January 2, 2008

©2007 ViTAL Economy, Inc.— 1 —

Southern Illinois: Garden of the GodsReadiness Assessment

Chapter 4: Climate of Innovation, Incubation & Entrepreneurship

January 2, 2008

CONNECT SI

ViTAL Economy AllianceFrank Knott, Lead & Master Guru; Stan Halle, Senior Editor;

Jim Haguewood, Rob Beynon, & Neil Gamroth, Principal Economic Researchers

[email protected]; http://www.vitaleconomy.com


4.01 Innovation Assets: Assessment4.02 Integrated Finance & Risk: Assessment4.03 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

APPENDICIES


Chapter 4:Climate of Innovation, Incubation &

Entrepreneurship

4.01 Innovation Assets: Assessment ……………… 114.02 Integrated Finance & Risk: Assessment ……. 304.03 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.


Famous Innovators PerspectiveChapter 4: Introduction

“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

"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, 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


How Breakthroughs Happen (1 of 4)Meeting Notes

**Source: Andrew Hargadon 2-4 May 2007 St Louis Fed Conf.



How Breakthroughs Happen (3 of 4)Meeting NotesChapter 4: Introduction



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




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).


SI Innovation, Entrepreneurship & Incubation: Introduction

The Southern Illinois region 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

4.01: Innovation Assets: Assessment


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



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



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



Source: Driving Growth, Breaking Down Barriers to Global Prosperity, McKinsey Global Institute


Innovation Grows From Seeds of Knowledge

Transformation of knowledge into new products, processes or services – involves more that just science and technology:

It 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)


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. They have 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

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 the State and National

Averages for KBE as % of total employment

7.7%8.5%

4.3%

Gap



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


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


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



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)



“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


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)



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 entrepreneurshipSource: VE Business Incubator, Research Park & Tec-Transfer Assessment Project Final Report, 19 April 2007


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


Source: Student Survey responses; conducted by ViTAL Economy


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 TotalsAAS 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) 453BS Industrial Tech 162BS Administrative Justice 148BS Aviation Management 146BS Management 143BS Elementary Education 138BS Electronics Systems Tech 118

Non-U.S. % of SIUC Graduate Degrees (selected) # % of

TotalMS 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%



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

Southern Five

KBE workers (total jobs): 4% Rural Creative Class Counties: No

Research Facilities: No

Business Incubation Resources Yes


Greater Egypt

KBE workers: 5%

Rural Creative Class Counties: Yes

Research Facilities: SIU & related facilities

Business Incubation 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**


**See Chapter 1.03 Slides 32-35 for Creative Class definition


= 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 ? The region does not have 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 facility and services

SI Innovation & Entrepreneurship: Assessment 4.01: Innovation Assets: Assessment


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


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



• 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



Entrepreneurship

4.02 Integrated Finance & Risk: Assessment


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.


NGA & RUPRI Identify Barriers to Economic Growth in Rural America

Access to specialty finance services and early stage venture capital networks

Networks that 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

Capacity to evaluate intellectual property versus traditional asset-based risks

Minimal environments which encourage entrepreneurship and risk taking

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


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




Current State in SI

— 33 —

SI Economic Growth Is Inhibited by Funding and Risk Assessment Gaps

• Insider Financing• Angels• Micro-loans/Grants• Venture Capital

Company 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 State

• KBEs and entrepreneurs are not attracted from outside the State

• 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


FinanceGaps


Financial Asset Survey Indicates about $13 Billion of Invested Household Assets in SI

$6 billion+/- of FDIC Savings Deposits Represents 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


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%)


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 vehicle



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 upgrade of drinking water projects in SI in range of $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



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: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




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



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 ILLINOISCurrent 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



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



Entrepreneurship

4.03 Implications & Recommendations



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

IMPROVIN

G

GOOD

AVERAGE

STRONG

4.03 Implications & Recommendations4.03 Implications & Recommendations

SI Innovation, Entrepreneurship & Incubation: VE Overall Assessment


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

The Region’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



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


These recommendations create the single most critical resource for establishing a successful innovation economy in SI, as recommended by Andrew Hargadon in “How Breakthroughs Happen””


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

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



Self-Sustaining Regional Solution for SI Economy

Equity & Specialty Finance Access,

Expertise & Literacy

Capital, Innovation & Literacy501(c)3 Intermediary

Global Best PracticeCollaborative

Technical SupportServices

Creating Climates ofRisk Taking and

Innovation

Regional Integrated Finance Framework


Source: ViTAL Economy Capital Structure

January 2, 2008

Documents

Transcript of January 2, 2008