6.0. EDSR 07-09-2001 • Item # 6
City of
Elk -�
River
MEMORANDUM
TO: Economic Development Authority
FROM: Marc Nevinski, Assistant Director of Economic Development
DATE: July 9, 2001
SUBJECT: Business Incubator Six Month Review
It is appropriate at this time to review the past six months of activity associated with
the Business Incubator Program. Staff has prepared the following memo recapping the
status of incubator companies and prospects. Additionally, a memo from Mr. Harlan
Jacobs is attached recapping the venture capital market over the past six months.
In April, Cymbet Corporation (formerly Integrated Power Solutions) graduated from
• the incubator and moved into market rate office/warehouse space in the West Business
Park. Although the company was only in the incubator for eight months, it provided
them the necessary resources to hire several highly educated employees and locate $4.8
million dollars in venture capital.
Vertical Publishing is presently the only company in the incubator program, although
SolarAttic continues to lease space at market rate. The past year has been challenging
for the VP as they have been allied more closely with the "dot-corn" industry than the
publishing industry. Subsequently, finding both investors and clients has been difficult.
In February, the founders suspended their salaries and found other jobs to pay the
bills. However, they continue to work on VP projects evenings and weekends and
their efforts appear to be paying off. As of mid-June the company signed two new
contracts, bringing their total number of clients to seven. It is anticipated that these
contracts will generate significant cash flow over the next year and allow the founders
to dedicate their full attention to the company.
Over the next several months staff will continue working with its three current
prospects, all of which are technology based firms. Staff also plans to explore
opportunities associated with the new technology transfer program from the U of M,
which is intended to move research technology into the marketplace.
Attachment
• Analysis of Venture Capital Market from Harlan Jacobs
Marc Nevinski
rom: TedGenesis@aol.com
nt: Monday, July 02, 2001 9:30 PM
i o: mnevinski@ci.elk-river.mn.us
Subject: Analysis of Venture Capital Markets
Genesis Business Centers, Ltd.
3989 Central Avenue NE
Columbia Heights MN 55421
2 July 2001
Elk River EDA
City of Elk River
Elk River City Hall
Elk River, Minnesota
Re: Status Report-Venture Capital Markets
Attention: Mr. Marc Nevinski
Dear Marc:
The current status of the venture capital markets is literally bad and good
simultaneously. It is bad in general in that most venture capital funds have
experienced significant depreciation in the value of their holdings due to
the severe contractions experienced when the 'dot.coms' turned into
'dot.bombs'. These fund managers have now become as cautious as they had
411 reviously been reckless in pursuing concept plays lacking in substance.
hey continue to avoid early stage investments and tend to remain in late
stage or'mezzanine'financings such as the recently reported investment of
$15 million by St. Paul Venture Capital in Lawson Software just a few months
before Lawson Software announced its Initial Public Offering. Lawson
Software is a truly exceptional company; it is also a well financed and well
managed operating company that is largely beyond the scope of traditional
venture capital investments. Nonetheless, the large venture capital funds
have continued to ignore the 'start up' companies thus leaving 'open field
running'for communities such as Elk River with good support systems for
emerging technology based entrepreneurial companies.
It is good in particular for the Elk River Incubator Program because the
funding that early stage technology based entrepreneurs require is still in
limited supply. This is good for the Elk River Incubator Program as the Anoka
Sherburne County Capital Fund (ASCCF) and the Elk River Investment Club
(ERIC) continue to provide seed capital ( early stage venture capital)to
these entrepreneurs. Further, the word is out among entrepreneurs that Elk
River welcomes technology based companies and puts the resources into these
companies in order to grow successful companies there.
The business and financial community has recognized the success of the ASCCF
and ERIC in making an investment in Northstar Photonics back when the company
was a struggling enterprise. And now , after CYMBET Corporation's recent
placement of$4.8 million of equity securities while still an incubator
stage company, Elk River is becoming strongly associated with world class,
emetneehelping k
•ttractive locationechforology similarentrpris'breakthrougs. This ish' companies.ElRiver to become an
Recently, Micro Surfaces, Inc., (MSI) a specialty chemistry company with
applications in the field of nanotechnology, won honors in the University of
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Minnesota business plan competition. The company is now considering a
location in Elk River(possibly in the incubator or possibly as a tenant in
one of the established businesses with surplus laboratory facilities in the
community). It is giving active consideration to Elk River because of the
ailability of seed capital from the ASCCF and ERIC. Despite the fact that
is technology is worldclass (MSI does contract research for the federal
government's Sandia National Laboratory) and the company's business plan was
'award-winning' , the local venture capital community continues to ignore
these 'vetted' opportunities.
The ASCCF recently announced a successful 'harvest'from its investment in NT
International, Inc., (NT). It recently received about$350,000 from an
initial investment of about $50,000 that was made in 1994. A large portion
of these funds are now available to be re-invested in other emerging
companies such as MSI.
The blow-out in the dot-corn field has revived interest in the traditional
areas of technology innovation such as medical devices/biotech as well as
computers/software/telecommunications especially among 'business angel'
investors (wealthy and successful business and professional individuals).
ERIC is blessed in the sense that many of its investors are capable of
rendering good appraisals of emerging technologies such as have come through
the Elk River Incubator Program. These independent thinkers are critical to
the success of any investment club especially one that works in concert with
a community based seed capital fund.
In summary, the reluctance of the institutional investment community to
exhibit some sense of adventure in their venture capital investments makes
the resources that are available to the City of Elk River even more valuable
in respect of attracting emerging technology based entrepreneurial companies
to the community.
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