Sunday, February 08, 2015
Hawaii: startup paradise found or paradise lost?
by Larry Geller
Over at Civil Beat, Jason Rushin is following the startup scene. His latest is Civil Bytes: Startup Paradise Shows Progress, But Let’s Get Critical Hawaii's technology startups can improve by answering pointed questions about their viability (Civil Beat, 2/6/2015). Being critical is appropriate, especially when they're using public money.
Rushin completely understands the venture capital scene, and in his article carefully described where each of three startup promoters derive their funding. I think this is important because I feel that a lot of money (often taxpayer money) is expended on schemes that will never materialize or on startups that will drink at the public fountain and later flee to the Mainland where they are closer to markets, suppliers, cultural opportunities and affordable housing and good education for employees and their families. We need to know if federal money is coming in, or if it is taxpayer money going down the drain.
Rushin didn’t go there in his article. I don’t expect he will in the future. It’s hard to remain positive about many startups if in the back of one’s mind is the strong likelihood that they will flee. But we’ve seen that over and over again. Hoku Scientific was a recent darling of our local newspaper, but most of its jobs were created on the Mainland, and in the end, it didn’t survive.
Hoku looked like a winner at first. But with success comes the realization that Hawaii is too far away from anywhere else to have any advantage. Manufacturing anything, including solar panels here, is usually a mistake. That should have been foreseen by Hoku’s many fans. And no, I did not latch onto Hoku after it failed, I’ve been commenting on that company since at least 2007 and on the general problem of high-tech startups for much longer.
Sure, there are industries that belong here. But the evaluation must be made, in my view, before public money is expended. We need knowledgeable people watching and reporting on the scene.
How high-tech development fits into Hawaii’s economic future ought, I believe, to be the subject of a wider public discussion and debate. It’s not a simple matter of finding companies that might succeed.
Venture capitol is interested in betting on success. Investors aren’t generally wedded to location, just success. They want to maximize the return on their investments. If a startup in Hawaii moves to California (say) and really takes off, that’s great. If it stays here when it really should move to California, sooner or later the bean counters will come knocking on the CEO’s door, demanding that he sell his surfboard for a plane ticket to Silicon Valley.
Yes, some startups will grow and thrive here, and that’s fine and wonderful when it happens.
Where have we gone with high-tech so far? One example: will our investment in a spaceport license ever pay off? Notice that launches have been taking place on the mainland (just today: SpaceX looks to launch space weather satellite, land rocket, Star-Advertiser, 2/8/2014). Virgin Galactic’s new spacecraft is getting ready for tests from California and New Mexico, not from Hawaii.
There are already seven active launch sites on the Mainland and one in Alaska, but Hawaii is still last on the “proposed” list, according to The Annual Compendium of Commercial Space Transportation: 2013, which seems to be the latest posted.
The license alone cost $250,000, but there are collateral expenditures. Will we even get our money back on the spaceport license and promotional costs? As usual, I hope I’m wrong, but I suspect not.
Honolulu Magazine cited the probable cost to the state as $500,000 (Space: Hawaii's Final Frontier? And you thought rail was contentious. Now, the state plans to apply for a spaceport license, 8/26/2009). I haven’t noticed the contention yet.
Rushin mentions the book, The New Geography of Jobs. Check it out. The book doesn’t even mention Hawaii once, and it mentions Honolulu only to list it as one of the cities suffering the highest cost of living. The book does not mention Honolulu’s low wages. The combination is a high-tech killer in most instances
If Hawaii had a geographical advantage, that would be a plus, but it doesn’t: Guy Kawasaki dashed that claim in a well-attended talk many years ago at the UH business school. So much for the state being a “hub of the Pacific,” or claiming that this is a good place to do business because it is between the US and Asia. It’s just too far away, and anyone wanting to do business in Tokyo or Beijing is better off getting on a plane and flying there. Yet we still occasionally hear that “hub” nonsense. made without justification.
What to do differently? Maybe look elsewhere to diversify the economy. Assign most of the government people chasing high-tech rainbows to some other task. Putting them to work creating affordable housing, better schools or even cultural opportunities would, in the end, be good for high-tech as well as any new segment of the economy.
Finding a way to diversify Hawaii’s economy from tourism will be very difficult, and so far, high-tech may not be the solution. I do hope tech grows here and prospers. But a spaceport?? We need to get real.