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Missouri legislators propose new incentives to develop state's technology industry

Saturday, January 2, 2010 | 3:43 p.m. CST; updated 4:15 p.m. CST, Saturday, January 2, 2010

JEFFERSON CITY — Mark Pydynowski was working in New York. Ramos Mays was studying physics in Sweden. Yet the two former Washington University baseball teammates chose to return to St. Louis to launch a high-tech venture.

They created SOMARK Innovations Inc. to develop an electronic ink tattoo as an animal identification device. But after just three years in Missouri, Pydynowski and Mays relocated their promising young firm to San Diego this past year.

"We made the decision based upon what would increase the company's probability for success," Pydynowski said.

The inception, development and departure of SOMARK Innovations illustrates the challenges confronting Missouri as it contends for the high-tech jobs touted as the foundation of the future economy.

Missouri is a competitor. But it still too often is losing.

"We've had some industries that we tried to locate in my senatorial district that we just couldn't compete," said John Griesheimer, a St. Louis area lawmaker who is chairman of the Senate jobs and economic development committee. Other states were offering so many incentives that "it was almost embarrassing."

To win, Missouri must do more. That's the emerging consensus among Gov. Jay Nixon, top lawmakers and local economic development officials who plan to push for a variety of new business incentives during the 2010 legislative session that starts Wednesday.

The economic development proposals will share top billing with Missouri's continued budget struggles — creating a conundrum for lawmakers looking to cut spending because of the poor economy yet wanting to increase business incentives to help spur the economy.

"The problem is where are we going to get the money to do anything substantial?" said Senate Majority Leader Kevin Engler, who remains skeptical about the many job-promising proposals.

At least four incentive plans are likely to be considered. They would:

— Target startup companies with new tax credits for investors, forgivable loans or grants from a state seed-capital investment fund.

— Create a special incentive pool for businesses in the biotechnology sector, funded by diverting a portion of the tax-revenue growth generated from existing firms in the same field.

— Establish a "closing fund" of cash, which state economic development officials could tap to offer extra incentives to businesses when Missouri is trying to close a competitive deal.

— Allow existing Missouri businesses to exceed the standard caps for certain tax credits as a reward and incentive to expand here instead of elsewhere.

Though many of those proposals are geared toward long-term development, they are being promoted with some urgency because of the current economic troubles. And though many details remain to be worked out, the Democratic governor and Republican legislative leaders say they are committed to doing so.

"Anything we can do to get Missouri through this economic downturn, we're going to do," said House Speaker Ron Richard.

Testifying before a House economic development committee this fall, an official with the St. Louis Regional Chamber and Growth Association presented some stark facts as an impetus for action:

— Although Missouri ranks ninth among states in attracting federal research and development grants, it is 27th in university startup businesses — indicating a sizable gap in turning lab work into commercial ventures.

— Missouri ranked 49th among states in entrepreneurial activity in 2008, with a ratio of just 150 entrepreneurs per every 100,000 adults, according to the Kansas City-based Ewing Marion Kauffman Foundation.

— Missouri's share of Midwest venture capital investments fell from 18.7 percent during the period of 1998-2000 to just 2.8 percent in 2009.

— Missouri spends just 10 cents per capita on incentives to early-stage, technology-based companies, compared with an average of $2.79 per capita in the neighboring states of Arkansas, Illinois, Iowa, Kansas, Kentucky and Oklahoma.

Some 120 attendees at a recent Missouri life sciences summit applauded as Nixon announced he was backing legislation to create a dedicated funding source for biotechnology incentives.

"It's been a long-term need for us to find a way to be more supportive of the growth of the industry in Missouri," said Jewel Scott, executive director of the Civic Council of Greater Kansas City. "We're lagging, but this is the opportunity to turn the corner."

After returning to Missouri to launch SOMARK Innovations, Mays and Pydynowski won a $50,000 prize in Washington University's business plan competition in December 2005. They then attracted some additional money from investors and set up shop at the Center for Emerging Technologies, which provides work space and support services for startup companies in St. Louis.

Initially, they focused on developing their electronic tattoo technology for the beef cattle industry. Then Pydynowski and Mays changed course and directed their product toward laboratory mice, which typically all look the same and so need a reliable way for researchers to track them. SOMARK Innovations attracted investors while in St. Louis but had trouble recruiting workers with technical expertise, Pydynowski said.

San Diego offered a deeper talent pool of people with both the engineering skills they needed and prior experience in startup companies, Pydynowski said. The move also put SOMARK Innovations closer to its prospective customer base in the life sciences field and closer to investors who could fuel the company in the future, he said.

The move took some Missouri economic development officials by surprise. Jay DeLong, the vice president of capital formation and new ventures at the St. Louis RCGA, said he had hoped to bring Pydynowski or Mays to the Missouri Capitol last year to testify in support of new incentives for high-tech startup firms.

"What happens out there is you have serial entrepreneurs, who quickly size up the commercial viability of a concept and bring resources together quickly and manage those resources through high growth," said DeLong, a former venture capital executive in California. "We lack serial entrepreneurs, as do most places outside Boston and California."

But "a lot of states have tried to mitigate that by doing other things to encourage startups," DeLong said.


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