The State of Science

By Charles Sowell  

AUGUST 14, 2011 8:43 a.m. (0)

South Carolina is no longer seen as a flyover state for venture capitalists looking for investments as they shuttle between Atlanta and Research Triangle Park outside of Raleigh.

But there are issues that remain, especially for the state’s up and coming life sciences sector, chiefly in finding the kind of capital they need to bridge the gap between spunky startup companies with a commercially viable idea and full-fledged manufacturers.

“That’s where the biggest challenges lie,” said Steve Johnson president of Greenville’s CreatiVasc, which makes devices for kidney dialysis patients that are designed to improve the quality of life.

“There’s no shortage of startup money through private investors or things like SCLaunch and SCRA (the South Carolina Research Authority), but when you start looking for money in the $2 million to $3 million range, things become tough.”

According to the 2010 Battelle Report on the state of the life sciences industry nationwide, Greenville has more than 2,000 medical and pharmaceutical biotechnical workers. The whole state of South Dakota has slightly more than 3,000.

“South Carolina is now looked at as a state of opportunity (in the life sciences sector),” said Wayne Roper, executive director of SCBIO, a newly revitalized member advocacy organization focused on high-tech life sciences industries.

If that is the case, then the state has essentially managed to go from zero to a blip on big money radar screens in a relatively short span of time – in spite of attitudes in Columbia that at one time stymied growth in an industry that now has nearly 600 companies employing 14,000 at an average wage of $53,000 a year.

Some of them are considered “gazelle companies,” that 1 percent of all small firms that leap ahead of the pack to produce something on the order of 40 percent of all new jobs in this country, according to a Kauffman Foundation study.

“Just a few years ago you couldn’t get folks in Columbia (in state government) to even talk about incentives and investment in life sciences,” said Michael Bolick, president of SCBIO’s board and of Lab21, a company that develops and commercializes nanotechnology enabled products and genetic testing in a variety of medical related fields.

“The conventional wisdom was we can’t compete with North Carolina and Georgia, so we’re not going to try.”

British investors who were willing to take the risk and invest in South Carolina are the major owners of Lab21.

It is a common fate for startups, Battelle said. Major biotechnology companies, or drug makers are the main investors and purchasers of local companies.

Just a few years ago Bolick’s company was called Selah Technologies and was operating out of a converted strip mall owned by Clemson University in Pendleton.

Selah was bought out by Lab21 in 2009 and Bolick shifted his focus to genetic testing. Lab21 is one of the major research partners with Institute for Translational Oncology Research (ITOR) at the Greenville Hospital System University Medical Center.

High tech startups, no matter what their specialty, have proved to be a paradigm-changing phenomenon for state commerce officials, said John Warner, president of InnoVenture, a company that connects startup companies with limited resources with customers, capital, talent and technology.

“The big-box manufacturers are harder and harder to come by,” he said. “There are only so many Boeings and BMWs out there.”

That, coupled with the fact that most manufacturing companies pay on average about $35,360 compared to $54,000 in the biotech sector, makes big box not nearly as attractive as nurturing an entire segment of the economy, albeit one made up of lots of small companies, Roper said.

Average incomes in Greenville County have been sliding for more than a decade, Warner said.

“It really makes you see the value of these high-end companies. A PhD who makes $150,000 a year generates lots of spin off economic impact, all the way from the guy who lays in new carpet in his home to the teenager who gets his first job at a fast food place,” said Warner.

Boeing chose South Carolina instead of Washington state for a new manufacturing facility to get lower labor costs, “There’s nothing to keep them from doing that again,” Roper said.

High tech startups tend to cluster round universities and major medical centers, Warner said.

“They are scattered all over the state. No one area has a lock on them and that’s a good thing because it tends to do away with parochialism.”

How state officials deal with that change has been an issue, over time, but seems to be improving, Warner said.

There was a rough patch early on when the state started putting taxpayer money up for venture capital projects.

“It was a mixed bag, with some major losses – more than $4 million on an airline – and some major successes,” said Bolick.

That airline debacle resulted in the state pulling back on venture capital projects for a long time, Warner said.

That changed in 2007 when the state passed the Venture Capital Investment Act (or VCIA), Warner said.

Most in the biotech industry are fans of the $50 million program that put up state-backed loans for venture capital funds.

There was nothing in the legislation that required the four venture capital funds to invest in the state and they didn’t, at least at first.

“There was, from the start, a kind of creative tension set up by the legislature,” Warner said.

He sat on the board of Invest SC, the organization created by the state’s Venture Capital Authority to oversee the private investments.

“We realized early on that $50 million was not a lot of money in the grand scheme of venture capital funds,” he said. “And the state didn’t have a proven track record with those fund managers.”

Noro-Moseley of Atlanta had a $150 million venture capital fund to which the state kicked in $10 million in return for a promise to invest in a worthy South Carolina venture at some point, Warner said.

Warner said the state put in $20 million with Nexus Medical of Boston, who recently placed an office in Charleston and is the most active of the four in South Carolina with 10 state-based investments.

They are also responsible for Lab21 acquiring Selah Technologies.