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97-1595Council File # 97—L595 Green Sheet # 0 7 j 2— Presented Referred To RESOLUTION CITY OF SAINT PAUL, MINNESOTA Committee Date 1 A RESOLUTION ACKNOWLEDGING THAT SMAI.L BUSINESS DEVELOPMENT IS VITAL 2 TO THE SUCCESS OF SAINT PAUL AND TAAT SAINT PAUL BUSINESS VEN"i'iJRES, A 3 NEWLY PORMED MINNESOTA NOT-FOR-PROFIT CORPORATION, WILL IDENTIFY 4 GRO WING ENTREPRENEURIAL BUSINESSES AND NURT[JRE Tf�IR GROWTH IN SA1NT 5 PAUL BY PROVIDING TECI-INICAL ASSISTANCE AND A BUSINESS INCUBATOR 6 SETTING THAT FACILITATES THEIR GROWTH 7 WHEREAS, the City of Saint Paul recognizes that the welfare of the city requires the active promotion, 8 attraction, encouragement and development of economically sound industry and commerce through governmental 9 action to prevent emergence of chronic unemployment and of blighted and marginal lands and otherwise prevent 10 economic deterioration; and 11 WHEREAS, the city has ufilized a variety of ineans to accomplish these goals, including the establishment 12 of a housing and redevelopment authoriTy, the creation of tax increment financing districts, the establishment of loan 13 programs, and the creation of the Neighborhood Sales Taa� Revitalization Program (STAR); and 14 WHEREAS, the city finds and determines that promotion, attraction and encouragement of small business 15 growth is a key to the long term success of the city, which continues to ha�e unmet needs to assist these businesses; 16 and 17 WHEREAS, the City's Economic Development Strategy sets forth policies for the city to continue to 18 strengthen business incubator programs and to develop programs to improve access by entrepreneurs to capital for 19 innovative ventures; and 20 WHEREAS, the Citywide Economic Agenda recommends strategies to identify new and existing 21 entrepreneurs in the city to assist them to increase their success ratiq and to introduce entrepreneurs to community 22 leaders and assistance providers; and 23 WHEREAS, the Citywide Economic Agenda also includes strategies and actions whereby the City's 24 Department of Planning and Economic Development will assist private sector partners to develop business 25 incubators, and will support the creation of a private sector seed capital fund; and 26 WHEREAS, the city recognizes that Saint Paul Business Ventures is a newly formed Minnesota not-for- 27 profit arganization whose mission it is to muture entrepreneurial business development and thereby provide the city 28 assistance with respect to this need; and 29 WIIEREAS, the city, through the STAR program has approved fmancial assistance to Saint Paul Business 30 Ventures in recognition of the need to spur the economic growth of small and emerging businesses, conditioned 31 upon certain performance requirements, 97-1595 1 2 3 4 5 6 7 8 9 10 11 NOW, THEREFORE, BE IT RESOLVED, by the Saint Paul City Council as follows: That the city recognizes that the act of promotion, attraction, encouragement and development of small business through govemmental action is pital to the continued growth of the city; 1 That the undertakings of Saint Paul Business V entures wili lessen the burden of government with respect to development and attraction of entrepreneurial businesses; 2. 3. That the ciry has agreed to fund a portion of the activities of Saint Paul Business Ventures through the STAR Program and that Saint Paul Business Ventures will be seeking assistance from foundations and other institutions to support its activities; and 4. That Saint Paul Business Ventures is not an agency or department of the city and shall function independently of the city and shail maintain its status as a Minnesota not-for-profit corporation. 12 13 14 15 16 17 18 19 Adopted by Council: Date � z-z _�3� , 1�{�j4"� Requested by Department of: By: Form Approved by City Attomey By: r�/1 ��SCc r� - f�..Q.f�l�i 20 Adoprion Certified by CouncIl Secretary Approved by Mayor for Submission to Council 21 By: �_�'a �.,�,�.Q.� .� By: 22 Approved by Mayor: Date 23 By: � ��„�. u� � 2 S � . ��I��. 97-1595 .-� �- r7- 97 I GREEN SHEET No 6 0712 '- i�,�.-.c a66 -��f� �.�� _ TBEON ILAGFNDABY(�.4iEJ i� � 30 • i7 ,�'�" ❑�,.,.�. i a a �� a,,.� �� ❑.,�.,��. ,�,�a ❑ IIIbORI�/1inRAlli) ❑ TOTAL # OF SIGNATURE PAGES (CL.IP ALL LOCATIONS FOR SIGNATURE) ��.�.��.�., ��-.� ��-�-�� ,� ,�,�- P� �� /�..�� . PLANNING CAMMISSION CIB COMMITTEE CIVIL SERVICE CAMMISSION RSONAL SEItVICE CONTRACfS MUST ANSWER iHE FOLLAWING QUESiIONS: Hffi thlG pEfBtN�rt11 EV¢(NOlI(80 UlMM 8 CO(1h2Cf fOf �8 dEpBfflfiEYll7 YES NO Has ihie D��rm eoer 6een a citY emPbYee� YE3 NO Does this pefboNfirtn possess a s16N not normallypossessed by airy curreM dty employee7 YES NO Is this pe�eo'Jf rtn a ta�geted vendoR . rES wo antl attach to areen sheet IF APPROVEA ' DISqDVANTAGES IF NO7 APPROVEC TOTALAMOUNTOFTRANSACTION FUNDING SOURCE FltiANCWi ItiFORMAS1oN (o6MAw) (qRCLE ONE) YES NO ACiNITY NUMBER ` . „ L Table of Contents 1. Executive Summary 2. Incubator Space 3. Venture Capital Fund 4. Start Up Company Pro�le 5. Funding Sources 6. Management 7. Organizational Diagram Q � - ►5q 5 � ��` q��15 Executive Summary Saint Paul Business Ventures, Inc. is a newly formed corporation created to encourage the establishment of early stage, high tech businesses in Saint Paul. The two main activities of Saint Paul Business Ventures will include: 1. Incubator Space: Saint Paul Business Ventures will establish and operate an incubator facility for eazly stage, high tech companies. Saint Paul Business Ventures will enter a master lease agreement for 10,000 to 15,000 square feet of space from an independent third parry landlord. Saint Paul Business Ventures will in tum sublease this space to various qualified businesses that will establish operations in the incubator facility (the incubator businesses). The incubator businesses will pay rent, in the form of both cash and stock to Saint Paul Business Ventures; the cash will be a small component of the rent in order to make the space highly amactive. 2. Venture Capital Fund: Saint Paul Business Ventures, Inc., will establish and manage Saint Paul Capital Fund, a to-be-formed equity fund that will invest in companies that are in, or will be located in, Saint Paul. The Saint Paul Capital Fund will be a multi-bank, multi-investor community development corparation (CDC) that will function as a venture capital fund operating on a for profit basis. It would be established as a lunited liability company (LLC) for tax purposes. In addition to providing an investment vehicle for seed capital companies, it will provide its shareholders with an excellent opportunity by which to fulfill both the letter and the spirit of the law in respect of the Communiry Reinvestment Act (CRA). The goal is to establish the fund with a minimum initial capitalization of $1 million. Management Saint Paul Business Ventures will enter a management services contract with Genesis Business Centers, Ltd. (Genesis) and with Welsh Companies to operate the incubator facility and to assist in the mauagement duties for the equity fund. A flow chart diagramming the relationships is attached. Funding Sources Capital Improvements: The City of Saint Paul admiiusters the STAR program, which wIll fund the tenant (leasehold) improvements for the incubator facility. Initial Operating F�wds: Foundations are expected to provide the initial funding for the operations of the incubatar. This funding will make it possible for Saint Paul Business Ventures to retain the services of Genesis Business Centers and Welsh Companies to establish and manage the incubatar program and the venture capital fund. _ 4�� ►�5 Venture Capital Fund: I.ending institutions such as banks and credit unions, utiliry companies, and foundations, among others, will be approached to fund the venture capital fund with an initial capitalization of $1 million. The fund will be used to invest in those qualified companies that are selected to enter the incubator program as well as other qualified firms that are located in or agree to re-locate into Saint Paul. Board of Directors The Board will representthe public sector and private sector collaboration necessary to make this project successful. It wIll be made up of twelve members including venture capital professionals, civic leaders from the Saint Paul community, and business leaders from the Saint Paul corporate and professional community. Start Up Company Profile There are five major criteria by which applicants will be judged for both programs. Management: Most unportantly, the management capabilities and reputation of the managers must first be considered prior to any further consideration of the opportunity. Profitability: The company must be judged as being capable of earning gross margins in the range of sixty percent. Proprietary Position: The above descried levels of minimum profitability can only be achieved and maintained long-term if the company possesses technology andlor knowledge that is proprietary. Sales Volume: The company must be judged as being capable of having annual sales of at least $10 million and preferably closer to $20 million within five years of the date of its entrance into the incubator program. E�t Strategy: The company must therefore make a meaningful commitment on the part of its founders, its managers, and its board of d'uectors to "go public" within five to seven years of the date at which it enter the incubator program. � � q�-I�5 Incubator Space Saint Paul Business Ventures will lease space of approximately 10,000 to 15,000 square feet from a third party landlord. Saint Paul Business Ventures will in turn sublease the space to incubator businesses. The incubator businesses will pay rent, in the form of cash and stock to Saint Paul Business Ventures, which will then make payments to the landlord. In view of the availability of the funding from the STAR program for leasehold improvements in the building to be occupied by the incubator program, it is expected that the landlord will make favorable concessions over a term of between five and ten years. These concessions will make it possible for the incubator to take only a small fraction of the rent in cash; the balance will be accepted in the form of the common stock or the equity securiues of the incubator companies. When these companies succeed and their common stock becomes valuable, the non profit will have the benefit of its own built-in endowment program. Over the long-term, this can help to make the non profit self-sustaining. It should also provide a reasonable return to the STAR program in respect of the investment it is making. Additionally, the ability of the company to barter its common stock (or other equity securities) for a substantial portion of the rent, should also be a very attractive feature to these start up businesses. Saint Paul Business Ventures will be responsible for making the rental payments to the landlord. It is expected that favorable terms will be obtained from the landlord as a result of the special funding for leasehold improvements funded through the STAR program. Several sites in Saint Paul area are being considered and final selection will be made in December, 1997. One of the sites is at 550 Vandalia, at the corner of I-94 and Vandalia in Saint Paul's Midway area. The fmal site will be driven by the economics of the lease terms and its marketability to the entrepreneurial firms. ' q�-15�5 Venture Capital Fund The Saint Paul Capital Fund will be a multi-bank, mulri-investor communiry development corporation that will function as a vennue capital fund operating on a for profit basis. It would be established as a limited liability company. In addltion to providing an investment vehicle for seed capital companies, it will provide banks with an excellent opportunity in which to fulfill both the letter and the spirit of the law in respect of the Community Reinvestment Act (CRA). Genesis will organize the enrity, explain its benefits and purposes to the prospective communiry based institutions, which will include banks and insurance companies as well as to trust managers and accredited individual investors in order to achieve a min;T„um initial capitalization of $1 million. It is anticipated that most of the companies that will qualify for investment from this fund will be start-ups from the Saint Paul area that will move into the above described incubator facility. The vencure capital fund will have the opportunity to invest in firms located in the incubator as well as other quali£ied Saint Paul based companies that need seed capital. Firms receiving funding will be required to remain in Saint Paul for Five years or pay a financial penalty if they faii to honor their commitments. The stock paid by the incubatar business will in turn be allocated as follows: • Saint Paul Business Ventures will receive a portion of the stock in order to help fund its own long-term operations. • STAR Program will receive a portion of the stock in order to repay its grants and loans in the nature of a payment in kind (PIK) program. This will also provide the City of Saint Paul with the "upside". If one of the ten to twenty companies that are helped has the good fortune to become the next Medtronic, then the STAR Program and the City of Saint Paul would have a substantial endowment that could be utilized to fund further economic development efforts. • Genesis Business Centers, Ltd. will receive a portion of the stock in order to provide substantial incentives in respect of its tasks of identifying, qualifying, recommending, and nurturing these companies over the years. It is intended that by having a substantial portion of the compensation that Genesis receives being tied to the long-term success of the companies, then goal congruence is established among the parties. When the City of Saint Paul benefits from the jobs and the endowment that has been created and when Saint Paul Business Ventures snnilarly benefits, then so too will Genesis benefit. . q� i�q5 Genesis and Welsh will each receive an annual management fee during the first two years. This would be paid by Saint Paul Business Ventures from the foundation funding that it receives. Any management fees beyond the first two years would be at the mutual agreement of the parties. Welsh will provide construcrion management services necessary to make the tenant and leasehold improvements. Welsh Companies will also provide Saint Paul Business Ventures with general adminstrauve services including negotiating leases, paying bills, janitorial service within the incubator space, convening meetings and other adminstrative tasks. ., a� - ��5 Start Up Company Profile There are five major criteria by which applicants will be judged for both programs. These criteria are based upon years of eJCperience in the field of seed capital investment as well as in the management of incubator facilities and incubator companies. Management: Most importanfly, the management capabilities and reputation of the managers must fust be considered priar to any further consideration of the opportunity. Three key factors require assessment: *Integrity *Ability *Resourcefulness The personal integrity of the management team is very important. The individuals who are among the founders and mangers of the business must enjoy good reputations for honesty and fair dealing. The ability of the managers is critically important. A demonstrated track record of achievement in one or more fields must be shown in order to gain confidence that this new enterprise could be successful as well. The resourcefulness of the managers must be documented. They must have a track record of proven performance in accomplishing much with only minimal resources. A management team that possesses high marks in each of these three categories would pass the first test. Pro�tability: The company must be yudged as being capable of earning gross margins in the range of sixty percent. These levels of margin are necessary as high tech, start up companies tend to have very high overhead levels when compared to ordinary small businesses. Proprietary Position: The above described levels of minimum profitability can only be achieved and maintained long-term if the company possesses technology and/or lrnowledge that is proprietary. That proprietary technology must be capable of being defended against competitors by means of patents ar trade secrets or both. Accordingly, the company must be judged as being capable of erecting sufficient barriers to entry employing one or more of these means in order to protect its proprietary technology and position. Sales Volume: The company must be judged as being capable of having annual sales of at least $ 10 million and preferably closer to $ 20 million within five years of the date of its entrance into the incubator program (or the receipt of funding). This is necessary in order to assure that the company can achieve significant levels of profits in absolute terms from the above described siYty percent gross mazgins. Exit Strategy: Investors require some clear sense of the way in which their investment capital will be returned to them. The company must therefore make a meaningful _ � --� q�-1�35 commitment on the part of its founders, its managers, and its board of directors to "go public" (i.e., make an Initial Public Offering of its common stock through an investment banker) within five to seven years of the date at which it enter the incubator program (or the receipt of funding). Alternately, the company must commit to either grooming the company for sale to a third party within a comparable time frame or to pay significant dividends to shareholders once viability is achieved in order to provide alternarive exit paths for capital recovery. � �_- 4�-1595 Funding Sources Capital Improvements: The City of Saint Paul administers the STAR program, which will fund the tenant (leasehold) improvements for the incubator facility. Initial Operating Funds: Foundations are expected to provide the initial funding for the operauons of the incubator. This funding will make it possible for Saint Paul Business Ventures to retain the services of Genesis Business Centers and Welsh Companies to establish and manage the incubator program and the venture capital fund. Venture Capital Fund: I,ending institutions such as banks and credit unions, utility companies, and foundations among others will be approached to fund the venture capital fund with an initial capitalization of $1 million. The fund will be used to invest in those qualified companies that are selected to enter the incubator program as well as other qualified firms that are located in or agree to re-locate into Saint Paul. � � 4• ,-� � q�-15q5 Management Saint Paul Business Ventures will contract with Genesis Business Centers and Welsh Companies to operate the corporation and manage the equity fund. Genesis Business Centers is a private, for profit, company that provides incubator management services. Genesis will coordinate these two resources in order to help new businesses to be established. Harlan 7acobs, the President and majority owner of Genesis will be primarily involved in the fulfillment of the above described management duties. His success in this field is well documented in various newspaper and magazine articles that are provided in the attached appendix. Recently, the Federal Reserve Bank of Minneapolis published a higlily complimentary article describing the role that Genesis played in the management of another successful public sectorlprivate sector collaboration such as is being proposed here. Welsh Companies is one of the Twin cities largest full service real estate companies, managing a portfolio of 14 million square feet of commercial space, and providing property management, brokerage, architectural, construction and consulting services to its clients. David Stokes, Senior Associate in the Corporate Real Estate Services Group will be the key contact at Welsh. David also brings his 10 years of economic development work in Saint Paul with Welsh Companies. Saint Paul Business Ventures is intends to utilize the services of Wendy Runge, the principal of CR Industries, Inc., as its fund raising consultant. CR Tndustries will apply for grants from several local foundations, including The McKnight Foundation, that have expressed interest in this seed capital incubator concept. CR Industries will seek comparable funding from The McKnight Founda6on and other foundations along the same lines as it did earlier this year with respect to the $70,000 funding grant that the McKnight Foundation granted to the Anoka County Economic Development Partnership for a comparable program. Saint Paul Business Ventures, Incorporated has applied for 501(c)(3) status from the Internal Revenue Service. This status will help it to receive grants and other special funding sources. Until such time as the status is granted, Saint Paul Business Ventures wIll operate as a non profit corporarion. f.icorpservldslproposallspbvsum2.doc Council File # 97—L595 Green Sheet # 0 7 j 2— Presented Referred To RESOLUTION CITY OF SAINT PAUL, MINNESOTA Committee Date 1 A RESOLUTION ACKNOWLEDGING THAT SMAI.L BUSINESS DEVELOPMENT IS VITAL 2 TO THE SUCCESS OF SAINT PAUL AND TAAT SAINT PAUL BUSINESS VEN"i'iJRES, A 3 NEWLY PORMED MINNESOTA NOT-FOR-PROFIT CORPORATION, WILL IDENTIFY 4 GRO WING ENTREPRENEURIAL BUSINESSES AND NURT[JRE Tf�IR GROWTH IN SA1NT 5 PAUL BY PROVIDING TECI-INICAL ASSISTANCE AND A BUSINESS INCUBATOR 6 SETTING THAT FACILITATES THEIR GROWTH 7 WHEREAS, the City of Saint Paul recognizes that the welfare of the city requires the active promotion, 8 attraction, encouragement and development of economically sound industry and commerce through governmental 9 action to prevent emergence of chronic unemployment and of blighted and marginal lands and otherwise prevent 10 economic deterioration; and 11 WHEREAS, the city has ufilized a variety of ineans to accomplish these goals, including the establishment 12 of a housing and redevelopment authoriTy, the creation of tax increment financing districts, the establishment of loan 13 programs, and the creation of the Neighborhood Sales Taa� Revitalization Program (STAR); and 14 WHEREAS, the city finds and determines that promotion, attraction and encouragement of small business 15 growth is a key to the long term success of the city, which continues to ha�e unmet needs to assist these businesses; 16 and 17 WHEREAS, the City's Economic Development Strategy sets forth policies for the city to continue to 18 strengthen business incubator programs and to develop programs to improve access by entrepreneurs to capital for 19 innovative ventures; and 20 WHEREAS, the Citywide Economic Agenda recommends strategies to identify new and existing 21 entrepreneurs in the city to assist them to increase their success ratiq and to introduce entrepreneurs to community 22 leaders and assistance providers; and 23 WHEREAS, the Citywide Economic Agenda also includes strategies and actions whereby the City's 24 Department of Planning and Economic Development will assist private sector partners to develop business 25 incubators, and will support the creation of a private sector seed capital fund; and 26 WHEREAS, the city recognizes that Saint Paul Business Ventures is a newly formed Minnesota not-for- 27 profit arganization whose mission it is to muture entrepreneurial business development and thereby provide the city 28 assistance with respect to this need; and 29 WIIEREAS, the city, through the STAR program has approved fmancial assistance to Saint Paul Business 30 Ventures in recognition of the need to spur the economic growth of small and emerging businesses, conditioned 31 upon certain performance requirements, 97-1595 1 2 3 4 5 6 7 8 9 10 11 NOW, THEREFORE, BE IT RESOLVED, by the Saint Paul City Council as follows: That the city recognizes that the act of promotion, attraction, encouragement and development of small business through govemmental action is pital to the continued growth of the city; 1 That the undertakings of Saint Paul Business V entures wili lessen the burden of government with respect to development and attraction of entrepreneurial businesses; 2. 3. That the ciry has agreed to fund a portion of the activities of Saint Paul Business Ventures through the STAR Program and that Saint Paul Business Ventures will be seeking assistance from foundations and other institutions to support its activities; and 4. That Saint Paul Business Ventures is not an agency or department of the city and shall function independently of the city and shail maintain its status as a Minnesota not-for-profit corporation. 12 13 14 15 16 17 18 19 Adopted by Council: Date � z-z _�3� , 1�{�j4"� Requested by Department of: By: Form Approved by City Attomey By: r�/1 ��SCc r� - f�..Q.f�l�i 20 Adoprion Certified by CouncIl Secretary Approved by Mayor for Submission to Council 21 By: �_�'a �.,�,�.Q.� .� By: 22 Approved by Mayor: Date 23 By: � ��„�. u� � 2 S � . ��I��. 97-1595 .-� �- r7- 97 I GREEN SHEET No 6 0712 '- i�,�.-.c a66 -��f� �.�� _ TBEON ILAGFNDABY(�.4iEJ i� � 30 • i7 ,�'�" ❑�,.,.�. i a a �� a,,.� �� ❑.,�.,��. ,�,�a ❑ IIIbORI�/1inRAlli) ❑ TOTAL # OF SIGNATURE PAGES (CL.IP ALL LOCATIONS FOR SIGNATURE) ��.�.��.�., ��-.� ��-�-�� ,� ,�,�- P� �� /�..�� . PLANNING CAMMISSION CIB COMMITTEE CIVIL SERVICE CAMMISSION RSONAL SEItVICE CONTRACfS MUST ANSWER iHE FOLLAWING QUESiIONS: Hffi thlG pEfBtN�rt11 EV¢(NOlI(80 UlMM 8 CO(1h2Cf fOf �8 dEpBfflfiEYll7 YES NO Has ihie D��rm eoer 6een a citY emPbYee� YE3 NO Does this pefboNfirtn possess a s16N not normallypossessed by airy curreM dty employee7 YES NO Is this pe�eo'Jf rtn a ta�geted vendoR . rES wo antl attach to areen sheet IF APPROVEA ' DISqDVANTAGES IF NO7 APPROVEC TOTALAMOUNTOFTRANSACTION FUNDING SOURCE FltiANCWi ItiFORMAS1oN (o6MAw) (qRCLE ONE) YES NO ACiNITY NUMBER ` . „ L Table of Contents 1. Executive Summary 2. Incubator Space 3. Venture Capital Fund 4. Start Up Company Pro�le 5. Funding Sources 6. Management 7. Organizational Diagram Q � - ►5q 5 � ��` q��15 Executive Summary Saint Paul Business Ventures, Inc. is a newly formed corporation created to encourage the establishment of early stage, high tech businesses in Saint Paul. The two main activities of Saint Paul Business Ventures will include: 1. Incubator Space: Saint Paul Business Ventures will establish and operate an incubator facility for eazly stage, high tech companies. Saint Paul Business Ventures will enter a master lease agreement for 10,000 to 15,000 square feet of space from an independent third parry landlord. Saint Paul Business Ventures will in tum sublease this space to various qualified businesses that will establish operations in the incubator facility (the incubator businesses). The incubator businesses will pay rent, in the form of both cash and stock to Saint Paul Business Ventures; the cash will be a small component of the rent in order to make the space highly amactive. 2. Venture Capital Fund: Saint Paul Business Ventures, Inc., will establish and manage Saint Paul Capital Fund, a to-be-formed equity fund that will invest in companies that are in, or will be located in, Saint Paul. The Saint Paul Capital Fund will be a multi-bank, multi-investor community development corparation (CDC) that will function as a venture capital fund operating on a for profit basis. It would be established as a lunited liability company (LLC) for tax purposes. In addition to providing an investment vehicle for seed capital companies, it will provide its shareholders with an excellent opportunity by which to fulfill both the letter and the spirit of the law in respect of the Communiry Reinvestment Act (CRA). The goal is to establish the fund with a minimum initial capitalization of $1 million. Management Saint Paul Business Ventures will enter a management services contract with Genesis Business Centers, Ltd. (Genesis) and with Welsh Companies to operate the incubator facility and to assist in the mauagement duties for the equity fund. A flow chart diagramming the relationships is attached. Funding Sources Capital Improvements: The City of Saint Paul admiiusters the STAR program, which wIll fund the tenant (leasehold) improvements for the incubator facility. Initial Operating F�wds: Foundations are expected to provide the initial funding for the operations of the incubatar. This funding will make it possible for Saint Paul Business Ventures to retain the services of Genesis Business Centers and Welsh Companies to establish and manage the incubatar program and the venture capital fund. _ 4�� ►�5 Venture Capital Fund: I.ending institutions such as banks and credit unions, utiliry companies, and foundations, among others, will be approached to fund the venture capital fund with an initial capitalization of $1 million. The fund will be used to invest in those qualified companies that are selected to enter the incubator program as well as other qualified firms that are located in or agree to re-locate into Saint Paul. Board of Directors The Board will representthe public sector and private sector collaboration necessary to make this project successful. It wIll be made up of twelve members including venture capital professionals, civic leaders from the Saint Paul community, and business leaders from the Saint Paul corporate and professional community. Start Up Company Profile There are five major criteria by which applicants will be judged for both programs. Management: Most unportantly, the management capabilities and reputation of the managers must first be considered prior to any further consideration of the opportunity. Profitability: The company must be judged as being capable of earning gross margins in the range of sixty percent. Proprietary Position: The above descried levels of minimum profitability can only be achieved and maintained long-term if the company possesses technology andlor knowledge that is proprietary. Sales Volume: The company must be judged as being capable of having annual sales of at least $10 million and preferably closer to $20 million within five years of the date of its entrance into the incubator program. E�t Strategy: The company must therefore make a meaningful commitment on the part of its founders, its managers, and its board of d'uectors to "go public" within five to seven years of the date at which it enter the incubator program. � � q�-I�5 Incubator Space Saint Paul Business Ventures will lease space of approximately 10,000 to 15,000 square feet from a third party landlord. Saint Paul Business Ventures will in turn sublease the space to incubator businesses. The incubator businesses will pay rent, in the form of cash and stock to Saint Paul Business Ventures, which will then make payments to the landlord. In view of the availability of the funding from the STAR program for leasehold improvements in the building to be occupied by the incubator program, it is expected that the landlord will make favorable concessions over a term of between five and ten years. These concessions will make it possible for the incubator to take only a small fraction of the rent in cash; the balance will be accepted in the form of the common stock or the equity securiues of the incubator companies. When these companies succeed and their common stock becomes valuable, the non profit will have the benefit of its own built-in endowment program. Over the long-term, this can help to make the non profit self-sustaining. It should also provide a reasonable return to the STAR program in respect of the investment it is making. Additionally, the ability of the company to barter its common stock (or other equity securities) for a substantial portion of the rent, should also be a very attractive feature to these start up businesses. Saint Paul Business Ventures will be responsible for making the rental payments to the landlord. It is expected that favorable terms will be obtained from the landlord as a result of the special funding for leasehold improvements funded through the STAR program. Several sites in Saint Paul area are being considered and final selection will be made in December, 1997. One of the sites is at 550 Vandalia, at the corner of I-94 and Vandalia in Saint Paul's Midway area. The fmal site will be driven by the economics of the lease terms and its marketability to the entrepreneurial firms. ' q�-15�5 Venture Capital Fund The Saint Paul Capital Fund will be a multi-bank, mulri-investor communiry development corporation that will function as a vennue capital fund operating on a for profit basis. It would be established as a limited liability company. In addltion to providing an investment vehicle for seed capital companies, it will provide banks with an excellent opportunity in which to fulfill both the letter and the spirit of the law in respect of the Community Reinvestment Act (CRA). Genesis will organize the enrity, explain its benefits and purposes to the prospective communiry based institutions, which will include banks and insurance companies as well as to trust managers and accredited individual investors in order to achieve a min;T„um initial capitalization of $1 million. It is anticipated that most of the companies that will qualify for investment from this fund will be start-ups from the Saint Paul area that will move into the above described incubator facility. The vencure capital fund will have the opportunity to invest in firms located in the incubator as well as other quali£ied Saint Paul based companies that need seed capital. Firms receiving funding will be required to remain in Saint Paul for Five years or pay a financial penalty if they faii to honor their commitments. The stock paid by the incubatar business will in turn be allocated as follows: • Saint Paul Business Ventures will receive a portion of the stock in order to help fund its own long-term operations. • STAR Program will receive a portion of the stock in order to repay its grants and loans in the nature of a payment in kind (PIK) program. This will also provide the City of Saint Paul with the "upside". If one of the ten to twenty companies that are helped has the good fortune to become the next Medtronic, then the STAR Program and the City of Saint Paul would have a substantial endowment that could be utilized to fund further economic development efforts. • Genesis Business Centers, Ltd. will receive a portion of the stock in order to provide substantial incentives in respect of its tasks of identifying, qualifying, recommending, and nurturing these companies over the years. It is intended that by having a substantial portion of the compensation that Genesis receives being tied to the long-term success of the companies, then goal congruence is established among the parties. When the City of Saint Paul benefits from the jobs and the endowment that has been created and when Saint Paul Business Ventures snnilarly benefits, then so too will Genesis benefit. . q� i�q5 Genesis and Welsh will each receive an annual management fee during the first two years. This would be paid by Saint Paul Business Ventures from the foundation funding that it receives. Any management fees beyond the first two years would be at the mutual agreement of the parties. Welsh will provide construcrion management services necessary to make the tenant and leasehold improvements. Welsh Companies will also provide Saint Paul Business Ventures with general adminstrauve services including negotiating leases, paying bills, janitorial service within the incubator space, convening meetings and other adminstrative tasks. ., a� - ��5 Start Up Company Profile There are five major criteria by which applicants will be judged for both programs. These criteria are based upon years of eJCperience in the field of seed capital investment as well as in the management of incubator facilities and incubator companies. Management: Most importanfly, the management capabilities and reputation of the managers must fust be considered priar to any further consideration of the opportunity. Three key factors require assessment: *Integrity *Ability *Resourcefulness The personal integrity of the management team is very important. The individuals who are among the founders and mangers of the business must enjoy good reputations for honesty and fair dealing. The ability of the managers is critically important. A demonstrated track record of achievement in one or more fields must be shown in order to gain confidence that this new enterprise could be successful as well. The resourcefulness of the managers must be documented. They must have a track record of proven performance in accomplishing much with only minimal resources. A management team that possesses high marks in each of these three categories would pass the first test. Pro�tability: The company must be yudged as being capable of earning gross margins in the range of sixty percent. These levels of margin are necessary as high tech, start up companies tend to have very high overhead levels when compared to ordinary small businesses. Proprietary Position: The above described levels of minimum profitability can only be achieved and maintained long-term if the company possesses technology and/or lrnowledge that is proprietary. That proprietary technology must be capable of being defended against competitors by means of patents ar trade secrets or both. Accordingly, the company must be judged as being capable of erecting sufficient barriers to entry employing one or more of these means in order to protect its proprietary technology and position. Sales Volume: The company must be judged as being capable of having annual sales of at least $ 10 million and preferably closer to $ 20 million within five years of the date of its entrance into the incubator program (or the receipt of funding). This is necessary in order to assure that the company can achieve significant levels of profits in absolute terms from the above described siYty percent gross mazgins. Exit Strategy: Investors require some clear sense of the way in which their investment capital will be returned to them. The company must therefore make a meaningful _ � --� q�-1�35 commitment on the part of its founders, its managers, and its board of directors to "go public" (i.e., make an Initial Public Offering of its common stock through an investment banker) within five to seven years of the date at which it enter the incubator program (or the receipt of funding). Alternately, the company must commit to either grooming the company for sale to a third party within a comparable time frame or to pay significant dividends to shareholders once viability is achieved in order to provide alternarive exit paths for capital recovery. � �_- 4�-1595 Funding Sources Capital Improvements: The City of Saint Paul administers the STAR program, which will fund the tenant (leasehold) improvements for the incubator facility. Initial Operating Funds: Foundations are expected to provide the initial funding for the operauons of the incubator. This funding will make it possible for Saint Paul Business Ventures to retain the services of Genesis Business Centers and Welsh Companies to establish and manage the incubator program and the venture capital fund. Venture Capital Fund: I,ending institutions such as banks and credit unions, utility companies, and foundations among others will be approached to fund the venture capital fund with an initial capitalization of $1 million. The fund will be used to invest in those qualified companies that are selected to enter the incubator program as well as other qualified firms that are located in or agree to re-locate into Saint Paul. � � 4• ,-� � q�-15q5 Management Saint Paul Business Ventures will contract with Genesis Business Centers and Welsh Companies to operate the corporation and manage the equity fund. Genesis Business Centers is a private, for profit, company that provides incubator management services. Genesis will coordinate these two resources in order to help new businesses to be established. Harlan 7acobs, the President and majority owner of Genesis will be primarily involved in the fulfillment of the above described management duties. His success in this field is well documented in various newspaper and magazine articles that are provided in the attached appendix. Recently, the Federal Reserve Bank of Minneapolis published a higlily complimentary article describing the role that Genesis played in the management of another successful public sectorlprivate sector collaboration such as is being proposed here. Welsh Companies is one of the Twin cities largest full service real estate companies, managing a portfolio of 14 million square feet of commercial space, and providing property management, brokerage, architectural, construction and consulting services to its clients. David Stokes, Senior Associate in the Corporate Real Estate Services Group will be the key contact at Welsh. David also brings his 10 years of economic development work in Saint Paul with Welsh Companies. Saint Paul Business Ventures is intends to utilize the services of Wendy Runge, the principal of CR Industries, Inc., as its fund raising consultant. CR Tndustries will apply for grants from several local foundations, including The McKnight Foundation, that have expressed interest in this seed capital incubator concept. CR Industries will seek comparable funding from The McKnight Founda6on and other foundations along the same lines as it did earlier this year with respect to the $70,000 funding grant that the McKnight Foundation granted to the Anoka County Economic Development Partnership for a comparable program. Saint Paul Business Ventures, Incorporated has applied for 501(c)(3) status from the Internal Revenue Service. This status will help it to receive grants and other special funding sources. Until such time as the status is granted, Saint Paul Business Ventures wIll operate as a non profit corporarion. f.icorpservldslproposallspbvsum2.doc Council File # 97—L595 Green Sheet # 0 7 j 2— Presented Referred To RESOLUTION CITY OF SAINT PAUL, MINNESOTA Committee Date 1 A RESOLUTION ACKNOWLEDGING THAT SMAI.L BUSINESS DEVELOPMENT IS VITAL 2 TO THE SUCCESS OF SAINT PAUL AND TAAT SAINT PAUL BUSINESS VEN"i'iJRES, A 3 NEWLY PORMED MINNESOTA NOT-FOR-PROFIT CORPORATION, WILL IDENTIFY 4 GRO WING ENTREPRENEURIAL BUSINESSES AND NURT[JRE Tf�IR GROWTH IN SA1NT 5 PAUL BY PROVIDING TECI-INICAL ASSISTANCE AND A BUSINESS INCUBATOR 6 SETTING THAT FACILITATES THEIR GROWTH 7 WHEREAS, the City of Saint Paul recognizes that the welfare of the city requires the active promotion, 8 attraction, encouragement and development of economically sound industry and commerce through governmental 9 action to prevent emergence of chronic unemployment and of blighted and marginal lands and otherwise prevent 10 economic deterioration; and 11 WHEREAS, the city has ufilized a variety of ineans to accomplish these goals, including the establishment 12 of a housing and redevelopment authoriTy, the creation of tax increment financing districts, the establishment of loan 13 programs, and the creation of the Neighborhood Sales Taa� Revitalization Program (STAR); and 14 WHEREAS, the city finds and determines that promotion, attraction and encouragement of small business 15 growth is a key to the long term success of the city, which continues to ha�e unmet needs to assist these businesses; 16 and 17 WHEREAS, the City's Economic Development Strategy sets forth policies for the city to continue to 18 strengthen business incubator programs and to develop programs to improve access by entrepreneurs to capital for 19 innovative ventures; and 20 WHEREAS, the Citywide Economic Agenda recommends strategies to identify new and existing 21 entrepreneurs in the city to assist them to increase their success ratiq and to introduce entrepreneurs to community 22 leaders and assistance providers; and 23 WHEREAS, the Citywide Economic Agenda also includes strategies and actions whereby the City's 24 Department of Planning and Economic Development will assist private sector partners to develop business 25 incubators, and will support the creation of a private sector seed capital fund; and 26 WHEREAS, the city recognizes that Saint Paul Business Ventures is a newly formed Minnesota not-for- 27 profit arganization whose mission it is to muture entrepreneurial business development and thereby provide the city 28 assistance with respect to this need; and 29 WIIEREAS, the city, through the STAR program has approved fmancial assistance to Saint Paul Business 30 Ventures in recognition of the need to spur the economic growth of small and emerging businesses, conditioned 31 upon certain performance requirements, 97-1595 1 2 3 4 5 6 7 8 9 10 11 NOW, THEREFORE, BE IT RESOLVED, by the Saint Paul City Council as follows: That the city recognizes that the act of promotion, attraction, encouragement and development of small business through govemmental action is pital to the continued growth of the city; 1 That the undertakings of Saint Paul Business V entures wili lessen the burden of government with respect to development and attraction of entrepreneurial businesses; 2. 3. That the ciry has agreed to fund a portion of the activities of Saint Paul Business Ventures through the STAR Program and that Saint Paul Business Ventures will be seeking assistance from foundations and other institutions to support its activities; and 4. That Saint Paul Business Ventures is not an agency or department of the city and shall function independently of the city and shail maintain its status as a Minnesota not-for-profit corporation. 12 13 14 15 16 17 18 19 Adopted by Council: Date � z-z _�3� , 1�{�j4"� Requested by Department of: By: Form Approved by City Attomey By: r�/1 ��SCc r� - f�..Q.f�l�i 20 Adoprion Certified by CouncIl Secretary Approved by Mayor for Submission to Council 21 By: �_�'a �.,�,�.Q.� .� By: 22 Approved by Mayor: Date 23 By: � ��„�. u� � 2 S � . ��I��. 97-1595 .-� �- r7- 97 I GREEN SHEET No 6 0712 '- i�,�.-.c a66 -��f� �.�� _ TBEON ILAGFNDABY(�.4iEJ i� � 30 • i7 ,�'�" ❑�,.,.�. i a a �� a,,.� �� ❑.,�.,��. ,�,�a ❑ IIIbORI�/1inRAlli) ❑ TOTAL # OF SIGNATURE PAGES (CL.IP ALL LOCATIONS FOR SIGNATURE) ��.�.��.�., ��-.� ��-�-�� ,� ,�,�- P� �� /�..�� . PLANNING CAMMISSION CIB COMMITTEE CIVIL SERVICE CAMMISSION RSONAL SEItVICE CONTRACfS MUST ANSWER iHE FOLLAWING QUESiIONS: Hffi thlG pEfBtN�rt11 EV¢(NOlI(80 UlMM 8 CO(1h2Cf fOf �8 dEpBfflfiEYll7 YES NO Has ihie D��rm eoer 6een a citY emPbYee� YE3 NO Does this pefboNfirtn possess a s16N not normallypossessed by airy curreM dty employee7 YES NO Is this pe�eo'Jf rtn a ta�geted vendoR . rES wo antl attach to areen sheet IF APPROVEA ' DISqDVANTAGES IF NO7 APPROVEC TOTALAMOUNTOFTRANSACTION FUNDING SOURCE FltiANCWi ItiFORMAS1oN (o6MAw) (qRCLE ONE) YES NO ACiNITY NUMBER ` . „ L Table of Contents 1. Executive Summary 2. Incubator Space 3. Venture Capital Fund 4. Start Up Company Pro�le 5. Funding Sources 6. Management 7. Organizational Diagram Q � - ►5q 5 � ��` q��15 Executive Summary Saint Paul Business Ventures, Inc. is a newly formed corporation created to encourage the establishment of early stage, high tech businesses in Saint Paul. The two main activities of Saint Paul Business Ventures will include: 1. Incubator Space: Saint Paul Business Ventures will establish and operate an incubator facility for eazly stage, high tech companies. Saint Paul Business Ventures will enter a master lease agreement for 10,000 to 15,000 square feet of space from an independent third parry landlord. Saint Paul Business Ventures will in tum sublease this space to various qualified businesses that will establish operations in the incubator facility (the incubator businesses). The incubator businesses will pay rent, in the form of both cash and stock to Saint Paul Business Ventures; the cash will be a small component of the rent in order to make the space highly amactive. 2. Venture Capital Fund: Saint Paul Business Ventures, Inc., will establish and manage Saint Paul Capital Fund, a to-be-formed equity fund that will invest in companies that are in, or will be located in, Saint Paul. The Saint Paul Capital Fund will be a multi-bank, multi-investor community development corparation (CDC) that will function as a venture capital fund operating on a for profit basis. It would be established as a lunited liability company (LLC) for tax purposes. In addition to providing an investment vehicle for seed capital companies, it will provide its shareholders with an excellent opportunity by which to fulfill both the letter and the spirit of the law in respect of the Communiry Reinvestment Act (CRA). The goal is to establish the fund with a minimum initial capitalization of $1 million. Management Saint Paul Business Ventures will enter a management services contract with Genesis Business Centers, Ltd. (Genesis) and with Welsh Companies to operate the incubator facility and to assist in the mauagement duties for the equity fund. A flow chart diagramming the relationships is attached. Funding Sources Capital Improvements: The City of Saint Paul admiiusters the STAR program, which wIll fund the tenant (leasehold) improvements for the incubator facility. Initial Operating F�wds: Foundations are expected to provide the initial funding for the operations of the incubatar. This funding will make it possible for Saint Paul Business Ventures to retain the services of Genesis Business Centers and Welsh Companies to establish and manage the incubatar program and the venture capital fund. _ 4�� ►�5 Venture Capital Fund: I.ending institutions such as banks and credit unions, utiliry companies, and foundations, among others, will be approached to fund the venture capital fund with an initial capitalization of $1 million. The fund will be used to invest in those qualified companies that are selected to enter the incubator program as well as other qualified firms that are located in or agree to re-locate into Saint Paul. Board of Directors The Board will representthe public sector and private sector collaboration necessary to make this project successful. It wIll be made up of twelve members including venture capital professionals, civic leaders from the Saint Paul community, and business leaders from the Saint Paul corporate and professional community. Start Up Company Profile There are five major criteria by which applicants will be judged for both programs. Management: Most unportantly, the management capabilities and reputation of the managers must first be considered prior to any further consideration of the opportunity. Profitability: The company must be judged as being capable of earning gross margins in the range of sixty percent. Proprietary Position: The above descried levels of minimum profitability can only be achieved and maintained long-term if the company possesses technology andlor knowledge that is proprietary. Sales Volume: The company must be judged as being capable of having annual sales of at least $10 million and preferably closer to $20 million within five years of the date of its entrance into the incubator program. E�t Strategy: The company must therefore make a meaningful commitment on the part of its founders, its managers, and its board of d'uectors to "go public" within five to seven years of the date at which it enter the incubator program. � � q�-I�5 Incubator Space Saint Paul Business Ventures will lease space of approximately 10,000 to 15,000 square feet from a third party landlord. Saint Paul Business Ventures will in turn sublease the space to incubator businesses. The incubator businesses will pay rent, in the form of cash and stock to Saint Paul Business Ventures, which will then make payments to the landlord. In view of the availability of the funding from the STAR program for leasehold improvements in the building to be occupied by the incubator program, it is expected that the landlord will make favorable concessions over a term of between five and ten years. These concessions will make it possible for the incubator to take only a small fraction of the rent in cash; the balance will be accepted in the form of the common stock or the equity securiues of the incubator companies. When these companies succeed and their common stock becomes valuable, the non profit will have the benefit of its own built-in endowment program. Over the long-term, this can help to make the non profit self-sustaining. It should also provide a reasonable return to the STAR program in respect of the investment it is making. Additionally, the ability of the company to barter its common stock (or other equity securities) for a substantial portion of the rent, should also be a very attractive feature to these start up businesses. Saint Paul Business Ventures will be responsible for making the rental payments to the landlord. It is expected that favorable terms will be obtained from the landlord as a result of the special funding for leasehold improvements funded through the STAR program. Several sites in Saint Paul area are being considered and final selection will be made in December, 1997. One of the sites is at 550 Vandalia, at the corner of I-94 and Vandalia in Saint Paul's Midway area. The fmal site will be driven by the economics of the lease terms and its marketability to the entrepreneurial firms. ' q�-15�5 Venture Capital Fund The Saint Paul Capital Fund will be a multi-bank, mulri-investor communiry development corporation that will function as a vennue capital fund operating on a for profit basis. It would be established as a limited liability company. In addltion to providing an investment vehicle for seed capital companies, it will provide banks with an excellent opportunity in which to fulfill both the letter and the spirit of the law in respect of the Community Reinvestment Act (CRA). Genesis will organize the enrity, explain its benefits and purposes to the prospective communiry based institutions, which will include banks and insurance companies as well as to trust managers and accredited individual investors in order to achieve a min;T„um initial capitalization of $1 million. It is anticipated that most of the companies that will qualify for investment from this fund will be start-ups from the Saint Paul area that will move into the above described incubator facility. The vencure capital fund will have the opportunity to invest in firms located in the incubator as well as other quali£ied Saint Paul based companies that need seed capital. Firms receiving funding will be required to remain in Saint Paul for Five years or pay a financial penalty if they faii to honor their commitments. The stock paid by the incubatar business will in turn be allocated as follows: • Saint Paul Business Ventures will receive a portion of the stock in order to help fund its own long-term operations. • STAR Program will receive a portion of the stock in order to repay its grants and loans in the nature of a payment in kind (PIK) program. This will also provide the City of Saint Paul with the "upside". If one of the ten to twenty companies that are helped has the good fortune to become the next Medtronic, then the STAR Program and the City of Saint Paul would have a substantial endowment that could be utilized to fund further economic development efforts. • Genesis Business Centers, Ltd. will receive a portion of the stock in order to provide substantial incentives in respect of its tasks of identifying, qualifying, recommending, and nurturing these companies over the years. It is intended that by having a substantial portion of the compensation that Genesis receives being tied to the long-term success of the companies, then goal congruence is established among the parties. When the City of Saint Paul benefits from the jobs and the endowment that has been created and when Saint Paul Business Ventures snnilarly benefits, then so too will Genesis benefit. . q� i�q5 Genesis and Welsh will each receive an annual management fee during the first two years. This would be paid by Saint Paul Business Ventures from the foundation funding that it receives. Any management fees beyond the first two years would be at the mutual agreement of the parties. Welsh will provide construcrion management services necessary to make the tenant and leasehold improvements. Welsh Companies will also provide Saint Paul Business Ventures with general adminstrauve services including negotiating leases, paying bills, janitorial service within the incubator space, convening meetings and other adminstrative tasks. ., a� - ��5 Start Up Company Profile There are five major criteria by which applicants will be judged for both programs. These criteria are based upon years of eJCperience in the field of seed capital investment as well as in the management of incubator facilities and incubator companies. Management: Most importanfly, the management capabilities and reputation of the managers must fust be considered priar to any further consideration of the opportunity. Three key factors require assessment: *Integrity *Ability *Resourcefulness The personal integrity of the management team is very important. The individuals who are among the founders and mangers of the business must enjoy good reputations for honesty and fair dealing. The ability of the managers is critically important. A demonstrated track record of achievement in one or more fields must be shown in order to gain confidence that this new enterprise could be successful as well. The resourcefulness of the managers must be documented. They must have a track record of proven performance in accomplishing much with only minimal resources. A management team that possesses high marks in each of these three categories would pass the first test. Pro�tability: The company must be yudged as being capable of earning gross margins in the range of sixty percent. These levels of margin are necessary as high tech, start up companies tend to have very high overhead levels when compared to ordinary small businesses. Proprietary Position: The above described levels of minimum profitability can only be achieved and maintained long-term if the company possesses technology and/or lrnowledge that is proprietary. That proprietary technology must be capable of being defended against competitors by means of patents ar trade secrets or both. Accordingly, the company must be judged as being capable of erecting sufficient barriers to entry employing one or more of these means in order to protect its proprietary technology and position. Sales Volume: The company must be judged as being capable of having annual sales of at least $ 10 million and preferably closer to $ 20 million within five years of the date of its entrance into the incubator program (or the receipt of funding). This is necessary in order to assure that the company can achieve significant levels of profits in absolute terms from the above described siYty percent gross mazgins. Exit Strategy: Investors require some clear sense of the way in which their investment capital will be returned to them. The company must therefore make a meaningful _ � --� q�-1�35 commitment on the part of its founders, its managers, and its board of directors to "go public" (i.e., make an Initial Public Offering of its common stock through an investment banker) within five to seven years of the date at which it enter the incubator program (or the receipt of funding). Alternately, the company must commit to either grooming the company for sale to a third party within a comparable time frame or to pay significant dividends to shareholders once viability is achieved in order to provide alternarive exit paths for capital recovery. � �_- 4�-1595 Funding Sources Capital Improvements: The City of Saint Paul administers the STAR program, which will fund the tenant (leasehold) improvements for the incubator facility. Initial Operating Funds: Foundations are expected to provide the initial funding for the operauons of the incubator. This funding will make it possible for Saint Paul Business Ventures to retain the services of Genesis Business Centers and Welsh Companies to establish and manage the incubator program and the venture capital fund. Venture Capital Fund: I,ending institutions such as banks and credit unions, utility companies, and foundations among others will be approached to fund the venture capital fund with an initial capitalization of $1 million. The fund will be used to invest in those qualified companies that are selected to enter the incubator program as well as other qualified firms that are located in or agree to re-locate into Saint Paul. � � 4• ,-� � q�-15q5 Management Saint Paul Business Ventures will contract with Genesis Business Centers and Welsh Companies to operate the corporation and manage the equity fund. Genesis Business Centers is a private, for profit, company that provides incubator management services. Genesis will coordinate these two resources in order to help new businesses to be established. Harlan 7acobs, the President and majority owner of Genesis will be primarily involved in the fulfillment of the above described management duties. His success in this field is well documented in various newspaper and magazine articles that are provided in the attached appendix. Recently, the Federal Reserve Bank of Minneapolis published a higlily complimentary article describing the role that Genesis played in the management of another successful public sectorlprivate sector collaboration such as is being proposed here. Welsh Companies is one of the Twin cities largest full service real estate companies, managing a portfolio of 14 million square feet of commercial space, and providing property management, brokerage, architectural, construction and consulting services to its clients. David Stokes, Senior Associate in the Corporate Real Estate Services Group will be the key contact at Welsh. David also brings his 10 years of economic development work in Saint Paul with Welsh Companies. Saint Paul Business Ventures is intends to utilize the services of Wendy Runge, the principal of CR Industries, Inc., as its fund raising consultant. CR Tndustries will apply for grants from several local foundations, including The McKnight Foundation, that have expressed interest in this seed capital incubator concept. CR Industries will seek comparable funding from The McKnight Founda6on and other foundations along the same lines as it did earlier this year with respect to the $70,000 funding grant that the McKnight Foundation granted to the Anoka County Economic Development Partnership for a comparable program. Saint Paul Business Ventures, Incorporated has applied for 501(c)(3) status from the Internal Revenue Service. This status will help it to receive grants and other special funding sources. Until such time as the status is granted, Saint Paul Business Ventures wIll operate as a non profit corporarion. f.icorpservldslproposallspbvsum2.doc