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4A Wichita Falls Economic Development Minutes - 12/15/2008MINUTES OF THE WICHITA FALLS ECONOMIC DEVELOPMENT CORPORATION DECEMBER 15, 2008 PRESENT' Gary Shores, Chairman § Bo Stahler, Vice Chairman/Sec. /Treasurer § Gary McLendon § Members Dick Bundy § Dave Lilley § Matt Benoit, Assistant City Manager Linda Merrill, Recording Secretary Tim Chase, President Kevin Pearson, VP, Economic Dev Guests from Midwestern State University: Vanda Wright, Director L. O. Nelson, Assistant Director Jeff Stambaugh, Director I. CALL TO ORDER § City Staff § BCI § Small Business Development Center § Lalani Center for Entrepreneurship and Free Enterprise The meeting was called to order at 8:15 a.m. II. APPROVAL OF MINUTES - SEPTEMBER 10, 2008 Bo Stabler moved, seconded by Dick Bundy, that the minutes be approved. The motion unanimously carried. III. CONSIDER A PRESENTATION AND POSSIBLE RECOMMENDATIONS ON ENTREPRENEURSHIP Kevin Pearson noted that during the City's planning session for 2008, the City Council determined that part of the City's strategic plan was to promote entrepreneurship. It asked the BCI to survey other cities' efforts to attract entrepreneurs, and then provide it and the 4A Board with recommendations. WFEDC — Minutes of December 15, 2008 2 The first step in this process, however, is to explain what is occurring in Wichita Falls. To that end, he invited representatives of MSU's Small Business Development Center to address the 4A Board and the Council. He introduced Vanda Wright of the Center. SBDC Ms. Wright thanked the 4A Board for allowing today's presentation. She is the Director of the Small Business Development Center (SBDC). She introduced L. O. Nelson, the Assistant Director. The SBDC is part of the Dillard College of Business Administration, and provides consulting, training, and research to small businesses in pursuit of economic development opportunities. Recordkeeping and financial assistance are the two areas in which they assistance is most requested. They also provide marketing assistance. Their goal is to promote growth, expansion, innovation, increased productivity, and improved management, for either start-up or existing businesses. The SBDC is accredited by the National Association of Small Business Development Centers. It is a member of the Northwest Texas Small Business Development Center regional network. Texas is divided in tour regions, and MSU is one of six sub - centers in the region. Specialty programs in this region include: o Texas Manufacturing Assistance Center (TMAC) — exists to enhance the competitive position of the state's manufacturing center. o Procurement Assistance Center — explains how the government buys goods and services, and how clients can benefit from this. o Business Industry Data Center — this region subscribes to many different databases. This database removes the need for each center to individually pay for databases, or perform research that has already been done. o Rural Enterprise Assistance Partnership (REAP) — gives rural areas more access to assistance offered to metropolitan areas. Vernon will have the first such center in this region. The SBDC sees between 700 to 800 clients every year. It focuses on expansion of existing businesses. The past year saw almost $12 Million in capital formation (defined as loans and equity together). Eighty businesses opened, creating 247.5 full -time equivalents. The SBDC offers training workshops, including how to use Quicken. It hosted 39 training events this past year. Ms. Wright said this region was honored by the Small Business Administration as being the first SBDC of the year. They have included an "ask the expert" area on its new website, so it is becoming more interactive. She asked L. O. Nelson to discuss a new offering on the site. Mr. Nelson explained that School Player is a media player used to transmit information to clients. One area of education involves the five most common mistakes made by small businesses. The Center is trying to perform more training through video, rather than requiring WFEDC — Minutes of December 15, 2008 3 travel to complete such training. Their ultimate goal is to have live interactive sessions through School Player. Ms. Wright said the SBDC is available to help with any issue relating to owning or operating a small business. Vice - Chairman Stahler asked if there was a charge for services, to which Ms. Wright replied no. Lalani Center for Entrepreneurship and Free Enterprise Mr. Pearson then introduced Jeff Stambaugh, Director of the Lalani Center for Entrepreneurship and Free Enterprise. Mr. Stambaugh said the Lalani Center is charged with providing well - prepared emerging entrepreneurs. In addition, it is charged with economic development in the region. His definition of entrepreneur is the generation of wealth — wealth for the individual, wealth for the community, and wealth for the region. These goals are very synergistic — the more one objective is accomplished, the more the next objective is accomplished. Classroom education is essential to development of entrepreneurship. However, it is necessary to bring the outside world into the "ivory tower." Twelve outside experts were brought into the classroom last year, to evaluate presentations and offer advice. Internships are offered that partner students with emerging ventures. Students perform research, write business plans, and offer financial suggestions. They have been very helpful moving projects along in the community that might have otherwise become stagnant. The probability of success increases where there is money, an entrepreneurship incubator, and mentors. He thanked the Board for their time. Survey Results Mr. Pearson offered a few statistics before getting into the results of the survey. There are 27.2 million small businesses in the United States. Small businesses are classified as any company with less than 250 employees. These businesses employ about half of the private sector workforce, and generate most of the innovations in the country. Successful communities in today's economy will help entrepreneurs grow, innovate, and create new jobs. More Statistics: Two - thirds of new businesses survive less than two years 44% survive less than four years 31 % survive less than seven years 83% of entrepreneurs in an incubator program survive more than seven years. Incubators have all the key elements that allow small businesses to survive, including access to financial capital and other assets. The directive was to survey similar -sized cities in southern Oklahoma and North Texas to determine what public funds (or other community resources) are used to promote entrepreneurship. Then, based upon the results of that survey and from other research performed, the BCI was to develop a set of recommendations to present to the City Council. WFEDC — Minutes of December 15, 2008 4 He performed a non - scientific, telephone survey, targeting economic development organizations. If the surveyed city had no such organization, then he would contact its chamber of commerce. He then confirmed the data gathered with the cities. Of the 11 Texas communities surveyed, eight had 4a funds, and four had 4b funds. He surveyed six economic development organizations, six chambers of commerce, and two industrial foundations. Across the state, 123 Texas cities have 4a funds; 318 have 4b funds; and 97 cities have both funds. He cited examples of the sales tax monies collected last year: Marshall collected $1.8 Million, Wichita Falls, $3.7 Million, and Amarillo, $14.6 Million. Midland is using all of its 4b money to retire bond debt for a stadium. Lubbock is using 4a funds to install infrastructure in its 525 -acre business park. Four of those Economic Development Organizations (EDO) surveyed receive all their cities' 4a money. Other EDOs receive a percentage. Five, or 25 %, use funds to retire debt for spec building, incubators, or college campuses. Longview built two shell buildings and is using 4a funds to retire the debt incurred to build them. Only Amarillo had a specific program to use 4a money to promote entrepreneurship; others used funds only on an as- needed basis. Amarillo has a business plan competition, investing $300,000 annually. No entities surveyed in Texas used 4b funds to incent entrepreneurship (e.g., did any entity use 4a or 4b money to provide direct loans, equity funds, or forgivable loans). None in Oklahoma used local resources specifically for entrepreneurship, either. Most (79 %) communities had a small business development center. The remaining communities had access to one. Most communities had a SCORE (Service Core of Retired Executive) chapter of retired individuals to mentor people starting their own businesses. Seven communities have incubators, and Lubbock and Midland will have their own in 2009. Only three had a specific target for their incubators, and for all it was high technology. All communities had at least a certified lender. L. O. Nelson interjected that the two in Wichita Falls are preferred lenders. Mr. Pearson continued, noting that five communities have an informal network of a pool of professionals (lawyers, CPAs, etc.) to help entrepreneurs on a gratis basis with any problems. Only two communities had a formal network. Seven communities surveyed have Angel Investor Networks or Venture Capital funds for entrepreneurship. One big challenge to entrepreneurs if finding the funds to get projects off the ground. Most venture capital companies are on the east or west coast. Angels investor networks are becoming popular in the middle of the country. WFEDC — Minutes of December 15, 2008 Six of the communities offer entrepreneurship courses at local colleges. Two communities use mentors to work one -on -one with entrepreneurs to help businesses get off the ground. Only two economic development organizations or chambers of commerce surveyed had a dedicated entrepreneurship employee, but all had at least one go -to person on staff. Business plan competitions are increasing in popularity; seven communities have formal annual competitions, usually held in association with an incubator or an SBDC. Primary Recommendations The City Council also asked for recommendations. He and Messrs. Stambaugh and Nelson discussed and agreed upon the following primary recommendations: Establish a micro - enterprise fund to loan money or put equity into the hands of individuals up front, rather than the 4a Board's usual payment for performance. It is suggested that $1 Million be set aside for entrepreneurship development. The individual's application would be the business plan. He did this type of work for seven years in Illinois, and has an instrument that could be easily modified for this purpose. MSU and the BCI would collaborate, with the City Council and 4a Board retaining administrative oversight. Any business would still have to meet the requirements of the primary job creation law, passed by the Texas Legislature in 1997, whereby only specific types of companies are eligible for 4a money. 2. Develop a formal Venture Capital Fund (or Angel Investor Network). The formality is necessary so that folks would know these funds are available every year, and also know the rules and regulations to follow in order to gain access to these funds. The funds could be in the nature of a loan, a forgivable loan, or an equity investment. He is not suggesting that money simply be handed out; the individual circumstances would have to be considered. 3. Designate 4a money specifically for a business plan competition (including funds for marketing). The competition would act as an incentive to entrepreneurs. Money would also have to be earmarked for marketing in the form of TV spots, newspaper and or/ or online advertisements. Secondary Recommendations 1. Research high -tech manufacturing incubator with MSU and Vernon College. 2. Host an idea competition with cash prizes. 3. Develop a formal entrepreneur course for high schools. 4. Explore Kauffman Foundation grant opportunities. 5. Establish an entrepreneurship regulatory task force, composed of entrepreneurs. The task force would look at how well entrepreneurs are able to work with the city and county in starting up their own businesses. •WFEDC — Minutes of December 15, 2008 6 Chairman Shores asked what the Board is being asked to do today. Mr. Pearson said nothing, except to determine whether any of the ideas mentioned today are worth pursuing. This was an informative meeting, driven by the desires of the City Council. Gary McLendon asked if the BCI and SBDC would investigate an application, and submit it to the 4a Board for funding if deemed worthy. Mr. Pearson agreed, noting the money for such a program would already be set aside. Mr. McLendon, asked the percentage of retail entrepreneurship, acknowledging that such businesses are not eligible for 4a funding. Ms. Wright replied that retail occupies the number two slot, while services industries are number one. In response to Mr. McLendon's query, Ms. Wright stated that service industries encompass any business that does not offer a product for sale. Mr. Stambaugh added that the Lalani Center is looking at innovation, and trying to develop a relationship with high -tech ventures. This type of business is not exclusively marketed to the people of Wichita Falls, or to the Texoma region. A way to generate wealth for a region is to have people outside the region paying for the goods or service. These types of business may employ only 5 -10 people, but the opportunity for wealth generation down the line is there. He gave Carter Aviation as an example of such potential. Tim Chase stated there are three ways to approach economic development: (1) grow what is already in existence; (2) recruit a new business; or (3) start a business from scratch. That is the three- legged stool of economic development. At present, Wichita Falls has a strong two - legged stool. The amount of energy and resources for the third leg (entrepreneurship) is disproportionately higher than for the other two legs. He asked the Board to consider if it is interested in embarking on an entrepreneurship program. He does not recommend the Board get into the banking business. Rather, if a bank finds a deal that it is not comfortable providing the entire amount of financing, it can be brought to the 4a Board. The 4A Board could provide the shortfall funding, subordinate to the bank, and the deal would get done. Chairman Shores replied that a lot of information has been furnished to the Board today. He believes it would be prudent for the Board to put it back on an upcoming agenda for more discussion. Vice - Chairman Stahler added that some of the suggestions make sense to him. However, he believes more will be lost than will be gained through the venture capital fund. Mr. Chase noted that the Board's policy has been to not write down how 4a funds are to be used. That same philosophy needs to hold true for entrepreneurship. However, there needs to be a limit to the amount of money that the Board would risk. Chairman Shores asked why entrepreneurs should be treated differently; if a good idea needs money, it can be brought to the Board. The Board would have no objection to considering a proposal. Mr. Pearson opined that the Board has always paid for performance, rather than given money on the front end to help a company get started. Now, there is also discussion on gap financing. Vice - Chairman Stahler said that banks are still loaning money; that is how they make their living. People can still get loans. Chairman Shores stated it was beginning to sound socialistic. He is against the government loaning money if a bank won't loan the same borrower WFEDC — Minutes of December 15, 2008 money. Mr. Chase said that if the amount of credit available has not tightened up in this area, then banks certainly ought to be the first choice. But if a deal comes along that a bank deems too risky to completely finance, then the 4a Board would subordinate some of that. Vice - Chairman Stahler replied that is what the SBA does now. Mr. Stambaugh observed that the Board has been paying for performance; he asked it to consider if it is willing to pay for potential. There is an element of risk to entrepreneurship. Even with incredibly well run venture capital funds, about 50% will fall well short of expectations. Only about one -third will really do great. Vice Chairman Stahler said they are risking taxpayer money. Mr. Stambaugh responded that if the Board is going to do that, it would want to do so in a portfolio, rather than deal -by- deal. The return venture capital funds achieve annually for shareholders is done through a portfolio, so they can manage the risks. Chairman Shores said that money, but very few jobs, would be created through entrepreneurship financing. That is great for private enterprise, but he is not sure it is appropriate for taxpayer money. Mr. Stambaugh replied that the Board could require job creation as part of its criteria for funding. Mr. Pearson noted that out of the 1.8 million companies started within the last five years as entrepreneurships, 1.2 million of those have only one or two employees. Mr. Bundy said he feels differently about a deal that may be risky but creates jobs than he feels about a risky venture that does not create many jobs. Further, he does not want to invest 4a funds simply in furtherance of entrepreneurship. Chairman Shores noted there is no reason why Carter Aviation could not build a local manufacturing plan to build its helicopter. Mr. Stambaugh said that this could be done. He cautioned, however, that the Board will not always be able to control the outcome to the degree that it might want. That is why he urges the Board invest in a portfolio. The Board should be searching for a batting average over the long haul. Mr. Chase declared that most cities are not participating in this type of venture. Vice - Chairman Stahler said he understands their hesitancy, as it is stepping outside of the boundaries. He asked if the Board's charge includes putting taxpayer dollars at risk for a very low success rate? He thought perhaps the Board could come up with a set figure to see how it would work; however, it needs to go into this venture knowing that the money may well be gone. Mr. Nelson noted that 888 people came into the SBDC during the 2008 fiscal year with ideas for opening businesses. Eighty businesses were opened. There is a qualifying process that weeds out many hopefuls; in addition, part of the SBDC's purpose is to discourage people from going into business if it is not a sound venture. Mr. Stahler asked how many of those businesses that have opened have been successful. Mr. Nelson said they do not track that, necessarily. They follow businesses to the degree that the businesses allow. Many of the businesses will only use the SBDC's services to help them get the business open, and then no more. Mr. Chase pointed out that the City Council requested this survey and recommendations. They are making the same presentation to the Council tomorrow. It is premature to say that the WFEDC — Minutes of December 15, 2008 8 BCI or the Board are moving forward on any of the recommendations. He does feel, however, that funding entrepreneurs does fit into the Board's charge. It is one of the three ways to pursue economic development. It needs to be understood that the resources needed will be greater than is needed for the other two legs of the stool. Projects have been brought to the Board in the past that are entrepreneurial in nature, and they've always received a fair shake. The question is whether the Board feels the idea of putting money aside so that the SBDC and the Lalani Center can tap into it in the same way has merit. Mr. Chase said he had had experience in past employment with a business plan contest. The winner was guaranteed financing, either through a bank, or through the organization. They did probably six of these over three years. They were good companies, and stayed in the area. IV. DISCUSSION ON CALL CENTERS IN WICHITA FALLS When Budget announced it was shutting down its operation, the BCI received calls from consultant CB Richard Ellis on behalf of clients interested in the facility. They have two projects that would be ideal for Wichita Falls — both are 30,000 square foot call centers. They hope to bring these companies to town in January. He asked the consultant what it would take to make the deal happen. The response was that the Board own the building, and lease it back to the companies at below market rate. Vice - Chairman Stahler asked the length of the lease. Mr. Pearson replied probably seven years, although they would probably try to bargain down to five years. Chairman Shores asked what wages the companies pay, and Mr. Pearson stated he did not know, nor did he know how many employees the companies hired. Vice - Chairman Stahler asked the value of the building. Mr. Pearson again stated that he did not know; he just toured the building last Friday to get specifics. Mr. Chase stated that they want the company to know that Wichita Falls is working to get them here. The companies are interested in hire many of the folks employed by Budget. The call center is currently in a "plug and play" mode, meaning that the building has gone dark, but the equipment is still in there. Budget was asked to reconsider its closure, but they said no. They seem to be amenable, however, to leaving the equipment in the plug and play mode for six months. Mr. Bundy stated that he is very interested in keeping those jobs going. Chairman Shores agreed, but added that more information is needed. Mr. Chase ended the conversation by providing a summary of the Board's feelings regarding the entrepreneurship funding — the Board is interested to hear more about this kind of economic development, but is not ready to accept or move on any of the recommendations. The Board concurred with this summary. V. ADJOURN The meeting adjourned at 9:40 a.m. )GS�hores, Chairman