day-to-day business, coming up with inventions that might propel their own business in the long run, and also potentially open up entirely new technological streams. Because they’re geared toward scientific exploration rather than commercial product development, a common misperception is that most grant opportunities go to research institutions rather than private firms. Yes, research institutions make heavy use of government grants, and we’ve certainly seen many disruptive inventions come from universities. A NASA-funded 1989 California Institute of Technology patent for a fiber optic voice/data network perfectly illustrates what grant-funded disruptive technology looks like. The patent itself speaks to the limited use cases for the technology at the time, describing it as “an asynchronous, high-speed, fiber optic local area network originally developed for tactical environments with additional benefits for other environments such as spacecraft, and the like.” Fast forward 25 years, and fiber optic LAN networks weren’t uncommon on college campuses and offices. But a company trying to commercialize that technology in the early 1990s would have been decades too far ahead of the curve. In actuality, many companies also receive government grants. Only companies are eligible for the Small Business Innovation Research (SBIR) program, for example, which primarily funds companies via grants and distributes around $2 billion dollars each year to small businesses in the US. “Grants can range from pretty small to pretty large,” Rathje observes. Even within a single funding program, awards can differ greatly. The smallest 2018 award for the U.S. Geological Survey’s 3D Elevation Program was about $23,000, while the largest was just over $1 million. But companies rarely pursue a single government-funded project in isolation. In 2015, the Los Angeles Times reported that Elon Musk’s three companies — Tesla, SolarCity and SpaceX — had collectively pulled in $4.9 billion dollars in government support (meaning grants, but also things like tax breaks and discounted loans). Making an Impact Cooperative agreements are similar to grants, but involve additional layers of government oversight and participation. A grants.gov blog lays out the basics: “In a cooperative agreement…federal employees participate more closely in performing the program. When you read ‘cooperative,’ think working ‘side-by-side.’” In some cases, government partnerships provide the sort of advanced “smart capital” that even the most specialized VC firms won’t be able to supply. In these cases, there’s less autonomy, but cooperative agreements generally mean gaining more access to government technology and expertise, which can provide a competitive advantage. “It’s a government smart capital play,” Rathje says. In some cases, government partnerships provide the sort of advanced “smart capital” that even the most specialized VC firms won’t be able to supply. “I love the national laboratory system,” Rathje says, pointing to places like the Lawrence Livermore National Laboratory, which hosts the world’s second-most-powerful supercomputer. “I think they are an amazing resource. Engaging in these cooperative agreements is a great way to gain access.” In his dataset, a Photon Energy, Inc. patent for a thin-film photovoltaic device — developed in partnership with the Department of Energy — is a classic example of an impactful technology. It cites a significant body of previous work, including numerous Texas Instruments patents, and is in turn cited in over 100 subsequent patents. In other words, it’s an important incremental advancement in solar power. “The research shows very clearly: If new technologies actually come out of the cooperative agreement they’re way more impactful,” observes Rathje. “And, with respect to other partnership types, companies have a much more direct path to commercialization.” A Contract to Innovate The government uses contracts to purchase goods and services, which doesn’t sound much like a research and development activity. But sometimes, especially when a government agency is interested in bringing an immature technology into production, it will issue a “cost-plus” contract. These sorts of contracts cover the cost of development, plus a fixed profit margin that maxes out at 15%. (Not a very exciting margin in the world of high-risk technology R&D project, Rathje points out. Plus, the government often claims intellectual property rights in these cost-plus contracts.) Young firms with an actual product or service to sell might also pursue a simple procurement contract, and use that revenue to fund further growth. This is the preferred arrangement of “mission-based” entities like NASA and the Department of Defense. The margins on such contracts can be much larger, Rathje finds, but they can also be risky for startups trying to quickly innovate and scale. “If you’re a startup, the DoD or NASA can be really interesting resources, both in terms of money and technical talent,” he says. “But if you’re a young firm and you devote your internal resources to their needs, you could be limiting your ability to allocate those resources to other opportunities.” In one paper that he’s working on, he spoke to a start-up that won a NASA contract for extraterrestrial imagery analysis. “And they said: Looking back on it, we should have never taken the contract,” Rathje says. “It took them 30% off of their target in terms of their R&D strategy.” The Big Question: What About Growth? As funders, VC firms are powerfully motivated to help companies grow — IPOs and acquisitions are what make their investments pay off. In the case of the government, on the other hand, the goal might be to pursue exploratory research or to purchase equipment, but the goal is rarely to directly promote the health and growth of private companies. “The company needs to scale along with the technology.” And yet, Rathje argues, a government mindset that thinks more about private company growth could create a more robust and sustainable ecosystem for public-private innovation. “The company needs to scale along with the technology,” he says. Last year, Rathje’s own Air Force working group partnered with the Air Force’s SBIR program to implement a new, commercially-oriented approach to innovating with companies. In less than 9 months, they awarded $80 million to private firms. “What I’m dealing with in my Air Force job is: How do we deploy some of this in the DoD to get around some of these things that are detrimental to firm growth?” Rathje says. “How do I implement changes in my world to better adapt to the environment in the commercial sector?” So far, that strategy has meant incentivizing fund matching and pursuing products and services that are useful beyo

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