Stories of Technology, Innovation, & Entrepreneurship in the Southeast

For Stuart C. McWhorter, Commissioner of the Tennessee Department of Economic and Community Development, a recently completed study by RTI International validates what had been assumed: Tennessee is behind many neighboring states in its investment in technology-based economic development (TBED).

“We knew intuitively we were behind but did not have the data,” the Chair of the Launch Tennessee (LaunchTN) Board of Directors said. “Now, we have something to point to. It puts everything in perspective.” (DISCLOSURE: The teknovation.biz Editor is a member of that Board.)

The report, titled “Scaling Up . . . Benchmarking and Recommendations for Growing Tennessee’s Tech-Based Economy,” included two key findings and four broad recommendations. It was commissioned by LaunchTN which will spend the next year communicating the findings and their long-term implications for the Volunteer State.

“We wanted to get the report done as a level set,” said Lindsey Cox, LaunchTN’s Chief Executive Officer. “There are some great things happening in Tennessee, but how does that compare with our neighbors?”

Calling the report “Step 1 for TBED 2.0 in Tennessee,” she pointed to LaunchTN’s network of regional entrepreneur centers that now number eight across the state, the six industry-specific mentor programs, and a new federally funded pilot program with three universities to help enhance their technology commercialization efforts as examples of good things underway.

Still, RTI International’s two key findings paint a picture that is one of further falling behind.

• Tennessee is significantly lagging leaders in peer states in several key areas vital to turning new ideas and technologies into new products including: (1) employment by high-tech firms; (2) commercialization of university research; (2) patent output; and (4) private sector R&D expenditures; and
• Tennessee’s investment in TBED infrastructure has fallen behind most peer states in the Southeast and upper Midwest.

During a speech at December’s “Tennessee Smart Mobility Expo,” Vanderbilt University Chancellor Daniel Diermeier noted that 42 percent of his institution’s licensing agreements are with companies outside the State of Tennessee.

RTI International identified nine either neighboring or close by states for comparisons. In alphabetical order, they are Alabama, Georgia, Indiana, Kentucky, Mississippi, North Carolina, Ohio, South Carolina, and Virginia.

From the RTI team’s analysis, there were four key areas identified for consideration:

• Increase TBED investment to match the level of effort of regional peers;
• Strengthen the research commercialization to product pipeline;
• Expand access to growth capital; and
• Enhance statewide coordination of TBED.

So, what did the data show that produced those recommendations?

• The Volunteer State ranked ninth out of the 10 states, including Tennessee, in TBED expenditures in FY23. Only Mississippi spent less money. RTI International said Tennessee appropriated $16 million for TBED activities compared to the next lowest state (South Carolina) at $28 million. Three states – Georgia, Indiana, and Ohio – appropriated anywhere from $173 million to $263 million in FY23. To match the funding from the top four peer states, Tennessee would need to appropriate $53.2 million on an annual basis. The Volunteer State also ranked just ahead of Mississippi in TBED funding relative to the size of its economy, meaning it invested $33 dollars for every $1 million in state gross domestic product (GDP). Five of the other nine states invested more than $100 per $1 million in GDP with Indiana at $423 being the highest.
• On the all-important technology transfer front, only two Tennessee universities made the top 100 list from Heartland Forward. They are Vanderbilt and the University of Tennessee. That compares with four North Carolina universities. In terms of patenting, Tennessee does slightly better, ranking seventh among the 10 states in patents issued per 1,000 people working in science and engineering.
• What about private sector R&D? The Volunteer State’s success in attracting new corporate investment has not boosted the amount of privately funded R&D compared to the peer states. In 2020, private companies spent more than $13 billion on R&D in North Carolina, $11 billion in Ohio, $8.3 billion in Indiana, more than $7 billion in Virginia, and more than $5 billion in Georgia. By comparison, the $1.8 billion spent in Tennessee was among the lowest in the region. Put in context over a two-decade period between 2000 and 2020, private R&D spending in the Volunteer State grew by only 11 percent compared to Alabama (285 percent), North Carolina (195 percent), Indiana (188 percent), and Virginia (170 percent).

Among the more specific recommendations are:

• Expand shared lab, manufacturing, and workspaces to support tech-based companies;
• Establish a statewide Technology Transfer Office;
• Subsidize access to university researchers and equipment;
• Expand micro-enterprise loan capital and accelerator grants for start-ups; and
• Provide sustainable matching funds for SBIR and STTR recipients along with a dedicated pool of matching funds for federal proposals like the National Science Foundation’s “Regional Innovation Engines” and Economic Development Administration’s “Tech Hubs” programs.

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