Vermont’s tech industry strong, but cautious

Vermont’s tech industry strong, but cautious

Edelstein, Art

Bruce Gardner, at Janos Technology, a Townshend company designing and manufacturing precision optics and electro optical systems, looks at the current economy with a fair amount of optimism.

“Our products and applications are broad so they are not all down or up at the same time. We have a very broad product mix.”

Gardner sees an economy where the university market for the company’s infrared optics is soft, but the push to upgrade Homeland Security, which also uses infrared technology and optics, is soaring.

“There are good signs for segments of our technology,” he acknowledged. “The application for infrared optics is growing,” Gardner’s company, with 80 employees despite the recent layoff of nine, which he expects to rehire soon, closely mirrors the Vermont technology sector. It is diverse, relatively strong, fairly optimistic, and an industry not always under the spotlight until there are layoffs.

“Research, Innovation and Vermont’s Economy,” a report issued in mid-2002 for the Department of Economic Development, remains the best overall indicator of how well the state’s technology sector is doing. The report points to a sector of Vermont’s economy growing rapidly.

Although based on figures supplied until 2000 (and therefore before IBM in Essex Junction laid off almost 1,500 in 2001 and 2002), the report is revealing. In 2000 there were 556 high-tech firms employing 14,892 and paying $722 million in annual wages in the state. There was a 30 percent increase in the total number of high tech jobs from 1994 to 2000.

Vermont is the ninth most concentrated technology state. The state’s high-tech industry workers earn an average of $21,595 more per year than other private sector workers. The average high-tech wage was 47 percent higher than the average private sector wage in 1999.

Also of note, Vermont has the second highest concentration of technology exports in the nation at 83 percent, which is 54 percent above the national average. This was acknowledged this year when NRG of Hinesburg, a manufacturer of wind turbine products, won the Exporter of the Year award at the Vermont Expo in May.

The report reveals a growing technology industry From 1994 to 1999 there was a 60 percent increase (208) in new high-tech firms created. If technological growth is based on invention, then the state does very well. Between 1996-2000 the number of patents issued annually in Vermont grew 49 percent. Vermont ranks second for the number of patents issued per million inhabitants. Of course, the bulk of the patents and exports are thanks to IBM. But IBM is not the only technological force in the state.

An important engine of technological growth is the University of Vermont. Since 1995 UVM has generated $1.5 million dollars licensing intellectual property.

Within New England Vermont ranks 2nd in the percentage of its citizens holding a PhD. From 1990-2000 Vermont firms received $24 million in Small Business Innovation Research (SBIR) awards.

Computer-related businesses (software, hardware, E-commerce) have attracted over $42 million in private equity from 1994-2000. Also important is where technology is concentrated in Vermont. Over 80 percent of all private equity dollars invested here have been invested in the northwest quadrant of the state, with Chittenden County the main recipient.

“Vermont has a wide variety of technology companies,” agreed Janice St Onge the Director of Technology Business Development at the Department of Economic Development. ‘There is a lot more innovation happening within the borders than people think.”

According to St Onge, Vermont’s technology industry is comprised “primarily of research and development companies at the high end in the semi conductor and engineering fields.” Also included under the technology umbrella are manufacturing companies using technology to improve efficiency and reduce cost.

What’s drawing all the PhD’s to the state and helping to propel the industry?

“Vermont is a very attractive place,” said St Onge. “We have an educated workforce and a high quality of life.”

That said, no state with a budding technology sector could avoid the dot.com implosion of the early millennium years. Vermont was no exception.

“The information technology sector in Vermont has taken a big hit with the dot.com bust,” said David Binch.

Binch directs the Vermont Information Technology Center at Champlain College. The Vermont Technology Council created the center in 2000. Former Governor Howard Dean created the council in 1993. Binch looked back at the recent past and observed: “In 2001 the information technology sector was an employees job market. People bid for services, now that has flipped around and IT career people are under- or unemployed.” However, there is not all dark in the tunnel according to Binch.

“On the good news side, everybody is bullish about IT career path prospects. The industry is just going through a cycle, as are many other industries. It’s still a good idea to get into the IT profession.”

Paul Hale at the Vermont Technology Counsel sees the university as a primary economic engine moving the state”s technology industry. There has been a dramatic increase in federal research monies to UVM, over $100 million in recent years.

According to Hale, this has fostered at the College of Medicine considerable research into biotechnology. This research, he explained, often leads to commercial applications and companies are founded on the patents that the research produces.

“What I see is more and more startups based on intellectual properties, and entrepreneurs starting from the ground up,” said Hale.

While some fear economic woes from job loss at IBM, the state’s most visible technology company, Hale said Big Blue’s economic woes might actually help Vermont technology entrepreneurs emerge. In the long run this will benefit the state’s economy.

“It goes hand in hand with downsizing at IBM,” he explained. “You get very intelligent motivated people out there without a job. I think there are a lot who won’t move. Vermont has such an appeal and people are willing to stick their necks out and be entrepreneurial.”

St Onge said the state’s biotechnology arena, which includes medical technologies, and an agricultural component, are growing. Spin offs from UVM research activities include companies like MicroStrain in Williston. That company has gained national attention in recent years.

“My experience at UVM has had a profound impact on my career,” said MicroStrain president Steve Arms. “Real world experience in the research lab at UVM, working to solve tough engineering problems, and the opportunity to work with top physicians (at UVM and from other parts of the world), gave me a

broad and rich perspective that literally changed my life.”

High technology businesses often require considerable start up capital. St Onge said the state’s patent activity is leading to an infusion of venture capital.

“It is very strong and continues to grow in Vermont, although it’s a well kept secret.”

The venture capital market in last five years, according to St Onge, has made $100 million in equity investments in the state. There is also considerable private investment through angel investors and non-institutional venture funds. She pointed to the Angel’s Investor Group found at northcountryangels.com as an example.

“People are investing in innovation,” she said.

“They need support to be successful,” said Hale of the budding high tech sector. These companies need equipment and capitol but, he added, historically it has been very difficult to obtain venture cap.

“They (venture capitalists) want you to move to 128 (the highway near Boston that’s home to many tech firms). But now they realize you can work anywhere.”

“The climate is improving (for venture capital) and Vermont is a great place for these small high tech firms;” he said.

A Sampling of Vermont Technology Companies

Vermont technology companies say, for the most part, they are happy with their Vermont address. If they complain, it is for the same reasons cited by other Vermont business sectors: Permitting is complicated and taxes are high.

“Vermont is a good place for web development, the infrastructure and talent is ideal for me,” said Karl Schroll at Digital Frontier, a Stowe web development company with four employees in business 10 years.

With the advent of greater broadband access, he said the state is a good place for his company. He likes the labor pool, which has “turned out a lot of highly qualified people for web and database development. Skills were hard to come by a few years ago but now there is no shortage of talent.”

“Business has been fairly flat the last year, mirroring the general trends in the economy,” he acknowledged. And, there is an upswing. “I do detect since the war ended, people are spending more freely and seeing the start of a turnaround.”

The dot.com bust is seeing new life signs, said Schroll.

“We see people wanting to put resources into their site an indication they think it’s important for marketing and sales.”

“It’s calmed down from the frenzy of the past,” he said of the Internet. “It’s more mature and viewed as another thing you have to do. Customers aren’t going off fine.”

“The reason we are here is all things have been positive for us,” said Michael Walker at Newsbank in Chester. The company is an electronic publisher of text information and employs 190.

Vermont, he said, has the infrastructure for his company’s needs.

“We have two T1 lines, and a large data center with computers for data storage.” He touts his workforce. “We need people with technology and liberal art backgrounds and Vermont is great for this. One of the strengths of this part of the country is the education. It’s also very stable workforce.”

Walker’s business has suffered some in recent years. In the wake of the sluggish economy, sales to institutions dependant on public funding is down, but interest is on-line documents remains strong. He remains optimistic.

“We are growing and launching new products. We are digitizing some earl Americana (3.5 million images) and the US Congressional Serial Set (all congressional records from beginning to 1980, total of 12 million images.) “I’m happy with the situation.”

‘I’m a native Vermonter,” said David

Blittersdorf, the president of NRG Systems in Hinesburg. “We work hard to hire Vermonters, we want to make jobs here for them.” The company has 38 employees and annual sales of $11.3 million. Vermont Business Magazine ranked it the second fastest growing Vermont company.

He said it is difficult to recruit engineers from outside the state.

“The impression is ‘you raise sheep and work sort of,'” he said. “There is an image of the state that has us as laid back, not part of the world economy,” said Blittersdorf.

But Blittersdorf sees Vermont as well placed for his company. Hinesburg has DSL high-speed Internet access and the Burlington Airport is nearby. More importantly, he said, shipping his wind turbines, sometimes overseas, is relatively easy.

“The port of Montreal is only two hours away and very convenient and low cost. We can land stuff in Japan and Spain cheaper than other ways.”

He likes shipping this way because, he said, container shipping is the lowest energy per ton-mile shipping cost. “Speed and cost is important and we can do it well from here.”

Blittersdorf said Vermont needs to do more to support homegrown businesses.

“The state tends to bring in outside companies for employment instead of supporting in-state companies. The reason is we aren’t threatening to move, and they take us for granted.

“You have to threaten to leave before they will help you,” he said. “We are a major exporter but can’t get incentives to export.”

Laureate Learning Systems in Winooski publishes talking software and has .25 employees. Company head Mary Wilson said the reason for the growth of technology companies in the state “is people like to live here.”

“We can attract quality people and keep them even though we don’t have the business climate.”

She complains of “a very poor infrastructure for high speed Internet connections,” saying, “the whole communications is problematic.” For her there is not enough high-speed access to the Internet and not enough cell phone access. “That is a deterrent for somebody who does a lot of business over cell phones.”

Wilson does not like the state’s tax structure.

“Personal income tax is high and that is a problem drawing people to the state. It’s harder to attract people and it makes New Hampshire look more attractive for setting up industries.”

“Vermont is a good place, I’m upbeat about it,” said David Japikse at Concepts NREC in Wilder in the Upper Valley. He sees the state as having “an interest in growing business. There tends to be a positive attitude in many state groups.”

He likes VEDA’s efforts to marshal funds to help companies. Concepts NREC designs, builds and tests turbo machines. It employs 105 and has annual sales of $17.5 million. The company is also Vermont’s leading recipient of SBIR funds.

“In the rocket turbo pump area we are the leading development group in America outside of Rocketdyne, a division of Boeing,” said Japikse. That said, Vermont in Japikse’s estimation, is fraught with negatives. He finds the education financing problem detrimental to the quality of life and said the cost of living is high in his area of the state.

“State taxes are an awkward compromise. As to what works in Burlington and Rutland, which are near New York and what works in White River Junction near New Hampshire, they are different.

“This affects technology businesses, there are very few on this side of the river. They are all in New Hampshire because of much lower taxes.

“If my business was in New Hampshire my employees would have no state income tax and they would have more personal income.”

While Hale, St Onge, Binch and others are very optimistic about Vermont’s technology sector, Japikse had a note of caution.

“I don’t think you will see a lot of new technology starts in the next few years. The large companies are in recession.”

That said, he thinks there is hope for the near future.

“I see us well into recovery in the fall. There could be substantial growth in one to three years down the line. If we don’t have another September 11, companies will recover in the fall. I’m seeing evidence of it.”

Copyright Boutin-McQuiston, Inc. Jul 01, 2003

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