Columbus 2020 Investor Update | October 2016 | SME Presentation and Panelists

COLUMBUS 2020INVESTOR UPDATE

SME PRESENTATION & PANEL DISCUSSION

#cbus2020

Next Street Financial LLC © Copyright 2016 – CONFIDENTIAL 2

Represented today by: Jon Aram, CEO, Next [email protected]

• Boutique advisory firm that provides advice and capital solutions to grow businesses, create jobs, and revitalize communities

• Founded in 2005; 40 professionals; national client base with offices in Boston, NYC, and Chicago

• 6,500+ businesses served annually through on-the-ground programs, business development centers, and 200+ one on one advisory clients

• Category leading clients across businesses, government, large institutions, and investors

• Substantial experience in community development finance and investment strategies

• Most professionals have traditional finance or advisory backgrounds


WHY SMALL- ANDMID-SIZED (SME) MANUFACTURERS MATTER

JON ARAM, CEO, NEXT STREET

OCTOBER 6, 2016


THE STRATEGIC IMPORTANCE OF MANUFACTURINGThe manufacturing sector is critical to the ongoing health of the U.S. economy

1 ITIF. The Case for a National Manufacturing Strategy. April 2011.2 The Manufacturing Institute. The Facts about Modern Manufacturing , 8th Edition. 2009.3 The Milken Institute. Manufacturing 2.0: A More Prosperous California. June 2009.

Principal Source of R&D and Innovation Activity in the U.S.1

> Manufacturing firms perform ~70% of industry R&D in the U.S., even though manufacturing comprises only 11% of the economy

Manufacturing is a Backbone Industry that Spurs Growth

Across the Economy1,2,3

> Manufacturing, on average, generates $1.40 of economic activity for each $1.00 in final sale of manufactured products, and each manufacturing job leads to the creation of 2-5 additional jobs elsewhere in the economy

Driver of Quality Job Growth and Ladders

of Opportunity1

> While manufacturing workers are becoming more skilled and more educated, the industry remains a critical source of well-paying jobs for the many U.S. workers that lack access to higher education


KEY TRENDS AND CHALLENGES FACING THE SECTORU.S. manufacturing has the opportunity for a late renaissance if business and civic leaders can capitalize on emerging technological advancements and renewed attention

1 ITIF. International Benchmarking of Countries’ Policies and Programs Supporting SME Manufacturers. September 2011.2 Forbes. “TechShop gives the Maker Movement a big boost.” June 2015. Jesse Harrington Au, Autodesk.3 Confidential Next Street interviews.

Japan invests 30x, Germany invests over 20x, and Canada invests almost 10x

more than what the U.S. is spending in principal SME support programs1

"Making change is risky. Not making change probably doesn't lead to long-

term survival”3

“Tasks that 5 or 10 years ago required advanced training and many months to complete can now be accomplished in a

few hours.”2

1Advanced manufacturing economies lose ground: Since 2000, U.S. manufacturing has struggled relative to many other comparable advanced economies that have benefitted from higher levels of government investment

3 Transformative shifts in technology:Technology advances have cross-industry impacts and will redefine U.S. and global manufacturing in the next 5-10 years

4Increasingly important role of SMEs: Large manufacturers rely on a large network of SME suppliers, but SMEs are the most likely to be left out of innovation and R&D efforts due to lower risk tolerance and more limited access to capital

2 Uneven growth within the manufacturing sector: While relatively tech-intensive industries have grown, many less tech-intensive industries have compressed


SME MANUFACTURERS: INNOVATION AND R&D (1 OF 2)SME manufacturers play a critical role in the manufacturing ecosystem…

1 Executive Off ice Of The President and The U.S. Department Of Commerce. Supply Chain Innovation: Strengthening America’s Small Manufacturers. March 2015.

2012

46%

54%

2011

42%

58%

2010

44%

56%

Share of New Jobs Created in Manufacturing, 2010 – 2012 (Latest Available)1

> The U.S.’s 230,000 SME manufacturers employ 42% of all manufacturing workers, and have driven the growth in employment post-recession

> Original equipment manufacturers (OEMs) rely on a large network of SME manufacturers to supply components and parts of finished products, with close to 60% of the final purchase price coming from value added by suppliers

Large Firms (500+ Employees)SME Firms (< 500 Employees)


SME MANUFACTURERS: INNOVATION AND R&D (2 OF 2)…however, innovation is not distributed evenly throughout the manufacturing sector; R&D spend is concentrated among a small share of large manufacturers

1 Executive Off ice Of The President and The U.S. Department Of Commerce. Supply Chain Innovation: Strengthening America’s Small Manufacturers. March 2015.

Share of Manufacturing Firms vs. Share of Manufacturing R&D1

98%

33%

67%

2%

Share of Total Manufacturing R&D Spend

Share of Manufacturing Firms

Large Firms (500+ Employees)SME Firms (< 500 Employees)

> 67% of all manufacturing R&D is performed by 2% of large manufacturing companies, with 39% of that R&D attributable to the 20 largest manufacturers alone

> SME ability to invest in new technology is constrained by:

– Lower margins

– Limited access to capital

– Operational limitations (e.g., internal staff capabilities, machinery and information technology / operation technology infrastructure, and time)


SME MANUFACTURERS: THE HEART OF THE CHALLENGEStructural market failures make the provision of support services to SME manufacturersmore challenging

1 ITIF. International Benchmarking of Countries’ Policies and Programs Supporting SME Manufacturers. September 2011.

“Optimizing for Today”

> With pressure to compete on costs, many SMEs are reluctant to invest in innovation, which is both expensive and not guaranteed to produce a return on investment

> SME firms are risk averse and not typically the first to adopt new innovations

“Limited Everything”

> Limited funding for financing innovation: Difficult to find loans or grants for funding innovation externally

> Limited resources: Funding aside, SMEs have limited internal resource capacity to commit to R&D work

“Decision-Making Paralysis”

> As infrequent purchasers of consulting services, SMEs often do not have “the experience or knowledge necessary to adequately assess the value of those services or the quality of particular service providers”1

> Navigating the array of public vs. private and hyperlocal vs. national service and funding providers is complex and time-consuming; larger firms may have entire departments dedicated to this task


SUCCESSFUL SOLUTIONS FOR INNOVATIONSuccessful solutions for SME innovation share three critical components: (1) technology support & acceleration; (2) next generation services; and (3) access to capital

Debt

Equity

Grant

Product Innovation

Technology / Knowledge Transfer

Engineering /Technical Support

Process Innovation

Workforce Training

Business Development / Networking

Lean Manufacturing

GovernmentStandards / Benefits

Access to Capital

Next Generation Services

Technology Support & Acceleration


INNOV. LOAN FUND: THE IMPACT ON SME MANUFACTURERS (1 OF 2)

1 Trade Up Fund. State of SME Finance in the United States in 2015. January 2015.2 NIST MEP. Small Manufacturers Capital Access Inventory and Needs Assessment. November 2011.

> Deteriorating credit conditions in the wake of the financial crisis1

> Strong needs for capital-intense fixed assets (e.g., machining equipment)

> Long cash conversion cycle

> Limited to choosing between not investing in new infrastructure or borrowing from expensive alternative lending sources with APR of 18.00-50.00%+2

As a result of standing up the Innovation Loan Fund, SMEs will be able to overcome financing challenges and grow their capacity

Financing Challenges of SME Manufacturers


INNOV. LOAN FUND: THE IMPACT ON SME MANUFACTURERS (2 OF 2)

SME Manufacturer Capital Needs by Phase of Business Maturity1

Machinery / equipment and

facility improvements

are critical areas of need across almost

all phases of business maturity

Seed Start Up Growth Mature –Established

Mature –Expansion Revitalization

Construction, Land, or Building Acquisition

Facility Improvements, Remodeling

Leasehold Improvements

Machinery and Equipment

R&D, Innovation

Inventory, A/R, Working Capital

Refinancing, Capital Restructuring

Other Types of International Growth

Low Low / Medium Medium Medium / High High N/A

1NIST MEP. Small Manufacturers Capital Access Inventory and Needs Assessment. November 2011.

In particular, the Innovation Loan Fund will enable SMEs to invest in critical areas of need such as machinery / equipment and facility improvements


Represented today by: Michael Ulbrich, President of NY Operations, [email protected]

• The leading engineering and technology organization in North America dedicated to developing, testing, and implementing advanced manufacturing technologies for industry

• Nonprofit founded in 1984; 170 professionals; national client base with hubs in Columbus, Buffalo, and Colorado

• Bridges the gap between R&D, innovation, and implementation for manufacturers

• Blue-chip client list spanning nearly every segment of the manufacturing industry

• Viewed by government, industry, and others as the go-to resource for advanced manufacturing and technical innovation

• A manufacturing innovation thought leader and practitioner


Represented today by: Kevin Boes, President and CEO, LISC’s New Markets Support [email protected]

• Local Initiatives Support Corporation (LISC)

• National nonprofit CDFI (Community Development Financial Institution) that equips struggling communities with the capital, strategy and know-how to become places where people can thrive

• Founded in 1979; 500 professionals; national client base with offices in 31 American cities and work in hundreds of rural communities across the company

• Invested $1.3 billion in grants, loan, and equity in 2015, leading to development projects worth $4.2 billion

• Delivers innovative financing through wholly-owned subsidiary, New Markets Support Company (headquartered in Chicago), to advance strategic goals and community development efforts across the country