Since the BBO symposium a number of interesting exchanges have occurred by e-mail and in the blogosphere. Here are some links and thoughts. The context is that Rep. Lori Ehrlich and I are now pushing a bill that would provide substantial protections for employees, but not abolish non-compete agreements completely. Some feel we aren’t going far enough. Some favor the status quo. See previous posts and comments on this site.
(1) Amrith Kumar has pointed to Price-Waterhouse data indicating that the New England (mostly MA) share of venture capital investment has basically been level, perhaps slightly uptrending, over the past 15 years. That doesn’t mean we couldn’t do better with a different non-compete policy, I think we could, but it does pretty effectively counter the argument that the market has expressed a clear negative view about our non-compete policy. For additional analysis of the PWC data, see this spreadsheet.
(2) Trying to make sense of the perception among some VCs that MA’s policy has driven investment to California, I wondered whether if there was a subsector that the policy was affecting. Amrith made the suggestion that the quick hit segment was the most effected — simple concept businesses that are easy to throw together with limited technical advancement. He suggested that the companies that are easiest to start are also the ones easiest to offshore. On the other hand, some of these relatively simple concepts — like Twitter and Facebook — turn into pretty big businesses with real domestic value. Of course, a narrowly drawn non-compete — that our moderate legislation would continue to permit — would not keep necessarily a Google employee from founding Twitter (an example used by Scott Kirsner, see below); Twitter is a different business.
(3) Another way of making sense of VC discomfort with the business climate was suggested by a study from the Kauffman foundation. The study argues that the VC industry nationally is under pressure from shrinking investment opportunities overall. The study suggests that the sectors that were particularly attractive for VC investment have matured and that other growing businesses are not as dependent on VC investment. The study suggests that the VC industry may need to shrink if it is to maintain healthy returns. None of this, in my mind, casts doubt on the huge contributions of venture investment to the growth of the economy, but it does give relevant context.
(4) Scott Kirsner has pressed the case for my original bill, which would have eliminated non-competes. He focuses on the research of Matt Marx (also published by the Kauffman foundation as well as by the Kennedy School). There are two strands in the Marx dissertation. One strand suggests that inventors were moderately less mobile (and more likely to change field if they did move) in the state of Michigan after 1985 when Michigan started allowing non-compete agreements. It’s hard to interpret this finding. Even if one could conclude that the non-compete enforcement had some net negative impact on Michigan’s economy (and one could not possibly disentangle the effects of this change from the other trends in Michigan), this conclusion would not indicate that non-competes should be fully eliminated. Evidence that eating less is good for an obese person does not prove that the obese person should eat nothing at all.
The other strand of the Marx study (elaborated in additional survey data he presented at the symposium) is very compelling, showing (a) how frequently non-compete agreements are foisted on uninformed employees; (b) how frequently the agreements are long in duration and force employees out of their field. For me this evidence emphasizes (a) the need for the procedural protections in the new version of the bill; (b) that the substantive standards in the new bill would make a huge change in current practice.
(5) Greg Bialecki, the Governor’s Secretary of Housing and Economic Development, also chose to weigh in. He expressed concern about making changes, but in a follow-up post, clearly left the door open for further discussion. He is quite right that there are some difficult drafting issues, but we are getting the good input that will help us reach a clear bill.
As I read the rich commentary coming in on my site and in other points in the blogosphere, all of which I’m grateful for, I am further convinced that we are on roughly the right path with this legislation. A number of specific suggestions have been made, all of which we will attend to carefully. We look forward to working with our colleagues in the legislature and with the Patrick administration to make some real progress.
Thank you for continuing this debate and working to find the best answer for our region.
You suggest in your point #1 that Venture Capital in New England is largely flat, and perhaps slightly trending slightly up. My data shows the same thing, and I’m proud of what we are doing. However, when you look at venture capital trends here versus other regions, it is clear that we are fast falling behind. A rising tide is lifting all boats, except for ours.
I have posted a slide on Slideshare that shows this clearly:
For anyone who wants to do their own analysis, the raw data is available for free to the public here:
My slide is admittedly a year old, so I just looked up the latest data. I found that in the last year Silicon Valley has continued to widen its lead over New England.
Tim and I have talked and reconciled our understanding of the PriceWaterhouseCooper venture capital data. In summary, it does appear that during the period 2003 to 2007 and perhaps into 2008 and 2009, Massachusetts has lost some market share. However, from a longer term perspective — the full available time series from PWC goes back to 1995 — there is no evidence of a down trend, in fact Massachusetts may have gained slightly. From a non-compete perspective, since there has been no recent change in non-compete policy, the long-term perspective is probably the right one to adopt — it appears that there is no evidence of a long-term negative market response to non-competes. That doesn’t prove that non-competes aren’t hurting us; their effect could be a consistent drag that has kept us down in spite of other assets. And, of course, if anyone can demonstrate that there was something really big that changed about MA non-compete practice in 2003, the data could be interpreted differently.
Regardless, the recent downtrend suggests that we should be doing everything we can to improve.
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