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Entrepreneurial Stories, Raising Capital, Uncategorized

Making it Easy


Making it Easy for People to do Exactly What You Want Them to do…

In business, it’s important to make it easy for people to do exactly what we want them to do. No one would ask an entrepreneur to hop on one foot as he’s developing a new product or service. The environment has to support entrepreneurs because they are doing difficult work. When I see points of friction in the entrepreneurial system, I shine a bright light on them so issues can be addressed.

Eastward Capital invests in emerging growth technology businesses. Our capital is used to fuel growth. Growth translates into job creation. We don’t explicitly do it to create jobs – that’s just a beneficial side effect. We do it to make money. I like making money – most of my friends do too. As part of our business, we raise capital from limited partners including university endowments, banks and state pension funds. Many state pension funds have programs to invest in firms like Eastward as a way to promote job growth. Yesterday, I spoke with a representative from the Penn. Department of Community and Economic Development. They manage venture investments for the State of Pennsylvania. Here are some of the requirements to get an investment from the state:

  1. Venture Capital or Venture Debt firms must raise $3 of additional investor capital for every $1 that the state invests. That’s a little steep but that’s ok. Keep in mind that all of the money must be invested in Pennsylvania companies.
  2. The firm must have a least one full time senior employee in one of their economic development areas – more on that definition in a minute.
  3. The businesses that ultimately receive the capital must be in the same economic development areas.

 

That all sounds pretty reasonable on the surface, right?

Wrong!

 They define economic development areas specifically to exclude Metropolitan areas with certain population densities which rules out…drum roll please…Philadelphia and Pittsburgh. The problem is that Philly and the Burgh are where all the companies are located. That’s where the universities are located. That’s where the potential educated work-force is located. That’s where the airports are located. Pittsburgh and Philadelphia need jobs too. If you don’t think so, check out the Bureau of Labor Statistics here:

http://www.bls.gov/web/metro/laummtrk.htm

(Think about closed steel plants and once thriving neighborhoods with houses now selling for $25k.)

 

We’d be willing to raise $3 in capital for every $1 of state investment. We’d be willing to invest that capital in Pennsylvania companies to create jobs. We could even recruit a senior person to open an office there. The problem is that after we did all that, we couldn’t put the money to work because technology businesses work in geographic clusters – around metropolitan areas. Technology businesses in our portfolio are creating jobs despite the economic environment.

The State of Pennsylvania has to make it easy for Eastward and others to do exactly what they want us to do – invest in emerging growth businesses. My guess is that the Governor of PA will either force the legislature to amend the program so that it works…or the voters of PA will seek out a new Governor. In the interim, $10 million of allocated capital sits on the sidelines, waiting to be put to work.

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About venturedebt

venture debt firm providing growth capital for emerging growth companies

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Tim O’Loughlin

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