Alternative Avenues To Incubating

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Alternative Avenues to Incubating High Wage/High Growth Companies

Mike Mathews, PrincipalGrant Thornton LLP(608) [email protected]

National Business Incubator Association (NBIA)April 27, 2004

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Outcomes

Help assess what is distinct about your community,your natural entrepreneurial resources and your potential to successfully compete for high-growth/high-wage jobsIdentify potential obstacles Discuss options available to start and grow a local or regional incubation program

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Background Questions

Your roles and responsibilities? Your tenure in your current role? Your incubators stage of development? planning/design start-up (less than 18 months of operation) established (18 months to 5 years) mature (more than 5 years)

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Outline

Wisconsin Background Community Profiles Common Areas of Consideration & Assessment Case Summaries Conclusion

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Wisconsin Trivia (round 1)

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Wisconsin Trivia (round 2)

a "hog" on wheels… Harley-Davidson

children's apparel manufacturer Oshkosh B'Gosh

battery manufacturer (Michael Jordan) Rayovac

world's leading manufacturer of marine propulsion systems

Mercury Marine"Oh- I wish I had an….."

Oscar-Mayer

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Other Major Employers

S.C. JohnsonMiller BrewingLands' EndKimberly-ClarkAmerican Family Insurance

Brigg's and StrattonGE MedicalQuad GraphicsKohler Corp.Aurora Health Care

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Statewide Challenges

Per Capita Income - slipped to 95% of the national average in the last 10 yearsBrain Drain - ranked 37th in Population with 4-Year DegreeVenture Capital - ranked 29th in venture capital investmentsLoss of Manufacturing Jobs - 80,000 jobs lost in the last four years

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Statewide Opportunities

Fortune 500 Companies - Milwaukee ranked first in nation with eight per 100,000 residentsEducation – ACT scores the highest in the nation for the 7th straight yearManufacturing Concentration – State ranked 2nd nationally in % of total jobs in manufacturing (18%)International Trade – Growing almost twice as fast as the U.S. as a whole Incubator Development – State has the most incubators per 10,000 businesses in the nation

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Wisconsin Business Incubator Locations

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Wisconsin Incubator Trends

Approximately 35 existing incubatorsMore than 1 million square feet of incubator spaceRental rates of $1.50 to $28.00 per square foot78% occupancy rate - highest level since 1993Approximately 2,500 jobs were created in 2002 by Wisconsin incubator clients

Source: Wisconsin Department of Commerce/Dr. Tom Lyons

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Community Profiles

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Communities of Interest

River Falls

Wausau

Oshkosh

Madison

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Community Comparison by MSA

Madison

Oshkosh

Wausau

River Falls*

Population 534,000 161,250 128,620 108,670

Population Growth Rate

1.32% 0.88% 0.62% 1.54%

Employment 418,000 108,490 90,400 54,000

Employment Growth Rate

2.54% 2.13% 2.17% 2.72%

Wealth Index(US=$100)

$117.23 $97.94 $96.00 $103.3

Income Per Capita Rank (362 MSA's)

31 133 130 N.A.

Source: Woods & Poole Economics, 2004* River Falls is not a MSA. Data is wt.avg. of St. Croix and Pierce

Counties

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Madison Community Profile

#2 Medium Metro Area for Doing Business in America Inc. Magazine, March 2004

#1 Midsize City in the Midwest for Entrepreneurs Entrepreneur Magazine, October, 2003

#1 Small-Size City for Creativity Rise of the Creative Class, Richard Florida

#5 Best Places for Business and Careers Forbes, May 2003

#2 Among America's Best Places to Live and Work Employment Review, June 2003

" A progressive, cosmopolitan city of over 200,000. Madison offers both small town charm and a range of cultural and recreational opportunities usually found in much larger cities."

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Madison Community Profile

City of Madison population – 215,000First-rate educational institutions

University of Wisconsin – Madison

Edgewood College Madison Area Technical

College

Strong healthcare – 5 general hospitals, 20+ major

medical clinics

One of the lowest unemployment rates in the nation

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The Importance of UW-Madison

#2 U.S. university for research funding ($554M)#1 in endowments for a public US educational institution#6 in universities receiving most annual patents (81)#1 in intellectual property rights by a public US educational institution

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Oshkosh Community Profile

Located on the western shore of Lake Winnebago, Oshkosh is known for its lumber mills, manufacturing firms, a variety of recreational activities and educational systemsHome to the EAA and the annual EAA AirVenture

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Oshkosh Community Profile

City of Oshkosh population – 65,000 Located in Fox Valley region – growing

population and employment center Over 22% of the workforce is employed in

manufacturing

Major employers:Curwood/Bemis (packaging tape/plastic film)

Affinity Medical Group (health care)

Oshkosh Truck Corp (specialized trucks)

Fonda Group (paper specialties)

Aurora Medical Group (health care)

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Oshkosh's Entrepreneurial Resources

University of Wisconsin-OshkoshFox Valley Technical CollegeCompetitive Manufacturing through Technology ManagementCollaborative Aviation ProgramCollaborative Marina Management ProgramNortheast Wisconsin Educational Resource Alliance (NEW ERA)

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Wausau Community Profile

"Surrounded by woods, lakes and hills, Wausau has become the regional center for North Central Wisconsin. The Wausau area enjoys the fortunate combination of big-city amenities with the look and feel of the great Northwood's small-town hospitality."

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Wausau Community Profile

Major industries lumber paper & food

packages building materials agriculture & dairy

products

City of Wausau population – 40,000

Manufacturing provides jobs for more than 25% of the work force and nearly 42% of total wages paid

The service sector (healthcare in particular) has more than doubled in employment since 1970 electric motors

road building industrial machinery veneers

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Wausau Area Employers Wausau Hospital

Wausau Insurance Eastbay Greenheck Wausau-Mosinee Paper

Weyerhaeuser Paper

Proximity to Other Metros• Milwaukee – 181 miles• Minneapolis – 175 miles• Madison – 140 miles• Green Bay – 93 miles

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River Falls Community Profile

"Growing community located 35 minutes from the Twin Cities metro area. Community has a strong passion for education and a healthy quality of life."

Nationally recognized Class One Trout Stream – Kinnickinnic River

Home to the NFL's Kansas City Chief's Summer Training Camp

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River Falls Community Profile

City of River Falls population – 13,000More than 8,000 people leave the area to work in Minnesota on a daily basis St. Croix County's only Corporate Park located in active TIF district

University of Wisconsin-River Falls (6,000 students)Chippewa Valley Technical College

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River Falls Area Employers

QMR PlasticsBest Maid Cookie CompanyO'Keefe Co. (cabinets,furniture)

BioDiagnostics Inc

(genetic seed testing)

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Which community is most similar to yours?

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Common Areas of Consideration and Assessment

Common QuestionsCommon ApproachAssessment CategoriesManagementFinancing

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Common Questions Can an incubator encourage high growth, high wage jobs? Should we be more active in incubating technology companies? What industry/company targets? What is the competitive environment? What are your distinct advantages? Can a facility achieve breakeven status?

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Common Approach

Conduct interviews Gather relevant data and research Assess local and regional conditions and opportunities Develop and consider options Develop recommendations

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Assessment Categories

Market conditions and opportunities

Facilities inventory and demand

Management capacity and options

Financing issues and opportunities

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Management

Policy and procedure oversight (board of directors) On-site management Property management

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Financing

Needs Development costs Holding costs for start-up period On-going management and operating

expenses Tenant financing

Debt Equity

Risk/reward profile of supporting organizations

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Sir Winston Churchill

"A pessimist sees the difficulty in every opportunity, an optimist sees the opportunity in every difficulty."

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Case Summaries Wausau River Falls Oshkosh Madison

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Wausau - Market Summary

History of successfully supporting entrepreneurs Community support for new facility Financial support for new facility Recent start-ups not growth oriented No local/regional cluster of tech firms Shift in demand from light manufacturing to professional services

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Wausau - Facilities Summary

Existing facility has ongoing issues Lack of defined market need for specialized space and improvements Limited competing incubator space Over 235,000 square feet of vacant commercial space Limited demand for tech space currently

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Wausau - Current Status

Planning 36,000-40,000 square foot facility Flexible design for health care, environmental, office, technology and light manufacturing Have secured $2.5 million Will pursue continued state funding August groundbreaking planned

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River Falls - Market Summary

Demonstrated ability to incubate start-up technology companies Strong local support for investment in new incubator Business advantages of UW-RF faculty, staff and students Proximity to Twin Cities metro area Regional interest in River Falls location

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River Falls - Facilities Summary

Existing commercial real estate is limited Existing lab space not easily expandable Limited demand for lab space currently Twin Cities more focused on medical and computer related firms (North and West) U of Minnesota has lab space for lease - spins out 10-15 commercial ventures annually Current start-up funding levels fairly low

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River Falls – Current Status

Incubating an incubator Initial facility 6000 square feet Private financing of tenant improvements Co-located with largest local tech firm Local management and marketing support and contributions Option to purchase five acre parcel

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Oshkosh - Market Summary

Broad interest in high-growth, high-wage jobs Both public and private sector would like to be involved in developing entrepreneurshipFew technology-focused companies in Oshkosh (1.8% of all firms in three county region)Very few local start-up companies at this timePotential for intellectual property and commercialization with major regional firmsPotential growth of outsourced servicesVenture capital and angel investment activity in new firms has been fairly low

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Oshkosh - Facilities Summary

Approximately 340,000 square feet of existing commercial space availableExisting space could be made suitable and used as incubator space Limited competing incubator space in the regionWilling private sector partners who could provide incubator spaceLack of clear demand for differentiated space

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Oshkosh – Current Status

Pursuing "managed incubator network" Working with private sector building owners to participate in network Developing institutional support for entrepreneurship Developing budget for network operations Researching private sector sources of commercial ventures

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Drivers for Incubators in Madison

UW-Madison ResearchWisconsin Alumni Research Foundation (WARF)University-Industry Relations (UIR)Wisconsin Innovation Network (WIN) – Venture ConferencesStrong Community Support for Technology Start-up Companies

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Madison - Market Summary

Existing public/private partnerships Under-utilization of MATC students/facilities MATC management capabilities HUBZone designation Proximity to UW-Madison Expansion opportunities within adjoining T.E.C. Corridor Growing regional technology cluster Proximity to transportation linkages

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Market Research Results

Challenges Attracting UW researchers to T.E.C.

Incubator Differentiating T.E.C. Incubator from

other Dane County incubators Providing specialized equipment Knowing appropriate mix of amenities

to provide in incubator Determining viability of cost recovery

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Madison - Facilities Summary

Additional need for non-life science incubator space in MadisonGrowth in engineering-related start-up firmsEmerging areas such as nanotechnologyGrowing need for technical support servicesOpportunities related to MATC facilities and studentsAbility to physically expand in adjacent areas

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Madison – Current Status

34,000 square foot building 13,000 square foot incubator space 3,000 square feet occupied by on-site manager Targeted tenants include non-life science firms technical support firms procurement firms

Currently has 12 tenants Nearing full occupancy/potential expansion

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Key Questions to Address & Confirm

Do we have: the right market? the right management resources? the right location? the right timing? a satisfactory return on financial and non-financial measures?

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As you proceed…

work hard be flexible expect success

Secure support of the right partner(s) for your project.

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"Not everything that can be counted counts, not everything that counts can be counted"

Albert Einstein

Alternative Avenues To Incubating

Education

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