Bloomberg Study: California is Most Innovative Economy in America

California was voted the Most Innovative Economy in America yet again. Every year, it garners the distinction from various research companies and media outlets. This time, Bloomberg accorded that distinction. USA Today did it in 2017 along with firms like AT Kearney. Question is, why does the state get it almost every year?

To get at the answer, perhaps the question should be, Is losing money somehow tied to innovation? Not in a deliberate sense of course, but yes, innovation requires deep pockets that may require one to spend a lot of it. To be innovative as a startup, one wishes that “innovation money” can scale a company without getting burned.

Does it seem like only California is more open to taking an enormous amount of risk? It’s not easy for anyone to lose millions of dollars in marketing and production here, the world’s laboratory for startups. And it’s not new to failing big before it sees success. Some make it up along the way, as Apple did in its early years which was tolerable given that it didn’t require our blood like Theranos.

It’s common knowledge here about the hefty costs attached to innovation. TechCrunch called this the San Francisco startup success formula, referencing more than 30 private and public unicorns in the city with almost similar fail-before succeeding trajectories.

There’s comfort in the fact that San Francisco-based companies like Uber, Airbnb, Lyft and Twitter have succeeded. They have big investors. They’re willing to sustain massive losses. Their business models are easy to explain to a 9-year-old. Of course, it doesn’t hurt that they have talent and connections.

How much are we talking about it in terms of massive losses? It can range from $100 million to $4.5 billion. And for some, there’s still no profit in sight for almost a decade later. The common phrase in the Bay Area seems to be holding water: “Not making money can be the ultimate competitive advantage.”  

Who are these investors who can afford to lose lots of money? Venture capitalists or investors are not averse to losing money. This allows startups to focus on building the product, if raising money can be so troublesome to think about. Still, it’s better to learn how to raise and make better use of funds from investors. As they say, you can lose money but only from a shortlist of prestigious investors.

Golden Gate investors are okay about losing money based only on a firm’s reputation. There is “a willingness of later investors to follow these VCs at higher valuations and these firms’ skill in shepherding portfolio companies through rapid growth cycles to an eventual exit,” as TechCrunch explained.

As for Bloomberg’s conclusive study? Well, it’s reportedly based on the latest U.S. State Innovation Index which was, in turn, based on six equally-weighted metrics: research and development intensity, productivity, clusters of companies in technology, “STEM” jobs, populous with degrees in science and engineering disciplines, and patent activity.

California topped the rankings with a score of 94 out of 100. It placed among the top five for all categories except STEM (science, technology, engineering and mathematics) job concentration partly because the state has a large and diverse labor pool.

Massachusetts, Washington, Connecticut and Maryland followed California at the top of the innovation scale to round out the top five.

The proximity of top schools make it easy for the Golden State to test new ideas.

Almost every year, California gets top billing and it may stay that way a while longer. About 15 percent of the S&P 500 companies are headquartered in the Golden State, including Apple Inc., Alphabet Inc. and Facebook Inc., which can tap into the brain power of places such as Stanford University, California Institute of Technology, University of California-Berkeley and UCLA, in addition to attracting educated global job-seekers with lucrative opportunities and compensation.