Arizona support grows for startups
Monday, January 9, 2012
Posted by: Rhette Baughman
by Betty Beard for The Republic | azcentral.com
If you have a good idea that could be turned into viable business, Arizona may have $250,000 for you.
As part of its efforts to create more jobs, the Arizona Commerce Authority this year will double the total amount of innovation grants it will award to small businesses to $3 million.
The idea is to create more home-grown businesses, speed up the commercialization of inventions and help small businesses in hopes they someday will become larger employers. It is an economic-development concept that has grown popular throughout the country.
Up to now, the state's job-creation efforts largely have focused on developing tax breaks and other incentives to entice companies to move to Arizona from other states.
But last week, the authority launched three major tools designed to nourish ideas into businesses, and small businesses into bigger businesses, with everything from outright grants to a mentor's assistance. Because banks have tightened their lending, commerce agencies around the country are stepping up to support innovators in similar ways.
By doubling the overall size of the Arizona Innovation Challenge grant program, the authority believes it has created the largest such program in the country. It will be advertised globally that Arizona is offering companies grants of up to $250,000. "Ultimately, we want the best ideas to come here and start their businesses," said Don Cardon, president and CEO of the commerce authority. In addition, the authority has allocated $1 million to pay mentors to guide the estimated 10 to 30 companies expected to get grants this year and help them get larger and to stay in business.
The Arizona Innovation Accelerator Fund Program began accepting applications for small-business loans on Friday. It uses federal funds to offer loans of $50,000 to $2 million to companies with less than 500 employers, providing they get matching funds. There is a total of $18.2 million available.
Also on Friday, the Arizona Commerce Authority opened an Innovation Forward center in downtown Phoenix where entrepreneurs can take classes, get advice or even use a large meeting room. It is on the first floor of the Freeport-McMoRan Center, 333 N. Central Ave.
The commerce authority awarded innovation grants for the first time last year, to eight companies out of about 100 that applied. The heads of some of those companies said the monetary support was crucial, enabling them to accelerate their business plans and hire.
"We would not have made it without the grant," said Micky Thompson, CEO of Post Bid Ship, a Tucson-based company that he launched with Jarret Hamstreet. Post Bid Ship arranges for companies to more easily find empty spaces on semitrucks for shipments.
The company had raised about $300,000 from investors, but thanks to a $137,000 innovation grant was able to staff a customer-service center and take the product online. The staff grew from two to 11, with more hires under way. Scott Grimshaw, chief technical officer at ColnaTec in Gilbert, said the $240,000 grant it received pushed production a year ahead of schedule. The company makes sensors that can make and measure products on an atomic level. It is about to expand into an additional 300,000 feet in Gilbert and to add three to five more employees to its staff.
"It bought us time because it takes a while to invent anything new," he said. "There is a lot of frustration and a lot of failure, which most people seem to be adverse to in business these days. Without their help (commerce authority), we would be almost a year behind."
The grants are especially valuable because it has been difficult for companies to get funding or credit from banks or other institutions, said Wendy Jameson, the CEO of ColnaTec.
"At that time (a year ago) it was extremely difficult to get funding or any kind of capitalization because we were under two years old. Most banks in 2010 and 2011 were not lending to anyone under two years old. It's difficult to find investors when you are that young and spending all your money on manufacturing and research and development," she said.
A grant of about $140,000 for HJ3 Composite Technologies helped the Tucson-based company double its sales last year, said Jim Butler, president and CEO. The firm makes carbon products that strengthen pipelines and other structures against corrosion, earthquakes and other structural threats. The company has 14 employees and hopes to have 20 to 25 by the end of this year. "Every small company deals with constraints," he said. " And when you have an influx of cash that is not a loan and you are not giving up equity in the company, it's only going to help accelerate your (business) plan. And for us, that's exactly what happened."
Marie Wesselhoft, president of MSDx Inc., a Tucson company that is producing a blood marker to detect multiple sclerosis and help doctors monitor its progress, was especially grateful for the $226,500 grant her company received because it enabled the company to do something other grants would not allow: obtain international intellectual property.
In effect, that means the company has an international patent.
"That is huge," she said. "If we had not had the money, we would not have been able to file. You only have one chance (within 18 months of filing a patent), and if you miss it, it (the product) is in the public domain."
To Andy Lombard, who helped judge last year's challenge, such stories prove that Arizona has a lot more innovation underway than many people realize, including himself. He is CEO and chairman at eTelemetry Inc., a Scottsdale company that sells devices to help companies monitor Internet traffic.
"I went in (to the judging) thinking the quality would be so-so," he said. "I was blown away by the quality of the applicants we got last year, very serious prospective companies." .
He said it took about a month for the judges to read all the business plans and narrow the applications to eight.
"There is a wonderful technology base here and there is also fantastic innovation that occurs across the state, whether in Sedona or Tucson or in Phoenix or Chandler," he said. "It's very widespread. And this entrepreneurial flair is what people are starting to understand more about."
How the grants work
The innovation grants are targeted at industries that are more likely to create higher paying jobs: renewable energy and sustainability, bio- and life sciences, electronics, information technology, aerospace and defense and advanced manufacturing.
Cardon said the recipients are not awarded checks until they reach certain steps in their business plans. They also have to follow a budget and open their books to the authority. They are required to remain in the state for 10 years and if they leave before that, are required to pay back some of the money.
"We have had an unusual level of success with the first round of innovative challenge recipients," said Brian Sherman, the authority's vice president of business development. "But they will not all survive. We know that. Historically, companies in that space (being new) will fail."
And that is why the authority is putting up another $1 million to provide mentors who can help recipients make it. The goal is to prove to investors and banks that these companies are creditworthy so they can become independent of the state's guidance.
Arizona Innovation Challenge
What: A grant program for small, early-stage businesses, especially those in renewable energy, bio- and life sciences, electronics, information technology, aerospace and defense and advanced manufacturing. It is designed to encourage the creation of small businesses.
Criteria: Applicants have to show they have a viable product or service that is likely to sell and that the company can grow to produce jobs and tax revenue for the state.
How much: Companies can get grants of up to $250,000. The winners have to show they are following their business plans to get the money. A total of $3 million is available.
How to apply: Applications for the first round, $1.5 million total, are being accepted through Feb. 6. A second round of applications will be accepted in the summer or fall.
More information: azinnovationchallenge.com.