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NC Senate wants to give much more than normal — $1.4B — to new 'innovation' program.

State Senate chamber
Dave DeWitt
File photo of N.C. General Assembly in Raleigh, 2021.

More than $1 billion in the North Carolina Senate’s proposed budget would go to a single organization, with the goal of turning academic research into successful start-up businesses.

A group of business leaders founded the organization NCInnovation to address what they see as a problem: North Carolina’s research universities — particularly those outside the Triangle — are struggling to turn their big ideas into business opportunities. Bennet Waters is the group’s CEO.

"There is a very real valley of death in terms of funding between where federal funding typically stops in a research project, and where the results of that project become commercially investable and scalable," Waters said. "So we've developed a strategic plan to address those challenges."

NCInnovation wants to help researchers bridge that gap with grants, mentoring, and other services. So far it’s raised about $23 million from major companies and others in the private sector, and it’s asking the legislature to chip in a whole lot more.

It plans to partner with schools like East Carolina University and North Carolina A&T State University to identify research that could have commercial potential.

There’s bipartisan agreement that NCInnovation is a smart idea. Both the House and Gov. Roy Cooper have included $50 million in their budgets for the project.

But the Senate wants a much larger amount: $1.43 billion. It’s a huge sum for a budget that totals about $30 billion to run all of state government.

Sen. Jay Chaudhuri, D-Wake, says he likes the project but questions the dollar figure.

"$1.4 billion is a lot of money for an initiative, especially when we have other competing needs in this state," he said.

But Senate leader Phil Berger says NCInnovation is a wise use of the state’s current revenue surplus. The group plans to invest the money through an endowment, using the returns to keep its efforts running without additional government support.

"Their request originally was $250 million, but not just $250 million, it was $250 million for 10 consecutive years. We felt the better thing to do would be to endow it with a sufficient amount of money," he said. "And then, we have no plans or intention to further fund that."

The WUNC Politics Podcast is a free-flowing discussion of what we're hearing in the back hallways of the General Assembly and on the campaign trail across North Carolina.

Berger says lawmakers will keep close oversight of the organization by appointing some of its board members. And there’s a mechanism to take back the money if the legislature doesn’t like the results.

But the budget provision exempts the group from following the state’s open meetings and public records law. Waters referred questions about that exemption to legislative budget writers, but he noted that some of the organization's work with entrepreneurs will need to be confidential due to the competitive nature of research and development.

NCInnovation has backing from some big names. Its board includes retired Truist CEO Kelly King and UNC System President Peter Hans. To garner support from the legislature, it’s hired nine lobbyists this year.

Waters argues that other states have similar programs with similar amounts of funding. And that means researchers from North Carolina universities could be lured away to take advantage of those resources.

"And they have realized it is cheaper to keep innovation that originated within their state than it is to go try to import someone else's innovation," he said. "And so they've been successful at that. And these are the orders of magnitude of dollars that are required."

For example, Ohio has spent $2.3 billion in government funding on a program it calls Ohio Third Frontier, which is focused on helping technology start-ups.

NCInnovation is pitched as a rural economic development effort, designed to give researchers at ECU and at Western Carolina University the same resources as their peers in the Triangle.

"Our research indicates that those that leave don't leave because they want to leave," Waters said. "They leave because the ecosystem, the mentors, the grant funding, and the things that they need to ultimately achieve success and commercialize their inventions aren't where they live."

Once the funding is secured, the group’s first step will be to open four regional hubs across the state to start offering services and build partnerships.

While NCInnovation is providing support, Waters says it won’t be an investor in the businesses that result from its work.

"Once we get to the point that a company can be formed, then the hope is that there will be private capital, venture capital, etcetera, that is able to fund the next phase of that commercialization," he said.

Just how much money NCInnovation receives from the state will be a subject of negotiations between House and Senate leaders in the coming weeks as they hash out a final compromise budget to send to the governor.

Chaudhuri says he'd like to see budget writers consider other funding sources, rather than using this year's revenue surplus.

"When I was at the treasurer's office, we looked at the unclaimed property fund as a source to help fill the gap in the venture capital space where we need to grow our own companies here in North Carolina," Chaudhuri said.

Colin Campbell covers politics for WUNC as the station's capitol bureau chief.