2007 ViTAL Economy, Inc. 1 Southern Illinois: Garden of the Gods
Readiness Assessment Chapter 4: Climate of Innovation, Incubation
& Entrepreneurship January 2, 2008; revised February 15 CONNECT
SI ViTAL Economy Alliance Frank Knott, Project Lead; Stan Halle,
Senior Editor; Jim Haguewood, Rob Beynon, & Neil Gamroth,
Principal Economic Researchers [email protected];
http://www.vitaleconomy.com Slide 2 2007 ViTAL Economy, Inc. 2 4.01
Innovation Assets: Assessment 4.02 Integrated Finance & Risk:
Assessment 4.03 Implications & Recommendations Table of
Contents EXECUTIVE OVERVIEW: Big Picture & Importance of Change
in Southern Illinois EXECUTIVE OVERVIEW: Big Picture &
Importance of Change in Southern Illinois READINESS ASSESSMENT (RA)
READINESS ASSESSMENT (RA) 1. 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 APPENDICES Slide 3 2007 ViTAL
Economy, Inc. 3 Chapter 4: Climate of Innovation, Incubation &
Entrepreneurship 4.01 Innovation Assets: Assessment 11 4.02
Integrated Finance & Risk: Assessment . 30 4.03 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. Slide 4 2007 ViTAL Economy, Inc. 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 of so much to so
many in so short a time. - Bill Gates 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 "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 and the opportunities for our
young folks. - Steve Carter 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 and the opportunities for our
young folks. - Steve Carter Slide 5 2007 ViTAL Economy, Inc. 5
Innovation, Incubation & Entrepreneurship: Perspective Connect
SI and ViTAL Economy participated in the 2-4 May 2007 Exploring
Innovation, a Natl Conference on Community & Economic
Development Innovation Andrew Hargadon** was a keynote speaker on
How Breakthroughs Happen highlights include: m 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 m Genius & innovation are
learned, not born learned through our connections m 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 m It's about
what you create in the networks around you, not just the network
itself m How do we re-frame people around networks? Social
communities are very important, including churches, schools, etc.
all of which can be leveraged m The future is wireless, everything
in mass media will be wireless including TV m How we capitalize
risk is changing as well The following four slides capture the
essence of Andrews 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 Slide 6 2007 ViTAL Economy, Inc. 6 How
Breakthroughs Happen (1 of 4) Meeting Notes **Source: Andrew
Hargadon 2-4 May 2007 St Louis Fed Conf. Chapter 4: Introduction
Slide 7 2007 ViTAL Economy, Inc. 7 How Breakthroughs Happen (2 of
4) Meeting Notes **Source: Andrew Hargadon 2-4 May 2007 St Louis
Fed Conf. Chapter 4: Introduction Slide 8 2007 ViTAL Economy, Inc.
8 How Breakthroughs Happen (3 of 4) Meeting Notes Chapter 4:
Introduction **Source: Andrew Hargadon 2-4 May 2007 St Louis Fed
Conf. Slide 9 2007 ViTAL Economy, Inc. 9 How Breakthroughs Happen
(4 of 4) Meeting Notes **Source: Andrew Hargadon 2-4 May 2007 St
Louis Fed Conf. Chapter 4: Introduction Slide 10 2007 ViTAL
Economy, Inc. 10 Applying Hardagons Ideas to SI After researching
over 100 years of innovation history, Andrew Hardagon has made it
very clear that: m Innovation networks are critical to a regional
economys success in building an innovation-driven economy He
further states that: m Innovation networks are essentially people
networks. The bigger your innovation network, the greater your
chance of success. Innovation is about connecting. Connect SIs
success will be determined by the degree of connection and
collaboration of its people and resources m This is why the RA
assesses SIs Climate of Innovation, Incubation, &
Entrepreneurship m This enables Connect SI to benchmark its current
climate and set goals for improving this climate to best practice
by 2012 Chapter 4: Introduction Slide 11 2007 ViTAL Economy, Inc.
11 Chapter 4: Climate of Innovation, Incubation &
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). Slide 12 2007
ViTAL Economy, Inc. 12 SI Innovation, Entrepreneurship &
Incubation: Introduction Southern Illinois performs weakly when
measured against innovation and entrepreneurship best-practices m
SIU is not a major generator of patents and spin-off companies m
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 m 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, SIs
Climate of Innovation has little chance of succeeding Without a
Region-wide innovation network, more focused technology transfer,
and a full-spectrum of financial support, SIs Climate of Innovation
has little chance of succeeding 4.01: Innovation Assets: Assessment
Slide 13 2007 ViTAL Economy, Inc. 13 Why We Look at This Key
elements for rural economic transformation: m A climate of
entrepreneurship m Systems and resources to support innovation
Small/medium enterprises are the job growth engine in the U.S. for
the 21 st century m 1990-2003 Firms < 20 employees created 79.5%
of net new jobs m 1990-2003 midsize firms (20-499) created 13.25 %
of net new jobs Rural regions must develop a robust
entrepreneurship support structure m Access to specialty forms of
capital is essential m 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 4.01: Innovation Assets:
Assessment Slide 14 2007 ViTAL Economy, Inc. 14 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 1890s and the
mass-production, corporate economy in the 1940s and 1950s It is
knowledge dependent knowledge workers have increased their share of
total employment from 22% in 1979 to 34.8% in 2003now 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 Governors
Association 2007 State New Economy Index 4.01: Innovation Assets:
Assessment Slide 15 2007 ViTAL Economy, Inc. 15 Old versus New
Economy Realities The old economy refers to the economy in place
from after World War II until the mid-1970s 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 Americas Economy, 2004 Source:
Information Technology & Innovation Foundation & National
Governors Association 2007 State New Economy Index IssueFROM: Old
EconomyTO: New Economy MarketsStableDynamic Scope of
competitionNationalGlobal Organizational FormHierarchicalNetworked
Production systemMass productionFlexible production Key factor of
productionCapital/LaborInnovation/Ideas Key technology
driverMechanizationDigitization Competitive advantageEconomies of
scaleInnovation/quality Relations between firmsGo it
aloneCollaborative SkillsJob-specificBroad and Changing
WorkforceOrganization manIntrapreneur Nature of
employmentSecureRisky 4.01: Innovation Assets: Assessment Slide 16
2007 ViTAL Economy, Inc. 16 Source: Driving Growth, Breaking Down
Barriers to Global Prosperity, McKinsey Global Institute 4.01:
Innovation Assets: Assessment Innovation Grows From Seeds of
Knowledge Transformation of knowledge into new products, processes
or services m Involves more that just science and technology m
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 m 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) Slide 17
2007 ViTAL Economy, Inc. 17 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
with 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 SIs KBE worker gap 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 SIs KBE worker gap Source of Quotes: RA & EF Hutton
Interviews; chart data from BLS The KBE Worker Gap: SI is well
below Illinois and U.S. averages for KBE as % of total employment
7.7% 8.5% 4.3% Gap 4.01: Innovation Assets: Assessment Slide 18
2007 ViTAL Economy, Inc. 18 SI Innovation Assets: Activities with
Promising Futures SIUCs Four R&D Pillars m Energy &
Environment m Biotechnology m Materials Technology m Neuroscience
Small Business Development Centers m Rend Lake College m Shawnee
College m Southeastern Illinois College m John A. Logan College m
SIUC and SIUE m Illinois Eastern Colleges SI Business Incubators m
SIUC Business Incubator m West Frankfort Business Incubator m DRA
Mounds Incubator Entrepreneurs & Innovators across SI 4.01:
Innovation Assets: Assessment 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 m SIU Transportation Education Center SIU 20+
Research Centers m Dixon Springs Agriculture Research Ctr m
Illinois Clean Coal Institute m National Corn-to-Ethanol Research
Ctr m SIU Business Research Parks m SIUC Coal Research Center m SIU
School of Medicine Slide 19 2007 ViTAL Economy, Inc. 19 Examples of
SI Innovation & Entrepreneurship Dinger Bats m Taking on the
big sports equipment companies with a uniquely branded product
Continental Tire m Defying American manufacturing trends to go
offshore through highly innovative management practices Precision
Mine m Mine safety and construction knowledge to new residential
and commercial building structures Mt. Vernon Dry Ice m Converting
CO 2 to dry-ice for various industrial & commercial
applications Dippen Dots m An SI native son and graduate of Shawnee
College, is transforming the way in which the world enjoys ice
cream Mermet Springs m 1 st 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 4.01: Innovation Assets: Assessment Slide 20 2007 ViTAL
Economy, Inc. 20 SIU: An Innovation Diamond in the Rough! The
Jackson County Opportunity Analysis Report stated: m 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 m 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) 4.01: Innovation Assets: Assessment Slide 21
2007 ViTAL Economy, Inc. 21 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 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 4.01:
Innovation Assets: Assessment 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) Slide 22
2007 ViTAL Economy, Inc. 22 4.01: Innovation Assets: Assessment
SIUC Business & Engineering Survey: Promise & Opportunity
Survey Objectives: Assess the level of student awareness of the
SIUC Incubator and Research Park Measure student populations 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
entrepreneurship Source: VE Business Incubator, Research Park &
Tec-Transfer Assessment Project Final Report, 19 April 2007 Slide
23 2007 ViTAL Economy, Inc. 23 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 students quote: I believe that if Southern Illinois
had more to offer people (e.g., jobs), everyone who lives here
would and could stay here 4.01: Innovation Assets: Assessment
Source: Student Survey responses; conducted by ViTAL Economy Slide
24 2007 ViTAL Economy, Inc. 24 SIUC: Mixed Picture of Its Knowledge
Assets 2007 SIUC Graduates Non-U.S.BlackAsianHispanicWhiteTotal 442
(7.9%) 635 (11.3%) 108 (1.9%) 144 (2.6%) 3,859 (68.7%) 5,621 Degree
Totals AAS68 BA/BS4,328 Post BA9 MA/MS897 PhD/Doctorial412 Top
Majors by Race or Point of Origin WhiteBS Workforce Education and
Development BlackBS Workforce Education and Development Non-U.S.MS.
Electrical Computer Engineering AsianBS Workforce Education and
Development BS Workforce Education & Develop.673 BS Natural
Resources (Bio-Science & Agr)453 BS Industrial Tech162 BS
Administrative Justice148 BS Aviation Management146 BS
Management143 BS Elementary Education138 BS Electronics Systems
Tech118 Non-U.S. % of SIUC Graduate Degrees (selected) # % of Total
MS Electrical Computer Engr.6791% MS Mechanical Engineering1155%
Executive Masters Business36100% Masters Business Admin3148% All
Phds4257% 4.01: Innovation Assets: Assessment Slide 25 2007 ViTAL
Economy, Inc. 25 Greater Wabash KBE workers: 4% Rural Creative
Class Counties: No Research Facilities: No Business Incubation
Resources No Entrepreneurship Resources Yes 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 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 Entrepreneurship Resources Yes Southern Five KBE workers (total
jobs): 4% Rural Creative Class Counties: No Research Facilities: No
Business Incubation Resources Yes Entrepreneurship Resources Yes
Greater Egypt KBE workers: 5% Rural Creative Class Counties: Yes
Research Facilities: SIU & related facilities Business
Incubation Resources Yes Entrepreneurship Resources Yes Greater
Egypt KBE workers: 5% Rural Creative Class Counties: Yes Research
Facilities: SIU & related facilities Business Incubation
Resources Yes Entrepreneurship Resources Yes Region-by-Region
Status The 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** 4.01: Innovation Assets:
Assessment **See Chapter 1.03 Slides 32-35 for Creative Class
definition Slide 26 2007 ViTAL Economy, Inc. 26 = Weak to None =
Improving = Average = Good = Strong Readiness
CriteriaRatingAssessment 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 ? Region lacks 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 facilities and services SI Innovation &
Entrepreneurship: Assessment 4.01: Innovation Assets: Assessment
Slide 27 2007 ViTAL Economy, Inc. 27 Key FactorsRatingAssessment of
Factors Present in SI High Quality Labor Force (Concentration of
higher skilled workforce & KBE potential) 40+ age workforce has
good work ethic and skills Under 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 Slide
28 2007 ViTAL Economy, Inc. 28 Shifting Climates from Limited to
Unlimited Opportunity Currently SI behaves more like a spider than
a starfish FROM: Spider AttributesTO: Starfish Attributes Current
State-SI Someones in charge; based on command & control No ones
in charge; based on trust Theres a clear division of roles Theres
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 4.01: Innovation Assets: Assessment Slide 29 2007
ViTAL Economy, Inc. 29 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 Optimism 4.01: Innovation Assets: Assessment Slide
30 2007 ViTAL Economy, Inc. 30 Chapter 4: Climate of Innovation,
Incubation & Entrepreneurship 4.02 Integrated Finance &
Risk: Assessment 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.
Slide 31 2007 ViTAL Economy, Inc. 31 NGA & RUPRI Identify
Barriers to Economic Growth in Rural America Lack access to
specialty finance services and early stage venture capital networks
Too few networks to 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 Little capacity to evaluate intellectual property
versus traditional asset-based risks Minimal environments which
encourage entrepreneurship and risk taking Limited 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 Governors Assoc) Center for Best Practices;
RUPRI (Rural Policy Research Institute; and VE Research 4.02:
Integrated Finance & Risk: Assessment Slide 32 2007 ViTAL
Economy, Inc. 32 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
Source: RA & EF Hutton Interviews conducted by ViTAL Economy
4.02: Integrated Finance & Risk: Assessment Slide 33 2007 ViTAL
Economy, Inc. 33 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 Mature
Growth 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 Illinois KBEs and entrepreneurs are not attracted from
outside Illinois Communities do not develop technology focused
industries 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 Illinois
KBEs and entrepreneurs are not attracted from outside Illinois
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 4.02:
Integrated Finance & Risk: Assessment Finance Gaps Finance Gaps
Slide 34 2007 ViTAL Economy, Inc. 34 Financial Asset Survey
Indicates about $13 Billion of Invested Household Assets in SI $6
billion+/- of FDIC savings deposits represent 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 4.02: Integrated
Finance & Risk: Assessment Slide 35 2007 ViTAL Economy, Inc. 35
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 m 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 m Created 1/1/2004 absorbed several
Illinois authorities: Development Finance, Farm Development, Health
Facilities, Educational Facilities, Community Development Finance,
Rural Bond Bank, Research Park m SI accessed only about 1.9% ($91
million) of the $4.6 billion issued state-wide vs. 3.5% of the
population Note: IFAs 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 m 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 4.02:
Integrated Finance & Risk: Assessment Slide 36 2007 ViTAL
Economy, Inc. 36 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
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 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 4.02: Integrated Finance & Risk: Assessment Slide 37
2007 ViTAL Economy, Inc. 37 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:
There is 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 dont 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 Source: RA & EF Hutton
Interviews conducted by ViTAL Economy 4.02: Integrated Finance
& Risk: Assessment Slide 38 2007 ViTAL Economy, Inc. 38 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 54% 33% 36% 46% 67% 64% Increasing private
sector % of personal income generation is critical to building a
climate of innovation Increasing private sector % of personal
income generation is critical to building a climate of innovation
4.02: Integrated Finance & Risk: Assessment Slide 39 2007 ViTAL
Economy, Inc. 39 High Government Transfers = Low Risk Tolerance
Personal Income $1,000 Personal Current Transfer Receipts $1,000
Transfer Receipts/ Personal Income (%) Greater Egypt
6,178,7551,338,78321.67% Greater Wabash 1,333,197284,98321.38%
Southeastern 1,142,185322,53528.24% Southern Five
1,345,034379,37228.21% Southern Illinois 9,999,1712,325,67323.26%
Illinois 441,372,57756,357,70312.77% U.S.A.
9,705,504,0001,428,159,00014.71% Southern Illinois Current Transfer
Receipts for Individuals 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 of Nonprofit 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 of Individuals 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 4.02: Integrated Finance & Risk: Assessment
Slide 40 2007 ViTAL Economy, Inc. 40 Readiness
CriteriaRatingAssessment 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
Slide 41 2007 ViTAL Economy, Inc. 41 Chapter 4: Climate of
Innovation, Incubation & Entrepreneurship 4.03 Implications
& Recommendations Southern Illinois "Garden of the Gods" Slide
42 2007 ViTAL Economy, Inc. 42 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 IMPROVING GOOD AVERAGE STRONG 4.03
Implications & Recommendations SI Innovation, Entrepreneurship
& Incubation: VE Overall Assessment Slide 43 2007 ViTAL
Economy, Inc. 43 SI Innovation, Entrepreneurship & Incubation:
Implications Entrepreneurship culture and networks m
Entrepreneurship is not seen as a real job this suppresses a spirit
of innovation Financial literacy m Limited risk assessment capacity
for KBE soft asset business startups this limits access to capital
m Entrepreneurs understanding of equity & debt is low this
results in poor deal flow quality Partnerships and community
outreach are centered in Carbondale m 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 m SI cannot grow regional KBE
innovation firms without regional access to SIU tech-transfer
assets Disconnected entrepreneurship development and tracking
systems m SIs business support services are not linked result is
KBE firms leave SI or innovations die on the vine m Lack of
business startup-tracking demonstrates lack of policy commitment to
entrepreneurship m SI cannot manage what it cannot track or measure
Limited and unconnected incubation space and facility support
services m Incubation resources cannot supply diverse expertise
needs of young emerging KBEs m Incubator firms are not linked to
potential value-chain partners in other parts of SI m Innovation
knowledge is silo-based, not shared and, therefore, not leveraged
4.03 Implications & Recommendations Slide 44 2007 ViTAL
Economy, Inc. 44 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 4.03 Implications & Recommendations These
recommendations create the single most critical resource for
establishing a successful innovation economy in SI Ref: Andrew
Hargadon in How Breakthroughs Happen These recommendations create
the single most critical resource for establishing a successful
innovation economy in SI Ref: Andrew Hargadon in How Breakthroughs
Happen Slide 45 2007 ViTAL Economy, Inc. 45 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 Shared Regional Network Of
Incubator Centers of Excellence Life Cycle Equity and Debt Finance
Resources Global Best Practice Technical Support Teams
Broadband-Enabled SI Entrepreneurs Served by Shared Regional
Network Of Incubator Centers of Excellence Life Cycle Equity and
Debt Finance Resources Global Best Practice Technical Support Teams
Broadband-Enabled W. Frankfort Business Incubator GE Incubator Tech
Transfer Dixon Springs Ag-Tech Incubator SWI Retail Incubator
Edwardsville Ethanol Research Center SIU Medical School GW
Incubator Coal Research Center S5 SBDC SE SBDC Entrepreneur Center
Centralia EC SIUE-EC IMEC Medical Technology Incubator
International Incubator 4.03 Implications & Recommendations
Slide 46 2007 ViTAL Economy, Inc. 46 Self-Sustaining Regional
Solution for SI Economy Equity & Specialty Finance Access,
Expertise & Literacy Equity & Specialty Finance Access,
Expertise & Literacy Capital, Innovation & Literacy 501(c)3
Intermediary Capital, Innovation & Literacy 501(c)3
Intermediary Global Best Practice Collaborative Technical Support
Services Global Best Practice Collaborative Technical Support
Services Creating Climates of Risk Taking and Innovation Creating
Climates of Risk Taking and Innovation Regional Integrated Finance
Framework 4.03 Implications & Recommendations Source: ViTAL
Economy Capital Structure
