Presentation on theme: "January 2, 2008; revised February 15"— Presentation transcript:
1 January 2, 2008; revised February 15 CONNECT SISouthern Illinois: Garden of the Gods Readiness Assessment Chapter 4: Climate of Innovation, Incubation & EntrepreneurshipJanuary 2, 2008; revised February 15ViTAL Economy AllianceFrank Knott, Project Lead; Stan Halle, Senior Editor;Jim Haguewood, Rob Beynon, & Neil Gamroth, Principal Economic Researchers1
2 Table of ContentsEXECUTIVE OVERVIEW: Big Picture & Importance of Change in Southern IllinoisREADINESS ASSESSMENT (RA)1. State, National & Global Trends2. Indigenous Resources & Industry Asset Mapping3. Enabling Environment4. Climate of Innovation, Incubation & Entrepreneurship5. Southern Illinois Competitiveness6. Regional Perspectives7. Roadmap to SuccessAPPENDICES4.01 Innovation Assets:Assessment4.02 Integrated Finance& Risk: Assessment4.03 Implications &Recommendations2
3 Chapter 4: Climate of Innovation, Incubation & Entrepreneurship 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.Chapter 4: Climate of Innovation, Incubation & Entrepreneurship4.01 Innovation Assets: Assessment ……………… 114.02 Integrated Finance & Risk: Assessment ……. 304.03 Implications & Recommendations .………….. 41
4 Famous Innovators Perspective Chapter 4: Introduction“Innovation distinguishes between a leader and a follower.” - Steve Jobs“Never before in history has innovation offered promise ofso much to so many in so short a time.” - Bill Gates"Entrepreneurs are risk takers, willing to roll the dice with their money or reputationon the line in support of an idea or enterprise. They willingly assume responsibility forthe 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 communitywill largely be determined by you. Communities that position themselves to takeadvantage of the entrepreneurial sector AND companies, businesses and individualsthat have the education, background and ability to generate innovation aregoing to drive the economy in the future. They're going to create the jobs andthe opportunities for our young folks.” - Steve Carter
5 Innovation, Incubation & Entrepreneurship: Perspective Chapter 4: IntroductionConnect SI and ViTAL Economy participated in the 2-4 May 2007 “Exploring Innovation”, a Nat’l Conference on Community & Economic Development InnovationAndrew 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 placeGenius & innovation are learned, not born — learned through our connectionsCommunity 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 forwardIt's about what you create in the networks around you, not just the network itselfHow do we re-frame people around networks? Social communities are very important, including churches, schools, etc. — all of which can be leveragedThe future is wireless, everything in mass media will be wireless including TVHow 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
6 How Breakthroughs Happen (1 of 4) Meeting Notes Chapter 4: Introduction**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
7 How Breakthroughs Happen (2 of 4) Meeting Notes Chapter 4: Introduction**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
8 How Breakthroughs Happen (3 of 4) Meeting Notes Chapter 4: Introduction**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
9 How Breakthroughs Happen (4 of 4) Meeting Notes Chapter 4: Introduction**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.
10 Applying Hardagon’s Ideas to SI Chapter 4: IntroductionAfter 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 resourcesThis is why the RA assesses SI’s Climate of Innovation, Incubation, & EntrepreneurshipThis enables Connect SI to benchmark its current climate and set goals for improving this climate to ‘best practice’ by 2012
11 Chapter 4: Climate of Innovation, Incubation & Entrepreneurship 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).Chapter 4: Climate of Innovation, Incubation & Entrepreneurship4.01 Innovation Assets: Assessment
12 SI Innovation, Entrepreneurship & Incubation: Introduction 4.01: Innovation Assets: AssessmentSouthern Illinois performs weakly when measured against innovation and entrepreneurship ‘best-practices’SIU is not a major generator of patents and spin-off companiesCOI perspective:Only Greater Egypt has significant innovation and entrepreneurship resources, though other regions are examining developing incubatorsTwo of the Greater Egypt counties are recognized as “creative class” countiesUnfortunately Southeastern could potentially lose the Dixon Springs Agricultural Centre that UI is trying to spin offThe 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 wagesState of Illinois does not track business startupsWithout a Region-wide innovation network, more focusedtechnology transfer, and a full-spectrum of financial support,SI’s Climate of Innovation has little chance of succeeding12
13 4.01: Innovation Assets: Assessment Why We Look at This4.01: Innovation Assets: AssessmentKey elements for rural economic transformation:A climate of entrepreneurshipSystems and resources to support innovationSmall/medium enterprises are the job growth engine in the U.S. for the 21st centuryFirms < 20 employees created 79.5% of net new jobsmidsize firms (20-499) created % of net new jobsRural regions must develop a robust entrepreneurship support structureAccess to specialty forms of capital is essentialOtherwise these emerging enterprises will be more attracted to neighboring urban centersOver the past 50 years, investment in R&D produced 50%+ of U.S. economic growth. Increased SI economic growth requires innovationSource: The Alliance for Science and Technology Research in America, 2007The Role of Small and Large Businesses in Economic Development, Federal Reserve Bank of Kansas City, 2007
14 The New Economy is an Innovation Economy 4.01: Innovation Assets: AssessmentIt is global, entrepreneurial and knowledge-basedIt 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’sIt is knowledge dependent — knowledge workers have increased their share of total employment from 22% in 1979 to 34.8% in 2003…now the largest sectorIt 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 GDPIt is entrepreneurial — from 1917 to 1976 it took 30 years to replace 50% of the 100 largest public companies; from it only took 12 yearsFrom all of the net U.S. job growth was from firms less than five years old; older firms actually lost jobsIt is rooted in information technology — IT is the key technology driving the economy through its use in all sectors to boost productivity, innovation and qualitySource: Information Technology & Innovation Foundation & National Governor’s Association 2007 State New Economy Index
15 Old versus New Economy Realities 4.01: Innovation Assets: Assessment“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, 2004IssueFROM: Old EconomyTO: New EconomyMarketsStableDynamicScope of competitionNationalGlobalOrganizational FormHierarchicalNetworkedProduction systemMass productionFlexible productionKey factor of productionCapital/LaborInnovation/IdeasKey technology driverMechanizationDigitizationCompetitive advantageEconomies of scaleInnovation/qualityRelations between firmsGo it aloneCollaborativeSkillsJob-specificBroad and ChangingWorkforceOrganization manIntrapreneurNature of employmentSecureRiskySource: Information Technology & Innovation Foundation & National Governor’s Association 2007 State New Economy Index
16 Innovation Grows From Seeds of Knowledge 4.01: Innovation Assets: AssessmentTransformation of knowledge into new products, processes or servicesInvolves more that just science and technologyInvolves discerning and meeting the needs of customersImprovement in marketing, distribution, and services can be as important as those generated in laboratories involving new products and processesSome of the most important innovation occurs in sales and distributionKBE 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 , the 3rd highest growth sector (after Healthcare and Education)Source: Driving Growth, Breaking Down Barriers to Global Prosperity, McKinsey Global Institute
17 Climate of Innovation, Entrepreneurship and Incubation 4.01: Innovation Assets: AssessmentClimate 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 undergroundEarly stage capital is limited, access is not well knownResearch focus at SIUC: high potential for more tech transferEntrepreneur development resources in SI are very limitedSupport systems for entrepreneurs need bolsteringClimate 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”The KBE Worker Gap:SI is well below Illinois and U.S. averages for KBE as % of total employment7.7%8.5%4.3%GapSIU 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 gapSource of Quotes: RA & EF Hutton Interviews; chart data from BLS
18 SI Innovation Assets: Activities with Promising Futures 4.01: Innovation Assets: AssessmentSIUC’s Four R&D PillarsEnergy & EnvironmentBiotechnologyMaterials TechnologyNeuroscienceSmall Business Development CentersRend Lake CollegeShawnee CollegeSoutheastern Illinois CollegeJohn A. Logan CollegeSIUC and SIUEIllinois Eastern CollegesSI Business IncubatorsSIUC Business IncubatorWest Frankfort Business IncubatorDRA Mounds IncubatorEntrepreneurs & Innovators across SIIllinois Entrepreneurship NetworkSouthern Illinois Entrepreneurship CenterIllinois Small Business Development CtrIllinois Manufacturing Extension CenterSouthern TechIllinois Procurement Technical Asst CtrsTechnology Enterprise CentersInternational Trade CentersCamp CEO ProgramsChallenge Grant ProgramSIU Transportation Education CenterSIU 20+ Research CentersDixon Springs Agriculture Research CtrIllinois Clean Coal InstituteNational Corn-to-Ethanol Research CtrSIU Business Research ParksSIUC Coal Research CenterSIU School of Medicine
19 Examples of SI Innovation & Entrepreneurship 4.01: Innovation Assets: AssessmentDinger BatsTaking on the big sports equipment companies with a uniquely branded productContinental TireDefying American manufacturing trends to go offshore through highly innovative management practicesPrecision MineMine safety and construction knowledge to new residential and commercial building structuresMt. Vernon Dry IceConverting CO2 to dry-ice for various industrial & commercial applicationsDippen DotsAn SI native son and graduate of Shawnee College, is transforming the way in which the world enjoys ice creamMermet Springs1st 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
20 SIU: An Innovation Diamond in the Rough! 4.01: Innovation Assets: AssessmentThe 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 overlookedThe presence of a major research university should be treated as a unique and primary asset for fostering a culture of entrepreneurship in the areaSource: An Opportunity Analysis for Jackson County, May (Note: Jackson County was replaced with Southern Illinois)
21 Current Climate of Innovation & Entrepreneurship in SI 4.01: Innovation Assets: AssessmentWhat 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 resourcesWeak understanding of risk assessment other than traditional businessSilo-vision and independence resulting in a lack of resources aligned for successWe have no champion to lead entrepreneurship nor a vision of an innovation-based cultureInnovation resources are too Carbondale-centricOur business resources are set up as “spider organizations” (based on centralized hierarchy and power)“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 climateSource: RA & EF Hutton Interviews conducted by ViTAL Economy
22 SIUC Business & Engineering Survey: Promise & Opportunity 4.01: Innovation Assets: AssessmentSurvey Objectives:Assess the level of student awareness of the SIUC Incubator and Research ParkMeasure student population’s level of entrepreneurial aspirationsIdentify future needs of the students and how Connect SI & related programs can satisfy themSurvey Results (from 200± respondents):67% of students would remain in Carbondale region to start and operate a business if resources were available43% of students have thought of starting their own business after graduation24% of students would remain in Carbondale/SI region when they graduate19% of students have heard of, visited, interned at, or knew someone who has knowledge of the SIUC Research Park16% of students have heard of, visited, interned at, or knew someone who has knowledge of the SIUC Business Incubator5% of students currently own a business (while also attending SIUC)4% of students have taken classes/courses on entrepreneurshipSource: VE Business Incubator, Research Park & Tec-Transfer Assessment Project Final Report, 19 April 2007
23 Student Surveys: Quotes 4.01: Innovation Assets: AssessmentIt is a beautiful area, but not very appealing to start a business inSouthern Illinois is a hidden gem — the improvement of business will help boost the standard of livingBS-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 areaOver 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 hereSource: Student Survey responses; conducted by ViTAL Economy
24 SIUC: Mixed Picture of Its Knowledge Assets 4.01: Innovation Assets: Assessment2007 SIUC GraduatesNon-U.S.BlackAsianHispanicWhiteTotal442 (7.9%)635 (11.3%)108 (1.9%)144 (2.6%)3,859 (68.7%)5,621Non-U.S. % of SIUCGraduate Degrees (selected)#% ofTotalMS Electrical Computer Engr.6791%MS Mechanical Engineering1155%Executive Masters Business36100%Masters Business Admin3148%All Phd’s4257%BS Workforce Education & Develop.673BS Natural Resources (Bio-Science & Agr)453BS Industrial Tech162BS Administrative Justice148BS Aviation Management146BS Management143BS Elementary Education138BS Electronics Systems Tech118Degree TotalsAAS68BA/BS4,328Post BA9MA/MS897PhD/Doctorial412Top Majors by Race or Point of OriginWhiteBS Workforce Education and DevelopmentBlackNon-U.S.MS. Electrical Computer EngineeringAsian
25 Region-by-Region Status 4.01: Innovation Assets: AssessmentThe 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**Southern FiveKBE workers (total jobs): %Rural Creative Class Counties: NoResearch Facilities: NoBusiness Incubation Resources YesEntrepreneurship Resources YesSoutheasternKBE workers: %Rural Creative Class Counties: NoResearch Facilities: Dixon SpringsBusiness Incubation Resources NoEntrepreneurship Resources NoGreater WabashKBE workers: %Rural Creative Class Counties: NoResearch Facilities: NoBusiness Incubation Resources NoEntrepreneurship Resources YesGreater EgyptKBE workers: %Rural Creative Class Counties: YesResearch Facilities: SIU & related facilitiesBusiness Incubation Resources YesEntrepreneurship Resources Yes**See Chapter 1.03 Slides for Creative Class definition25
26 4.01: Innovation Assets: Assessment SI Innovation & Entrepreneurship: Assessment4.01: Innovation Assets: AssessmentReadiness CriteriaRatingAssessment RationaleEntrepreneurship Culture and NetworksEntrepreneurship is considered “not a real job”Entrepreneurs exist but mostly undergroundEarly Stage Capital for StartupsUnique early stage capital is limited and access is not well knownThere are some angel investors in the region, but no formal networkRate of Business Startups?Region lacks a system to track or measure the quantity of business startupsPartnerships and Community OutreachEntrepreneurs in the region are unaware of business assistance resourcesEntrepreneurship programs and strategies are not viewed as important to the economyTechnology Transfer, Licensing & CommercializationNo clear focus on commercialization of research at SIUC: leads to inefficiencies in technology transferLimited doctoral programs at SIUE: reduces ability of SIUE to participate in technology transfer & all of its benefitsSpace and Facility Support ServicesRelatively few business incubation facilities in the regionGrowing attention for incubation facilities and services= Weak to None= Improving= Average= Good= Strong
27 4.01: Innovation Assets: Assessment Key Factors Supporting KBE Growth in Rural America4.01: Innovation Assets: AssessmentKey FactorsRatingAssessment of Factors Present in SIHigh 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 & skilledColleges or Universities(Presence is critical for supporting KBE activity)Largest base of higher education and R&D resources of any rural market served by VELocal 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 sizeSource: Center for the Study of Rural America, Federal Reserve Bank of Kansas City 2004; RA and EF Hutton interviews
28 Shifting “Climates” from Limited to Unlimited Opportunity 4.01: Innovation Assets: AssessmentCurrently SI behaves more like a “spider” than a “starfish”FROM: Spider AttributesTO: Starfish AttributesCurrent State-SISomeone’s in charge; based on command & controlNo one’s in charge; based on trustThere’s a clear division of rolesThere’s an amorphous division of rolesIf you take out a unit, the community is harmedIf you take out a unit, the community is unharmedKnowledge & power are concentrated; directiveKnowledge & power are distributed; collaborativeThe community is rigidThe community is flexibleThe community is highly dependent on State and Federal grantsThe community is largely self-funded by a healthy tax base and exportsWorking groups communicate through intermediariesWorking groups communicate with each other directlyYou can count the participantsYou cannot count the participantsSource: Starfish and the Spider, Brafman & Beckstrom 2006
29 4.01: Innovation Assets: Assessment BUT... much more needs to be done Reasons for Optimism4.01: Innovation Assets: AssessmentSIU commitment to reinvigorating its approach to technology transfer, research parks and business incubationNetwork of incubation assets is strong, though not well connected.Growing understanding of business incubation in the region with a plan for development underwayBroader understanding of entrepreneurship and its role in a new SI economy and need for improved entrepreneur culture at SIUGreater understanding of need for SIU and SI goal alignmentMany facilities and capabilities supportive of KBE growth in rural America are already present throughout SI, however they need to be leveragedThe values of technology transfer is recognized and on the increaseSIU executive commitment to resource collaborationBUT... much more needs to be done
30 Chapter 4: Climate of Innovation, Incubation & Entrepreneurship 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.Chapter 4: Climate of Innovation, Incubation & Entrepreneurship4.02 Integrated Finance & Risk: Assessment
31 NGA & RUPRI Identify Barriers to Economic Growth in Rural America 4.02: Integrated Finance & Risk: AssessmentLack access to specialty finance services and early stage venture capital networksToo few networks to encourage entrepreneurs and allow businesses to share ideasVery few intermediary resource networks that support new businessesLimited financial literacy of prospective users and providers of capitalLack of generation transfer and liquidity opportunitiesLittle capacity to evaluate intellectual property versus traditional asset-based risksMinimal environments which encourage entrepreneurship and risk takingLimited market research capabilities that allow businesses to expand to new markets and that allow entrepreneurs to turn ideas into viable new productsSource: NGA (National Governor’s Assoc) Center for Best Practices; RUPRI (Rural Policy Research Institute; and VE Research
32 SI Finance Leaders Describe Climate of Finance 4.02: Integrated Finance & Risk: AssessmentLimited number of business lending opportunitiesLimited experience with loan participationsLimited success or experience with gap financing programsLack of independent and experienced small business market valuationsBig gaps in access to equity for early stage and venture capital, as well as mezzanine financing, etcState programs geared to support large firms versus entrepreneursToo many small local revolving loan funds. Collaboration of these funds would create larger critical mass and more opportunityLimited expertise in assessing risk of knowledge based investmentsNo organized network of angel investors focused on SI opportunitiesFinancial literacy of prospective borrowers is not goodPoor climate of support for innovation, risk taking and entrepreneurshipSource: RA & EF Hutton Interviews conducted by ViTAL Economy
33 SI Economic Growth Is Inhibited by Funding and Risk Assessment Gaps 4.02: Integrated Finance & Risk: AssessmentCurrent State in SIPotential Funding Sources$500,000$10M$50M$100MStart-up, early stage and non-asset-based financing virtually nonexistentFew technologies by local entrepreneurs get commercializedEntrepreneurs tend to leave the region or IllinoisKBEs and entrepreneurs are not attracted from outside IllinoisCommunities do not develop technology focused industriesFinanceGapsMatureGrowthPublic EquityCommercial PaperMedium Term NotesPublic DebtVenture CapitalShort-term loansIntermediate-term LoansPrivate PlacementMezzanine FinancingTrade CreditPublic EquityCommercial PaperMedium-Term LoansEarly StageInsider FinancingAngelsVenture CapitalShort-term loansIntermediate-term LoansPrivate PlacementStart-upInsider FinancingAngelsMicro-loans/GrantsVenture CapitalCompany Growth— 33 —
34 4.02: Integrated Finance & Risk: Assessment Financial Asset Survey Indicates about $13 Billion of Invested Household Assets in SI4.02: Integrated Finance & Risk: Assessment$6 billion+/- of FDIC savings deposits representabout 47% of total financial holdings owned by SI householdsSource: FDIC 6/30/07 Survey of Deposits of all FDIC Insured Institutions & U.S. Census Bureau Statistical Abstract 2007, Table 703
35 SI Has Not Accessed Its Proportional Share of IFA Finance Programs 4.02: Integrated Finance & Risk: AssessmentIllinois Finance Authority (IFA) issues taxable and tax exempt bonds, makes loans and invests capital or businesses, non-profit corporations and local government units state-wideMission: 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 capitalCreated 1/1/2004 — absorbed several Illinois authorities: Development Finance, Farm Development, Health Facilities, Educational Facilities, Community Development Finance, Rural Bond Bank, Research ParkSI accessed only about 1.9% ($91 million) of the $4.6 billion issued state-wide — vs. 3.5% of the populationNote: 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 dataOf 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 vehicleSource: IFA In Your Region 2007 Financial Summary Report; il-fa.com
36 SI Infrastructure: Capital Estimates 4.02: Integrated Finance & Risk: AssessmentState of Illinois structural deficit has significantly impacted availability of local funding for all forms of public servicesIDOT has $400 million in short-term highway projects and another $1 billion in medium and long term projects waiting to be fundedEstimates 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 upgradesApproximately $150 million in tourism hospitality infrastructure investments will be needed for SI to achieve its revenue potential of $ million/yearRaising 10,000 citizens out of poverty will require a significant investment in affordable housing in the range of $200-$300 millionSource: IDOT DRA Transportation Study December 2006, Regional CEDS Reports, USDA Regional Surveys, RA Interviews
37 Climate of Risk and Entrepreneurship in SI 4.02: Integrated Finance & Risk: AssessmentLack of trust:There is a belief that announcing projects or entrepreneurial business opportunities in public will be stolenUncomfortable with the prospect of change:There is fear of new investment and change in the areaNo 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 teachersNegative 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 SIView from Financial Services Executives in SI (& elsewhere):We are risk-averse and opportunity handicappedSource: RA & EF Hutton Interviews conducted by ViTAL Economy
38 4.02: Integrated Finance & Risk: Assessment Only 46% of SI Personal Income is Generated by Private Sector Employment4.02: Integrated Finance & Risk: Assessment54%33%36%46%67%64%Conclusions:SI cannot afford the community and economy it wantsA 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 environmentIncreasing private sector % of personal income generationis critical to building a climate of innovation
39 High Government Transfers = Low Risk Tolerance 4.02: Integrated Finance & Risk: AssessmentPersonalIncome$1,000Personal CurrentTransfer ReceiptsTransfer Receipts/Personal Income(%)Greater Egypt6,178,7551,338,78321.67%Greater Wabash1,333,197284,98321.38%Southeastern1,142,185322,53528.24%Southern Five1,345,034379,37228.21%Southern Illinois9,999,1712,325,67323.26%Illinois441,372,57756,357,70312.77%U.S.A.9,705,504,0001,428,159,00014.71%Southern IllinoisCurrent Transfer Receipts forIndividuals from Government95.9%Retirement and disability insurance benefits40.1%Medical benefits38.8%Income maintenance benefits9.8%Unemployment insurance compensation2.9%Veterans benefits2.8%Federal education and training assistance1.5%Other transfer receipts of individuals from governments0.0%Current transfer receipts ofNonprofit institutions3.0%Receipts from the Federal government0.7%Receipts from state and local governments1.6%Receipts from businessesIndividuals from business1.1%Implications:Disproportionate % of non-wage, non-wealth incomeLess risk-taking & innovation climate — discourages entrepreneursReduced economic multiplier effect on GRP (Gross Regional Product)Source: Bureau of Economic Analysis39
40 4.02: Integrated Finance & Risk: Assessment SI Integrated Finance: Assessment4.02: Integrated Finance & Risk: AssessmentReadiness CriteriaRatingAssessment RationaleKBE Risk Assessment CapacityAsset based financing is the normal experience.Lenders have limited experience assessing risk of soft assetsEarly/Emerging Stage Capital for StartupsThere are no formal angel networks organized for SIMicro-finance is very limited in the regionIFA venture funding options have not been accessed by SIFinance Literacy of Capital Users and ProvidersUsers do not understand difference between equity/debt costsProvider equity and subordinated debt experience is limitedSpecialty Financing AccessDebt financing is largely conventionalSI has limited access to national specialty finance resourcesRegionally controlled life cycle equity and debt resourcesLending limits are low and have not required participationsLife cycle finance networks do not exist.Firms often move to gain financing for next stage of growthAdequate public finance system for infrastructure growth with ED strategyBonding requirements are inadequate to meet current needsLimited experience in aggregating bond requirementsLimited experience with REIT for hospitality/housing reqs.
41 Chapter 4: Climate of Innovation, Incubation & Entrepreneurship Southern Illinois — "Garden of the Gods"Chapter 4: Climate of Innovation, Incubation & Entrepreneurship4.03 Implications & Recommendations
42 SI Innovation, Entrepreneurship & Incubation: VE Overall Assessment 4.03 Implications & RecommendationsEntrepreneurship Culture and NetworksFinancial LiteracyExistence of Early Stage Capital for StartupsRate of Business StartupsPartnerships and Community OutreachTechnology Transfer, Licensing and CommercializationEntrepreneurship Development and TrackingSpace and Facility Support ServicesWEAKIMPROVINGAVERAGEGOODSTRONG
43 SI Innovation, Entrepreneurship & Incubation: Implications 4.03 Implications & RecommendationsEntrepreneurship culture and networksEntrepreneurship is not seen as a “real job” — this suppresses a spirit of innovationFinancial literacyLimited risk assessment capacity for KBE soft asset business startups — this limits access to capitalEntrepreneurs understanding of equity & debt is low — this results in poor deal flow qualityPartnerships and community outreach are centered in CarbondaleA 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 resourcesUnderperformance of technology transfer, licensing and commercializationSI cannot grow regional KBE innovation firms without regional access to SIU tech-transfer assetsDisconnected entrepreneurship development and tracking systemsSI’s business support services are not linked — result is KBE firms leave SI or innovations die on the vineLack of business startup-tracking demonstrates lack of policy commitment to entrepreneurshipSI cannot manage what it cannot track or measureLimited and unconnected incubation space and facility support servicesIncubation resources cannot supply diverse expertise needs of young emerging KBEsIncubator firms are not linked to potential value-chain partners in other parts of SIInnovation knowledge is silo-based, not shared and, therefore, not leveraged
44 SI Innovation, Entrepreneurship & Incubation: Recommendations 4.03 Implications & RecommendationsCommit to an SI innovation led CED strategyDevelop an SIU led technology transfer growth strategyBuild an SI Innovation Eco-System™Map and leverage all SI innovation assetsOrganize an SI Finance Industry ClusterComplete an SI Integrated Finance AssessmentImplement an SI Controlled Integrated Finance FrameworkThese recommendations create the single most critical resource for establishing a successful innovation economy in SI— Ref: Andrew Hargadon in “How Breakthroughs Happen” —
45 Economic Growth Can Be Greatly Stimulated by Implementing an Innovation Eco-System™ 4.03 Implications & RecommendationsW. FrankfortBusinessIncubatorGE IncubatorTech TransferDixon SpringsAg-TechSWI Retail IncubatorEdwardsvilleEthanolResearchCenterSIU MedicalSchoolGW IncubatorCoal ResearchS5 SBDCSE SBDCEntrepreneurCentralia ECSIUE-ECIMECMedicalTechnologyInternationalSI EntrepreneursServed by SharedRegional NetworkOf IncubatorCenters of ExcellenceLife CycleEquity and DebtFinance ResourcesGlobal Best PracticeTechnical SupportTeamsBroadband-EnabledSI Incubator, Finance & Innovation Starfish Network— the KBE-Engine of Connect SI —
46 Self-Sustaining Regional Solution for SI Economy 4.03 Implications & RecommendationsRegional Integrated Finance FrameworkCapital, Innovation & Literacy501(c)3 IntermediaryEquity & SpecialtyFinance Access,Expertise & LiteracyGlobal Best PracticeCollaborativeTechnical SupportServicesCreating Climates ofRisk Taking andInnovationSource: ViTAL Economy Capital Structure
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