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Texas must raise business grade even higher
San Antonio Business Journal - by Craig Casselberry

Two weeks ago, CNBC recognized Texas as "America's Top State for Business," citing our abundance of natural resources, diverse population and geography to create a "dynamic economy."

In January, Chief Executive magazine said that corporate CEO's ranked Texas as the number one state to do business in the nation, citing a strong and growing economy, low cost of living, and high quality of life.

We have 58 companies in the Fortune 500— and six of the Top 50 — more than any other state.

Nice accolades to be sure. So what do we do now? If you ask Texans, my guess is their first reaction would be, "no surprise!" Second, it would be, "how can we do better?"

Recently in Austin, more than 200 business and economic development leaders, state officials, investors and entrepreneurs convened to consider the work and recommendations of the Governor's Competitiveness Council. The challenge put forth was ambitious: Make Texas the #1 place to do business in the world.

We face tough competition globally. According to the Council's report, China, Singapore, Ireland, India, Mexico and Russia are placing a heavy emphasis on economic development and doing so successfully due to the relatively low cost of labor, which provides a competitive advantage. Another area where Texas can do better is the improvement of our workforce. Our education system and the workforce it produces show troubling signs. One in three of our ninth graders in 2003 failed to graduate high school in 2006 and the U.S. ranks 25th of the 30 industrialized counties in math and science performance.

At the higher education level, our university commercialization model is broken. We sink billions of dollars into research and "brain fuel' but very little on the next step — bringing that great idea and resulting product to market, leaving millions in licensing and other revenue on the table.

These numbers don't bode well for our long-term competitive economic position.

There is good news. Texas starts from a position of strength. According to Comptroller Susan Combs, over the 12-month period ending in April, Texas added 262,000 jobs — more than half of the total jobs added in the U.S—and saw our unemployment rate drop to 4.1 percent, a full 1 percent lower than the national average.

The lifeblood of sustained economic development and competitive advantage remains long-term access to capital for our entrepreneurs and emerging companies. We are in a race for ideas, which spur the innovation that spawns the companies that create the high paying jobs we need.

As renowned Texas economist Ray Perryman has noted, even the best of ideas and concepts cannot be translated into jobs and investment without a vibrant "ecosystem" of capital to provide financial resources at every stage of the business life-cycle.

One program in particular is providing the investment infrastructure. Since its creation in 2005, the Texas Emerging Technology Fund has been stimulating deal flow across the state. In the last two years, the ETF has been the most active early stage investor in the country— public or private equity. More than 500 Texans work with Regional Centers of Innovation and Commercialization to review and offer input on promising business plans — and they do so as volunteers.

The ETF also offers tremendous leverage value. With ETF as a catalyst, other sources of capital are able to pre-seed investments, or provide follow on capital for that critical "gap" period. Angel (high-net worth individuals) networks are stepping up, and public-private programs like the Certified Capital Company program see the value in capitalizing these promising young companies to keep their jobs in Texas.

Last December, the state realized a 46 percent return on its $1.35 million ETF investment in San Antonio-based CardioSpectra, a developer of medical device technology. While the early returns are excellent for Texas taxpayers, some fine tuning of the ETF program could turn it into an even more effective investment stimulus tool by removing some restrictions that can widen the net for investment, particularly in traditionally underserved areas of the state thirsty for capital.

Texas can do great things with the right infrastructure and support. But Texas will need the continued proactive, collective will of its leaders and citizens to make our economy not only the best in America, but the envy of the rest of the world.

Craig Casselberry is president of the Texas Coalition for Capital, a statewide nonprofit organization promoting long-term access to capital for our entrepreneurs and emerging companies. Web site: www.texascapital.org.