Published July 1, 1997 | July 1997 issue
Partnerships. All of us in the community development field recognize that we will succeed only through partnerships. After all, none of us has the money to do the job alone, and when one sector has tried, such as when the federal government built public housing in the 1960s, the result was not even close to optimal. We all know that community development will work only when all the "stakeholders" have a say in the means and the end.
But partnerships can be messy and time-consuming. Each partner may have a slightly different concept of community development or, at least, of the methods to use to get there.
This article outlines a successful economic development partnership: The Anoka County Economic Development Partnership (ACEDP). Through ACEDP, bankers and other local business leaders, investors, county officials and a local entrepreneur have come together to help launch and nurture businesses.
Anoka County, a suburban county located just north and east of Minneapolis, is predominantly middle income. In Anoka County, 86 percent of the census tracts were classified as middle income as of the 1990 census, compared with 56 percent for the Minneapolis-St. Paul metropolitan statistical area (MSA) as a whole. Only 12 percent of the census tracts in Anoka County were classified as low or moderate income as of the 1990 census, compared with 26 percent for the MSA as a whole. Similarly, only 2 percent of Anoka County tracts were classified as upper income, compared with 19 percent of the tracts for the MSA.
The county is composed of older suburbs, developing outer-ring suburbs and small towns. While the outer-ring suburbs and small towns have prospered, the older suburbs have not kept pace. In one of these suburbs, Columbia Heights, the 1989 median household income was just 83% of the median for the MSA as a whole.
In 1985, a group of Anoka County officials and business leaders got together to decide how to address economic development for the entire county, particularly the older inner-ring communities. One of those leaders was the late Walter Rasmussen, founder of Northeast State Bank in northeast Minneapolis.
According to Rasmussen's son, Ben, "My father believed that small business would be the catalyst for growth in Columbia Heights and the greater Anoka County area. He was a believer that small businesses drive job creation and build community goodwill. With that in mind," says Rasmussen, "he got together with local leaders in the private and public sectors and they came up with the ACEDP." This partnership of government and business continues to be integral to ACEDP and is reflected in the membership of its board of directors, which includes representatives of area corporations, banks, utilities, service groups and public officials.
Since its beginning, ACEDP's focus has been on emerging technologies companies based in Anoka County. The partners thought these companies were likely to create living-wage jobs. The partners also wanted to focus on job creation in Anoka County, not simply enticing existing companies to move from other communities.
As ACEDP gained experience, the partners soon realized that businesses needed two types of help: technical assistance and capital. According to Dave Rader, vice president of commercial loans at Norwest Bank in Anoka and ACEDP board member, "Two important components drive the success of ACEDP programs and activities: the availability of capital and a solid technical-assistance package." He says, "As a commercial lender at Norwest Bank for over 15 years, I've seen many capable small businesses collapse because of inadequate capital or a lack of technical or strategic management advice. Just because a business can generate sales is not an indicator of whether the company will survive." Rader goes on to assert, "A solid business has to be well capitalized, with management understanding the concepts of small business operations. To lenders, good management and sufficient capital are just as important for a company that generates $200,000 in sales as they are for a company with $2 million in sales."
ACEDP currently offers programs and activities that advance its goals and provide technical assistance and capital. Community Dividendhas chosen two ACEDP programs to profile: the Anoka/Sherburne County Capital Fund (ASCCF) and Genesis Business Centers Ltd. ASCCF is a multi-investor community development corporation (CDC) that involves 10 area banks, utility companies and the county in providing equity funding for area small businesses. Genesis is a for-profit business incubator that offers micro businesses technical and managerial assistance, introductions to potential investors and office or industrial space in exchange for stock in the company.
ASCCF is a multi-investor CDC created in 1993 to provide venture capital for small businesses in Anoka County; adjacent Sherburne County small businesses became eligible for funds in 1997. Its stated mission is to stimulate in these counties the development of entrepreneurial ventures, the retention and expansion of existing businesses and the attraction of new business activity consistent with the character of Anoka and Sherburne counties.
According to Roger Jensen, ACEDP executive director and ASCCF manager, "This fund makes small investments in start-up and expanding businesses that are primarily technology-intensive or manufacturing-related. Our average investment is between $25,000 and $50,000, small by the standards of many venture capital firms."
The fund has four goals:
Championed initially by Norwest Bank Minnesota, N.A., Northeast State Bank and Anoka Electric Cooperative, eight local financial institutions and utility companies provided the ASCCF's original funding of $400,000. By the end of 1996, ASCCF had funding of $700,000 and the number of fund members had increased from the original eight investors to 22. By year-end 1997, the CDC expects to have raised $1 million. As of July 1997, the fund has invested in 15 companies. Of these firms, 12 are still in business and have created 60 jobs. ASCCF has not yet generated a cash return to fund investors but expects to do so in about two years.
ASCCF is governed by a board composed of the fund investors. While this board reviews the fund's goals regularly, it does not have authority to approve or deny investments. Instead, it is the ACEDP board of governors that has the final approval authority, guided by the recommendations of the ASCCF Technical and Investment Advisory Committee, a group of 11 experienced investment, financial and technology experts who volunteer their services. Using this approach, potential conflicts of interest between investors and funding recipients are mitigated.
Genesis Business Centers Ltd. is a for-profit business incubator with offices in Columbia Heights and Elk River, Minn. It is owned and operated by Harlan Jacobs, a local corporate finance veteran. Established in 1993, it began its collaboration with ACEDP in 1994. Genesis furnishes office and production space and access to business, technical and financial services in exchange for stock in its incubator companies. Also, because of the relationship Genesis has with ACEDP, small businesses in the incubator are introduced to potential investors, including ASCCF.
In addition to the businesses being nurtured at the incubator, the incubator itself is a business. Its Columbia Heights office is housed in a building that would likely be vacant were it not for having ACEDP and Genesis and its clients as tenants. Thus, an underutilized property was converted to productive use. As incubator tenants "graduate" and begin to pay cash rent, the building becomes a source of economic growth for the county and for Columbia Heights in particular.
During the past four years, Genesis has provided a nurturing environment for entrepreneurs of high-tech, start-up companies. Of the 15 companies that have been tenants of the incubator, seven have graduated and are paying cash rent. These seven companies employed 110 workers as of the end of 1996, and they expect total annual revenues of $6 million in 1997. Jacobs says, "We've tried to create an environment that is comparable to many of the successful corporate projects in which I've been involved." But, he says, "It's not magic. We look for serious entrepreneurs. It does require certain individuals who are determined to succeed and will pour in their life savings and work 80 to 90 hours per week for what they believe in."
One such tenant is Med Link Medical, a manufacturer of surgical microscopes. Med Link founder and Chief Executive Officer Lynn Keller came to the incubator in need of space when her operations had outgrown her garage. In addition to the technical and managerial assistance Keller received from the incubator, Med Link also received investment funds from ASCCF.
According to Keller, who began her business career when she was a widowed mother of five, the services provided as a tenant of the incubator helped her move Med Link Medical into its next growth phase. "Cash flow is a big problem for small businesses, particularly high-tech companies," says Keller. "Being part of the incubator has increased my cash flow and allowed my company to grow."
For more information on Genesis and ACEDP, visit www.genesiscenters.com/ and www.co.anoka.mn.us/EconomicDevelopment/ed-home.asp.