January 31, 2017 Revised February 14, 2017 File Number 21366
January 2, 2008; revised February 15
description
Transcript of January 2, 2008; revised February 15
©2007 ViTAL Economy, Inc.— 1 —
Southern Illinois: Garden of the Gods
Readiness Assessment
Chapter 4: Climate of Innovation, Incubation & Entrepreneurship
January 2, 2008; revised February 15
CONNECT SI
ViTAL Economy AllianceFrank Knott, Project Lead; Stan Halle, Senior Editor;
Jim Haguewood, Rob Beynon, & Neil Gamroth, Principal Economic Researchers
[email protected]; http://www.vitaleconomy.com
©2007 ViTAL Economy, Inc.— 2 —
4.01 Innovation Assets:
Assessment
4.02 Integrated Finance
& Risk: Assessment
4.03 Implications &
Recommendations
Table of Contents EXECUTIVE OVERVIEW:EXECUTIVE OVERVIEW: Big Picture & Importance of Big Picture & Importance of
Change in Southern IllinoisChange in Southern Illinois
READINESS ASSESSMENT (RA)READINESS ASSESSMENT (RA)
1. State, National & Global Trends1. State, National & Global Trends
2. Indigenous Resources & Industry Asset Mapping
3. Enabling Environment
4. Climate of Innovation, Incubation & Entrepreneurship
5. Southern Illinois Competitiveness
6. Regional Perspectives
7. Roadmap to Success
APPENDICES
©2007 ViTAL Economy, Inc.— 3 —
Chapter 4:Climate of Innovation, Incubation &
Entrepreneurship
4.01 Innovation Assets: Assessment ……………… 11
4.02 Integrated Finance & Risk: Assessment ……. 30
4.03 Implications & Recommendations .………….. 41
Southern Illinois — "Garden of the Gods"
One of the most important ways a 21st Century community creates growth is through the generation of new ideas, new processes, and new businesses. For this to happen, there needs to
be a well-established and highly collaborative network of resources to support innovation, incubation and entrepreneurship. This Chapter assesses how well SI does this.
©2007 ViTAL Economy, Inc.— 4 —
Famous Innovators PerspectiveChapter 4: Introduction
“Innovation distinguishes between a leader and a follower.” - Steve Jobs“Innovation distinguishes between a leader and a follower.” - Steve Jobs
“Never before in history has innovation offered promise of so much to so many in so short a time.” - Bill Gates
“Never before in history has innovation offered promise of so much to so many in so short a time.” - Bill Gates
"Entrepreneurs are risk takers, willing to roll the dice with their money or reputation on the line in support of an idea or enterprise. They willingly assume responsibility for
the success or failure of a venture and are answerable for all its facets.” - Victor Kiam
"Entrepreneurs are risk takers, willing to roll the dice with their money or reputation on the line in support of an idea or enterprise. They willingly assume responsibility for
the success or failure of a venture and are answerable for all its facets.” - Victor Kiam
“Innovation will drive the future of our economy. What happens in your community will largely be determined by you. Communities that position themselves to take
advantage of the entrepreneurial sector AND companies, businesses and individuals that have the education, background and ability to generate innovation are
going to drive the economy in the future. They're going to create the jobs andthe opportunities for our young folks.” - Steve Carter
“Innovation will drive the future of our economy. What happens in your community will largely be determined by you. Communities that position themselves to take
advantage of the entrepreneurial sector AND companies, businesses and individuals that have the education, background and ability to generate innovation are
going to drive the economy in the future. They're going to create the jobs andthe opportunities for our young folks.” - Steve Carter
©2007 ViTAL Economy, Inc.— 5 —
Innovation, Incubation & Entrepreneurship: Perspective
Connect SI and ViTAL Economy participated in the 2-4 May 2007 “Exploring Innovation”, a Nat’l Conference on Community & Economic Development Innovation
Andrew Hargadon** was a keynote speaker on How Breakthroughs Happen — highlights include:
“You need capital of all kinds to succeed, including financial, physical, intellectual & social — when we make connections, we need to ensure that all these ingredients are in place
Genius & innovation are learned, not born — learned through our connections Community development is about human beings, not product development. How do we link
the two? Innovation is acting locally to make connections. It's about individuals who move each other forward
It's about what you create in the networks around you, not just the network itself How do we re-frame people around networks? Social communities are very important,
including churches, schools, etc. — all of which can be leveraged The future is wireless, everything in mass media will be wireless including TV How we capitalize risk is changing as well”
The following four slides capture the essence of Andrew’s keynote session
**Source: Andrew Hargadon is Associate Professor of Technology Management at the Graduate School of Management and Director of the Center for Entrepreneurship and of the Energy Efficiency Center at the University of California, Davis; “How Breakthroughs Happen”, Harvard Business School Press, 2003
Chapter 4: Introduction
©2007 ViTAL Economy, Inc.— 6 —
How Breakthroughs Happen (1 of 4)Meeting Notes
**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
Chapter 4: Introduction
©2007 ViTAL Economy, Inc.— 7 —
How Breakthroughs Happen (2 of 4)Meeting Notes
**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
Chapter 4: Introduction
©2007 ViTAL Economy, Inc.— 8 —
How Breakthroughs Happen (3 of 4)Meeting NotesChapter 4: Introduction
**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
©2007 ViTAL Economy, Inc.— 9 —
How Breakthroughs Happen (4 of 4)Meeting Notes
**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
Chapter 4: Introduction
©2007 ViTAL Economy, Inc.— 10 —
Applying Hardagon’s Ideas to SI
After researching over 100 years of innovation history, Andrew Hardagon has made it very clear that:
“Innovation networks are critical to a regional economy’s success in building an innovation-driven economy”
He further states that: “Innovation networks are essentially people networks. The bigger your
innovation network, the greater your chance of success. Innovation is about connecting.”
Connect SI’s success will be determined by the degree of connection and collaboration of its people and resources
This is why the RA assesses SI’s Climate of Innovation, Incubation, & Entrepreneurship
This enables Connect SI to benchmark its current climate and set goals for improving this climate to ‘best practice’ by 2012
Chapter 4: Introduction
©2007 ViTAL Economy, Inc.— 11 —
Chapter 4:Climate of Innovation, Incubation &
Entrepreneurship
4.01 Innovation Assets: Assessment
Southern Illinois — "Garden of the Gods"
While many innovation assets exist across Southern Illinois, there is no comprehensive SI-wide strategy as yet to link these together, create centers of excellence or promote collaboration. Connecting these assets through a “starfish network” will provide the leverage SI needs to
capture substantial global opportunities (Chapter 1).
©2007 ViTAL Economy, Inc.— 12 —
SI Innovation, Entrepreneurship & Incubation: Introduction
Southern Illinois performs weakly when measured against innovation and entrepreneurship ‘best-practices’
SIU is not a major generator of patents and spin-off companies COI perspective:
Only Greater Egypt has significant innovation and entrepreneurship resources, though other regions are examining developing incubators
Two of the Greater Egypt counties are recognized as “creative class” counties Unfortunately Southeastern could potentially lose the Dixon Springs
Agricultural Centre that UI is trying to spin off The majority of regional entrepreneurship appears to be in traditional
service industries such as retail and food services which generate a relatively low economic impact and wages
State of Illinois does not track business startups
Without a Region-wide innovation network, more focused technology transfer, and a full-spectrum of financial support,
SI’s Climate of Innovation has little chance of succeeding
Without a Region-wide innovation network, more focused technology transfer, and a full-spectrum of financial support,
SI’s Climate of Innovation has little chance of succeeding
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 13 —
Why We Look at This Key elements for rural economic transformation:
A climate of entrepreneurship Systems and resources to support innovation
Small/medium enterprises are the job growth engine in the U.S. for the 21st century
1990-2003 Firms < 20 employees created 79.5% of net new jobs 1990-2003 midsize firms (20-499) created 13.25 % of net new jobs
Rural regions must develop a robust entrepreneurship support structure
Access to specialty forms of capital is essential Otherwise these emerging enterprises will be more attracted to
neighboring urban centers
Over the past 50 years, investment in R&D produced 50%+ of U.S. economic growth. Increased SI economic growth requires innovation
Source: The Alliance for Science and Technology Research in America, 2007 The Role of Small and Large Businesses in Economic Development, Federal Reserve Bank of Kansas City, 2007
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 14 —
The New Economy is an Innovation Economy
It is global, entrepreneurial and knowledge-based
It is equivalent in scope & depth to the emergence of the factory economy in the 1890’s and the mass-production, corporate economy in the 1940’s and 1950’s
It is knowledge dependent — knowledge workers have increased their share of total employment from 22% in 1979 to 34.8% in 2003…now the largest sector
It is global — since 1980, global trade has grown 2.5 times faster than the overall U.S. GDP; exports are now $12.5 trillion = 20% of world GDP
It is entrepreneurial — from 1917 to 1976 it took 30 years to replace 50% of the 100 largest public companies; from 1977-1998 it only took 12 years
From 1980-2001 all of the net U.S. job growth was from firms less than five years old; older firms actually lost jobs
It is rooted in information technology — IT is the key technology driving the economy through its use in all sectors to boost productivity, innovation and quality
Source: Information Technology & Innovation Foundation & National Governor’s Association 2007 State New Economy Index
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 15 —
Old versus New Economy Realities
“The ‘old economy’ refers to the economy in place from after World War II until the mid-1970’s when productivity growth slowed down significantly. The descriptors are intended to reflect overall factors in each economic period.”
Robert D. Atkinson, The Past and Future of America’s Economy, 2004
Source: Information Technology & Innovation Foundation & National Governor’s Association 2007 State New Economy Index
Issue FROM: Old Economy TO: New Economy
Markets Stable Dynamic
Scope of competition National Global
Organizational Form Hierarchical Networked
Production system Mass production Flexible production
Key factor of production Capital/Labor Innovation/Ideas
Key technology driver Mechanization Digitization
Competitive advantage Economies of scale Innovation/quality
Relations between firms Go it alone Collaborative
Skills Job-specific Broad and Changing
Workforce Organization man Intrapreneur
Nature of employment Secure Risky
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 16 —
Source: Driving Growth, Breaking Down Barriers to Global Prosperity, McKinsey Global Institute
4.01: Innovation Assets: Assessment
Innovation Grows From Seeds of Knowledge
Transformation of knowledge into new products, processes or services
Involves more that just science and technology Involves discerning and meeting the needs of customers
Improvement in marketing, distribution, and services can be as important as those generated in laboratories involving new products and processes
Some of the most important innovation occurs in sales and distribution KBE workers include those specializing in professional, scientific and
technical activities — engineering, computers, architecture, law, accounting, etc.
U.S. Government projects a 28% increase in KBE employment between 2004-2014, the 3rd highest growth sector (after Healthcare and Education)
©2007 ViTAL Economy, Inc.— 17 —
Climate of Innovation, Entrepreneurship and Incubation
Climate of Innovation:“Zero-sum game mentality exists in the way of collaboration or even basic idea sharing — we are fragmented, jealous and secretive and motivated by risk aversion”
Climate of Entrepreneurship:• Entrepreneurship is not considered to be a “real job”
• Entrepreneurs exist but mostly underground
• Early stage capital is limited, access is not well known
• Research focus at SIUC: high potential for more tech transfer
• Entrepreneur development resources in SI are very limited
• Support systems for entrepreneurs need bolstering
Climate of Incubation:“There are too few and unconnected incubation resources and staff — with limited budgets and business experience; several incubated firms left SI to get access to a system of support”
SIU is one of the top 100 research universities in the U.S — 67% of SIU business and engineering students want to stay in SI —
SIU presents an opportunity to address SI’s KBE worker gap
SIU is one of the top 100 research universities in the U.S — 67% of SIU business and engineering students want to stay in SI —
SIU presents an opportunity to address SI’s KBE worker gap
Source of Quotes: RA & EF Hutton Interviews; chart data from BLS
0
2
4
6
8
10
U.S. IL SI
The KBE Worker Gap:SI is well below Illinois and U.S. averages
for KBE as % of total employment
7.7%
8.5%
4.3%
Gap
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 18 —
SI Innovation Assets: Activities with Promising Futures
SIUC’s Four R&D Pillars Energy & Environment
Biotechnology
Materials Technology
Neuroscience
Small Business Development Centers Rend Lake College
Shawnee College
Southeastern Illinois College
John A. Logan College
SIUC and SIUE
Illinois Eastern Colleges
SI Business Incubators SIUC Business Incubator
West Frankfort Business Incubator
DRA Mounds Incubator
Entrepreneurs & Innovators across SI
4.01: Innovation Assets: Assessment
Illinois Entrepreneurship Network• Southern Illinois Entrepreneurship Center
• Illinois Small Business Development Ctr
• Illinois Manufacturing Extension Center
• Southern Tech
• Illinois Procurement Technical Asst Ctrs
• Technology Enterprise Centers
• International Trade Centers
• Camp CEO Programs
• Challenge Grant Program
SIU Transportation Education Center
SIU 20+ Research Centers Dixon Springs Agriculture Research Ctr
Illinois Clean Coal Institute
National Corn-to-Ethanol Research Ctr
SIU Business Research Parks
SIUC Coal Research Center
SIU School of Medicine
©2007 ViTAL Economy, Inc.— 19 —
Examples of SI Innovation & Entrepreneurship
Dinger Bats Taking on the big sports equipment companies with a uniquely branded
product Continental Tire
Defying American manufacturing trends to go offshore through highly innovative management practices
Precision Mine Mine safety and construction knowledge to new residential and
commercial building structures Mt. Vernon Dry Ice
Converting CO2 to dry-ice for various industrial & commercial applications Dippen Dots
An SI native son and graduate of Shawnee College, is transforming the way in which the world enjoys ice cream
Mermet Springs 1st class diving facility has leveraged a SI natural asset, acquired
enhancements (e.g., Boeing 727, from film U.S. Marshals for $1) to create a valuable unique training facility
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 20 —
SIU: An Innovation Diamond in the Rough!
The Jackson County Opportunity Analysis Report stated: Leveraging the institutional resources of SIUC — including
innovation, knowledge, research, finances and business and social networks — and matching those resources with opportunities and individuals in SI must not be overlooked
The presence of a major research university should be treated as a unique and primary asset for fostering a culture of entrepreneurship in the area
Source: An Opportunity Analysis for Jackson County, May 2006. (Note: Jackson County was replaced with Southern Illinois)
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 21 —
“A bitterly cold winter day in the wilderness of Southern Illinois, minimal supplies, limited protection from the elements and no compass to find the way to warmth, comfort and shelter”
- SI Leader description of SI innovation climate
“A bitterly cold winter day in the wilderness of Southern Illinois, minimal supplies, limited protection from the elements and no compass to find the way to warmth, comfort and shelter”
- SI Leader description of SI innovation climate
Source: RA & EF Hutton Interviews conducted by ViTAL Economy
4.01: Innovation Assets: Assessment
Current Climate of Innovation & Entrepreneurship in SI
What your neighbors had to say:
Entrepreneurs, risk takers and lone-eagles are seen as counter-culture types and not pursuing a “real job”
No clear and well understood path to business assistance resources
Weak understanding of risk assessment other than traditional business
Silo-vision and independence resulting in a lack of resources aligned for success
We have no champion to lead entrepreneurship nor a vision of an innovation-based culture
Innovation resources are too Carbondale-centric
Our business resources are set up as “spider organizations” (based on centralized hierarchy and power)
©2007 ViTAL Economy, Inc.— 22 —
4.01: Innovation Assets: Assessment
SIUC Business & Engineering Survey: Promise & Opportunity
Survey Objectives: Assess the level of student awareness of the SIUC Incubator and Research Park Measure student population’s level of entrepreneurial aspirations Identify future needs of the students and how Connect SI & related programs can
satisfy them
Survey Results (from 200± respondents): 67% of students would remain in Carbondale region to start and operate a business
if resources were available 43% of students have thought of starting their own business after graduation 24% of students would remain in Carbondale/SI region when they graduate 19% of students have heard of, visited, interned at, or knew someone who has
knowledge of the SIUC Research Park
• 16% of students have heard of, visited, interned at, or knew someone who has knowledge of the SIUC Business Incubator
• 5% of students currently own a business (while also attending SIUC)
• 4% of students have taken classes/courses on entrepreneurship
Source: VE Business Incubator, Research Park & Tec-Transfer Assessment Project Final Report, 19 April 2007
©2007 ViTAL Economy, Inc.— 23 —
Student Surveys: Quotes
It is a beautiful area, but not very appealing to start a business in
Southern Illinois is a hidden gem — the improvement of business will help boost the standard of living
BS-Computer & Electrical Engineering student (note: most of these students are international):
No work for my major but I would stay if there were more work opportunities in the area
Over 50% of the respondents support this student’s quote:
I believe that if Southern Illinois had more to offer people (e.g., jobs), everyone who lives here would and could stay here
4.01: Innovation Assets: Assessment
Source: Student Survey responses; conducted by ViTAL Economy
©2007 ViTAL Economy, Inc.— 24 —
SIUC: Mixed Picture of Its Knowledge Assets
2007 SIUC Graduates
Non-U.S. Black Asian Hispanic White Total
442 (7.9%) 635 (11.3%) 108 (1.9%) 144 (2.6%) 3,859 (68.7%) 5,621
Degree Totals
AAS 68
BA/BS 4,328
Post BA 9
MA/MS 897
PhD/Doctorial 412
Top Majors by Race or Point of Origin
White BS Workforce Education and Development
Black BS Workforce Education and Development
Non-U.S. MS. Electrical Computer Engineering
Asian BS Workforce Education and Development
BS Workforce Education & Develop. 673
BS Natural Resources (Bio-Science & Agr) 453
BS Industrial Tech 162
BS Administrative Justice 148
BS Aviation Management 146
BS Management 143
BS Elementary Education 138
BS Electronics Systems Tech 118
Non-U.S. % of SIUC Graduate Degrees (selected)
#% ofTotal
MS Electrical Computer Engr. 67 91%
MS Mechanical Engineering 11 55%
Executive Masters Business 36 100%
Masters Business Admin 31 48%
All Phd’s 42 57%
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 25 —
Greater Wabash
KBE workers: 4%
Rural Creative Class Counties: No
Research Facilities: No
Business Incubation Resources No
Entrepreneurship Resources Yes
Greater Wabash
KBE workers: 4%
Rural Creative Class Counties: No
Research Facilities: No
Business Incubation Resources No
Entrepreneurship Resources Yes
Southeastern
KBE workers: 5%
Rural Creative Class Counties: No
Research Facilities: Dixon Springs
Business Incubation Resources No
Entrepreneurship Resources No
Southeastern
KBE workers: 5%
Rural Creative Class Counties: No
Research Facilities: Dixon Springs
Business Incubation Resources No
Entrepreneurship Resources No
Southern Five
KBE workers (total jobs): 4%
Rural Creative Class Counties: No
Research Facilities: No
Business Incubation Resources Yes
Entrepreneurship Resources Yes
Southern Five
KBE workers (total jobs): 4%
Rural Creative Class Counties: No
Research Facilities: No
Business Incubation Resources Yes
Entrepreneurship Resources Yes
Greater Egypt
KBE workers: 5%
Rural Creative Class Counties: Yes
Research Facilities: SIU & related facilities
Business Incubation Resources Yes
Entrepreneurship Resources Yes
Greater Egypt
KBE workers: 5%
Rural Creative Class Counties: Yes
Research Facilities: SIU & related facilities
Business Incubation Resources Yes
Entrepreneurship Resources Yes
Region-by-Region StatusThe great plus for the region is that two of the counties are identified as “Creative Class” communities
by USDA, implying a higher level of research and innovation; the low level of KBE workers in every region, however, is a weakness that limits innovative entrepreneurial growth**
4.01: Innovation Assets: Assessment
**See Chapter 1.03 Slides 32-35 for Creative Class definition
©2007 ViTAL Economy, Inc.— 26 —
= Weak to None = Improving = Average = Good = Strong
Readiness Criteria Rating Assessment Rationale
Entrepreneurship Culture and Networks
Entrepreneurship is considered “not a real job” Entrepreneurs exist but mostly underground
Early Stage Capital for Startups Unique early stage capital is limited and access is not well known There are some angel investors in the region, but no formal network
Rate of Business Startups ? Region lacks a system to track or measure the quantity of business
startups
Partnerships and Community Outreach
Entrepreneurs in the region are unaware of business assistance resources
Entrepreneurship programs and strategies are not viewed as important to the economy
Technology Transfer, Licensing & Commercialization
No clear focus on commercialization of research at SIUC: leads to inefficiencies in technology transfer
Limited doctoral programs at SIUE: reduces ability of SIUE to participate in technology transfer & all of its benefits
Space and Facility Support Services
Relatively few business incubation facilities in the region Growing attention for incubation facilities and services
SI Innovation & Entrepreneurship: Assessment 4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 27 —
Key Factors Rating Assessment of Factors Present in SI
High Quality Labor Force(Concentration of higher skilled workforce & KBE potential)
40+ age workforce has good work ethic and skillsUnder 40 workforce tends to be less motivated &
skilled
Colleges or Universities
(Presence is critical for supporting KBE activity)
Largest base of higher education and R&D resources of any rural market served by VE
Local Amenities that Enhance Quality of Life
(Scenic vistas, health, arts,etc)
Quality of life amenities abound — arts and culture, active recreation, wine trails, life long learning, etc.
Infrastructure(Presence of transportation infrastructure as well as access to broadband services)
Significant intermodal infrastructure including interstates, rail, ports, long airstrip access, trucking resources, etc.
Size of Rural Places
(Presence of towns with populations greater than 10,000)
SI has a number of towns near or over 10,000 population: it has not networked its knowledge-population to take advantage of size
Key Factors Supporting KBE Growth in Rural America 4.01: Innovation Assets: Assessment
Source: Center for the Study of Rural America, Federal Reserve Bank of Kansas City 2004; RA and EF Hutton interviews
©2007 ViTAL Economy, Inc.— 28 —
Shifting “Climates” from Limited to Unlimited Opportunity
Currently SI behaves more like a “spider” than a “starfish”
FROM: Spider Attributes TO: Starfish AttributesCurrent State-SI
Someone’s in charge; based on command & control
No one’s in charge; based on trust
There’s a clear division of roles There’s an amorphous division of roles
If you take out a unit, the community is harmed
If you take out a unit, the community is unharmed
Knowledge & power are concentrated; directive
Knowledge & power are distributed; collaborative
The community is rigid The community is flexible
The community is highly dependent on State and Federal grants
The community is largely self-funded by a healthy tax base and exports
Working groups communicate through intermediaries
Working groups communicate with each other directly
You can count the participants You cannot count the participants
Source: Starfish and the Spider, Brafman & Beckstrom 2006
4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 29 —
• SIU commitment to reinvigorating its approach to technology transfer, research parks and business incubation
• Network of incubation assets is strong, though not well connected.
• Growing understanding of business incubation in the region with a plan for development underway
• Broader understanding of entrepreneurship and its role in a new SI economy and need for improved entrepreneur culture at SIU
• Greater understanding of need for SIU and SI goal alignment
• Many facilities and capabilities supportive of KBE growth in rural America are already present throughout SI, however they need to be leveraged
• The values of technology transfer is recognized and on the increase
• SIU executive commitment to resource collaboration
BUT... much more needs to be done
Reasons for Optimism4.01: Innovation Assets: Assessment
©2007 ViTAL Economy, Inc.— 30 —
Chapter 4:Climate of Innovation, Incubation &
Entrepreneurship
4.02 Integrated Finance & Risk: Assessment
Southern Illinois — "Garden of the Gods"
Significant gaps have been identified in the availability of start-up and early stage finance. There is also a pervasive risk-averse culture in SI.
©2007 ViTAL Economy, Inc.— 31 —
NGA & RUPRI Identify Barriers to Economic Growth in Rural America
Lack access to specialty finance services and early stage venture capital networks
Too few networks to encourage entrepreneurs and allow businesses to share ideas
Very few intermediary resource networks that support new businesses
Limited financial literacy of prospective users and providers of capital
Lack of generation transfer and liquidity opportunities
Little capacity to evaluate intellectual property versus traditional asset-based risks
Minimal environments which encourage entrepreneurship and risk taking
Limited market research capabilities that allow businesses to expand to new markets and that allow entrepreneurs to turn ideas into viable new products
Source: NGA (National Governor’s Assoc) Center for Best Practices; RUPRI (Rural Policy Research Institute; and VE Research
4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 32 —
SI Finance Leaders Describe Climate of Finance
Limited number of business lending opportunities
Limited experience with loan participations
Limited success or experience with gap financing programs
Lack of independent and experienced small business market valuations
Big gaps in access to equity for early stage and venture capital, as well as mezzanine financing, etc
State programs geared to support large firms versus entrepreneurs
Too many small local revolving loan funds. Collaboration of these funds would create larger critical mass and more opportunity
Limited expertise in assessing risk of knowledge based investments
No organized network of angel investors focused on SI opportunities
Financial literacy of prospective borrowers is not good
Poor climate of support for innovation, risk taking and entrepreneurship
Source: RA & EF Hutton Interviews conducted by ViTAL Economy
4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 33 —
Current State in SICurrent State in SI
— 33 —
SI Economic Growth Is Inhibited by Funding and Risk Assessment Gaps
• Insider Financing• Angels• Micro-loans/Grants• Venture Capital
Company GrowthCompany Growth
MatureGrowth
Start-up
Early Stage
• Start-up, early stage and non-asset-based financing virtually nonexistent
• Few technologies by local entrepreneurs get commercialized
• Entrepreneurs tend to leave the region or Illinois
• KBEs and entrepreneurs are not attracted from outside Illinois
• Communities do not develop technology focused industries
• Start-up, early stage and non-asset-based financing virtually nonexistent
• Few technologies by local entrepreneurs get commercialized
• Entrepreneurs tend to leave the region or Illinois
• KBEs and entrepreneurs are not attracted from outside Illinois
• Communities do not develop technology focused industries
0
Potential Funding Sources
$500,000 $10M $50M $100M
• Insider Financing• Angels• Venture Capital• Short-term loans• Intermediate-term
Loans• Private Placement
• Venture Capital• Short-term loans• Intermediate-term
Loans• Private Placement• Mezzanine Financing• Trade Credit• Public Equity• Commercial Paper• Medium-Term Loans
• Public Equity• Commercial
Paper• Medium Term
Notes• Public Debt
4.02: Integrated Finance & Risk: Assessment
FinanceGaps
FinanceGaps
©2007 ViTAL Economy, Inc.— 34 —
Financial Asset Survey Indicates about $13 Billion of Invested Household Assets in SI
$6 billion+/- of FDIC savings deposits represent about 47% of total financial holdings owned by SI households
Source: FDIC 6/30/07 Survey of Deposits of all FDIC Insured Institutions & U.S. Census Bureau Statistical Abstract 2007, Table 703
4.02: Integrated Finance & Risk: Assessment
COI County # of FDIC Banks # of Offices Deposits ($m) ∑ Deposits % PopulationAlexander 2 3 $63Union 6 9 $263Johnson 4 6 $160Pulaski 4 5 $51Massac 4 6 $279Pope 2 2 $27Hardin 2 3 $50Saline 7 12 $528Hamilton 2 3 $83Gallatin 4 4 $99Wayne 5 6 $289White 6 11 $297Edwards 3 3 $133Wabash 5 6 $236Franklin 9 16 $496Jackson 12 24 $792Jefferson 11 18 $719Perry 5 7 $260Randolph 10 22 $631Williamson 14 37 $1,069
Total 117 203 $6,525 6,525 412,568
GW $955m (14.6%) 51,421 (12.5%)
GE $3,967m (60.8%) 253,049 (61.3%)
S5 $816m (12.5%) 58,644 (14.2%)
SE $787m (12.1%) 49,454 (12.0%)
©2007 ViTAL Economy, Inc.— 35 —
SI Has Not Accessed Its Proportional Share of IFA Finance Programs
Source: IFA In Your Region 2007 Financial Summary Report; il-fa.com
Illinois Finance Authority (IFA) issues taxable and tax exempt bonds, makes loans and invests capital or businesses, non-profit corporations and local government units state-wide
Mission: to foster economic development to public and private institutions that create and retain jobs and improve the quality of life in Illinois by providing access to capital
Created 1/1/2004 — absorbed several Illinois authorities: Development Finance, Farm Development, Health Facilities, Educational Facilities, Community Development Finance, Rural Bond Bank, Research Park
SI accessed only about 1.9% ($91 million) of the $4.6 billion issued state-wide — vs. 3.5% of the population
Note: IFA’s website shows financed $10.6 billion in project financing since 2004, however, ‘In The Region’ detail only lists $4.6 billion in projects which is the source of SI financing data
Of the $91 million received by SI during this period, SIH alone accounts for 76% ($69 million)
Opportunity: SI can take greater advantage of this important funding vehicleOpportunity: SI can take greater advantage of this important funding vehicle
4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 36 —
SI Infrastructure: Capital Estimates
State of Illinois structural deficit has significantly impacted availability of local funding for all forms of public services
IDOT has $400 million in short-term highway projects and another $1 billion in medium and long term projects waiting to be funded
Estimates for drinking water upgrade projects in SI are $130 million+/-
Upgrades for SI wastewater systems are in range of $260 million+/-
Small versus larger municipalities express concerns about insufficient tax base to finance both annual maintenance & road upgrades
Approximately $150 million in tourism hospitality infrastructure investments will be needed for SI to achieve its revenue potential of $300-400 million/year
Raising 10,000 citizens out of poverty will require a significant investment in affordable housing in the range of $200-$300 million
Source: IDOT DRA Transportation Study December 2006, Regional CEDS Reports, USDA Regional Surveys, RA Interviews
4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 37 —
Lack of trust:There is a belief that announcing projects or entrepreneurial business opportunities
in public will be stolen
Uncomfortable with the prospect of change:There is fear of new investment and change in the area
No linkage between entrepreneurship and youth:The lack of entrepreneur culture emanates from both citizens that do not know how to do it, and from schools that don’t foster it — there is no creativity breed,
only minimal after-school activities, and a weak commitment of teachers
Negative impacts of competition:Other regions have been hostile when SI firms try to extend business across the rivers – yet their firms will not think twice about extending their business into SI
View from Financial Services Executives in SI (& elsewhere): We are risk-averse and opportunity handicapped
Climate of Risk and Entrepreneurship in SI
Source: RA & EF Hutton Interviews conducted by ViTAL Economy
4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 38 —
Only 46% of SI Personal Income is Generated by Private Sector Employment
Conclusions:
• SI cannot afford the community and economy it wants
• A 30% increase in private vs. public sector earnings is required to equal U.S.
• Low % of at-risk sources of personal income, creates a risk-averse environment
0%
10%
20%
30%
40%
50%
60%
70%
Private Sector Payroll &Benefits
Transfer Payments, AllGov't & Education Earnings
U.S.
IL
SI
54%
33%36%
46%
67%64%
Increasing private sector % of personal income generation is critical to building a climate of innovation
Increasing private sector % of personal income generation is critical to building a climate of innovation
4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 39 —
High Government Transfers = Low Risk Tolerance
PersonalIncome $1,000
Personal CurrentTransfer Receipts
$1,000
Transfer Receipts/Personal Income
(%)
Greater Egypt 6,178,755 1,338,783 21.67%
Greater Wabash 1,333,197 284,983 21.38%
Southeastern 1,142,185 322,535 28.24%
Southern Five 1,345,034 379,372 28.21%
Southern Illinois 9,999,171 2,325,673 23.26%
Illinois 441,372,577 56,357,703 12.77%
U.S.A. 9,705,504,000 1,428,159,000 14.71%
Southern Illinois
Current Transfer Receipts forIndividuals from Government 95.9%
Retirement and disability insurance benefits 40.1%
Medical benefits 38.8%
Income maintenance benefits 9.8%
Unemployment insurance compensation 2.9%
Veterans benefits 2.8%
Federal education and training assistance 1.5%
Other transfer receipts of individuals from governments 0.0%
Current transfer receipts ofNonprofit institutions 3.0%
Receipts from the Federal government 0.7%
Receipts from state and local governments 1.6%
Receipts from businesses 0.7%
Current transfer receipts ofIndividuals from business 1.1%
Implications:• Disproportionate % of non-wage, non-wealth income• Less risk-taking & innovation climate — discourages
entrepreneurs • Reduced economic multiplier effect on GRP (Gross
Regional Product)
Source: Bureau of Economic Analysis
4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 40 —
Readiness Criteria Rating Assessment Rationale
KBE Risk Assessment Capacity
Asset based financing is the normal experience. Lenders have limited experience assessing risk of soft assets
Early/Emerging Stage Capital for Startups
There are no formal angel networks organized for SI Micro-finance is very limited in the region IFA venture funding options have not been accessed by SI
Finance Literacy of Capital Users and Providers
Users do not understand difference between equity/debt costs Provider equity and subordinated debt experience is limited
Specialty Financing Access Debt financing is largely conventional SI has limited access to national specialty finance resources
Regionally controlled life cycle equity and debt resources
Lending limits are low and have not required participations Life cycle finance networks do not exist. Firms often move to gain financing for next stage of growth
Adequate public finance system for infrastructure growth with ED strategy
Bonding requirements are inadequate to meet current needs Limited experience in aggregating bond requirements Limited experience with REIT for hospitality/housing reqs.
SI Integrated Finance: Assessment 4.02: Integrated Finance & Risk: Assessment
©2007 ViTAL Economy, Inc.— 41 —
Chapter 4:Climate of Innovation, Incubation &
Entrepreneurship
4.03 Implications & Recommendations
Southern Illinois — "Garden of the Gods"
©2007 ViTAL Economy, Inc.— 42 —
Entrepreneurship Culture and Networks
Financial Literacy
Existence of Early Stage Capital for Startups
Rate of Business Startups
Partnerships and Community Outreach
Technology Transfer, Licensing and Commercialization
Entrepreneurship Development and Tracking
Space and Facility Support Services
WEAK
IMPROVING
GOOD
AVERAGE
STRONG
4.03 Implications & Recommendations4.03 Implications & Recommendations
SI Innovation, Entrepreneurship & Incubation: VE Overall Assessment
©2007 ViTAL Economy, Inc.— 43 —
SI Innovation, Entrepreneurship & Incubation: Implications
Entrepreneurship culture and networks Entrepreneurship is not seen as a “real job” — this suppresses a spirit of innovation
Financial literacy Limited risk assessment capacity for KBE soft asset business startups — this limits access to capital Entrepreneurs understanding of equity & debt is low — this results in poor deal flow quality
Partnerships and community outreach are centered in Carbondale A regional climate of innovation can not be achieved when the vast majority of resources are
centralized — SI needs a region-wide virtual network of innovation resources Underperformance of technology transfer, licensing and commercialization
SI cannot grow regional KBE innovation firms without regional access to SIU tech-transfer assets Disconnected entrepreneurship development and tracking systems
SI’s business support services are not linked — result is KBE firms leave SI or innovations die on the vine
Lack of business startup-tracking demonstrates lack of policy commitment to entrepreneurship SI cannot manage what it cannot track or measure
Limited and unconnected incubation space and facility support services Incubation resources cannot supply diverse expertise needs of young emerging KBEs Incubator firms are not linked to potential value-chain partners in other parts of SI
Innovation knowledge is silo-based, not shared and, therefore, not leveraged
4.03 Implications & Recommendations4.03 Implications & Recommendations
©2007 ViTAL Economy, Inc.— 44 —
SI Innovation, Entrepreneurship & Incubation: Recommendations
Commit to an SI innovation led CED strategy
Develop an SIU led technology transfer growth strategy
Build an SI Innovation Eco-System™
Map and leverage all SI innovation assets
Organize an SI Finance Industry Cluster
Complete an SI Integrated Finance Assessment
Implement an SI Controlled Integrated Finance Framework
4.03 Implications & Recommendations4.03 Implications & Recommendations
These recommendations create the single most critical resource for establishing a successful innovation economy in SI
— Ref: Andrew Hargadon in “How Breakthroughs Happen” —
These recommendations create the single most critical resource for establishing a successful innovation economy in SI
— Ref: Andrew Hargadon in “How Breakthroughs Happen” —
©2007 ViTAL Economy, Inc.— 45 —
Economic Growth Can Be Greatly Stimulated by Implementing an Innovation Eco-System™
SI Incubator, Finance & Innovation Starfish Network
— the KBE-Engine of Connect SI —
SI Entrepreneurs Served by SharedRegional Network
Of Incubator Centers of Excellence
Life Cycle Equity and Debt
Finance Resources
Global Best PracticeTechnical Support
Teams
Broadband-Enabled
SI Entrepreneurs Served by SharedRegional Network
Of Incubator Centers of Excellence
Life Cycle Equity and Debt
Finance Resources
Global Best PracticeTechnical Support
Teams
Broadband-Enabled
W. FrankfortBusinessIncubator
GE IncubatorTech Transfer
Dixon SpringsAg-Tech Incubator
SWI Retail Incubator
Edwardsville
Ethanol Research
Center
SIU MedicalSchool
GW Incubator
Coal ResearchCenter
S5 SBDC
SE SBDC
EntrepreneurCenter
Centralia EC
SIUE-EC
IMEC
MedicalTechnologyIncubator
InternationalIncubator
4.03 Implications & Recommendations4.03 Implications & Recommendations
©2007 ViTAL Economy, Inc.— 46 —
Self-Sustaining Regional Solution for SI Economy
Equity & Specialty Finance Access,
Expertise & Literacy
Equity & Specialty Finance Access,
Expertise & Literacy
Capital, Innovation & Literacy501(c)3 Intermediary
Capital, Innovation & Literacy501(c)3 Intermediary
Global Best PracticeCollaborative
Technical SupportServices
Global Best PracticeCollaborative
Technical SupportServices
Creating Climates ofRisk Taking and
Innovation
Creating Climates ofRisk Taking and
Innovation
Regional Integrated Finance Framework
4.03 Implications & Recommendations4.03 Implications & Recommendations
Source: ViTAL Economy Capital Structure