Anoka Partnerships Creates Jobs





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Star Tribune                      Monday                                    APRIL 17, 1995

Anoka partnership creates jobs the rational way


Dick Youngblood

Using what has been described as a "cutting edge approach" to development, Anoka County seems to be making progress without resorting to raids on neighboring communities to woo established business. The key: investment funds and a private, for profit business incubator.

When government and business leaders formed the Anoka County Economic Development Partnership in 1985, the founders decided from the get-go to shun the traditional 

approach of trying to lure established businesses into their communities.

"All that kind of competition comes down to is a game of musical chairs," said Roger Jensen. executive director of the partnership. "You get a lot of movement [from community to community, but no net gain for the Twin Cities or Minnesota."

Instead, the Anoka partnership opted for a tad more rational strategy It decided to focus on emerging companies as the best hope for net growth.

More important, it pursued that goal with an unorthodox package of development tools that Pete Gillette, commissioner of the Minnesota Department of Trade and Economic Development. calls "a cutting-edge approach" to building the business base of the county's 21 communities.

Among the unusual elements contained in the development tool kit: a privately operated business incubator and a public-private equity investment fund that required the county's banks to lobby regulators nearly a year to win permission to participate.

The progress has been encouraging: An investment fund totaling $550,000 has been raised so far, with another $450,000 expected by midyear. Since September 1993, the county has taken a $300,000 equity stake in seven promising. mostly high-tech startups.

They've come lip with an approach that 116 other Minnesota counties ought to take," said Gillette, who agreed that the process of raiding each other [for established companies] is a zero sum game.

It has taken several years to reach this point, however. due largely to what Jensen concedes was a crucial miscalculation at the beginning.

The partnership's first step in 1987 was to build the Minnesota Medical Enterprise Center in Coon Rapids, a 110,000 square foot edifice designed for startup medical companies and the firms that serve them. The idea was to surround the small tenants with various vital services ranging from needed sterilization and testing labs to consultants specializing in finance, medical products management and the intricacies of the regulatory maze.

Alas, it wasn't enough to attract a full house.

"We had at least 300 entrepreneurs contact us, many from outside Minnesota and some from outside the U.S." Jensen said.

Despite that interest. however, the center remains about 80 percent leased - with only 60 percent of the space occupied by medical product companies and the firms that serve them.

The project nevertheless offered a valuable lesson: "The [incubator atmosphere] was important," Jensen said "But what virtually every one of the entrepreneurs who contacted us needed most was capital.

That's when the partnership came up with the Anoka County Capital Fund, a limited-liability corporation that sports a $420,000 investment pot contributed by the county commissioners, seven of the county's nine state and national banks and the Anoka Electric Cooperative.

"We wanted an investment fund rather than a loan fund because we decided that what startup companies need is equity, not debt," Jensen said.

They focused on the banks and utilities as fund contributors "because we figured they were the organizations with the biggest stake in economic growth."

The only trouble was, it took a special dispensation from state and federal regulators for banks to gel involved in equity investments, a process led by Norwest at the federal level and Northeast State at the state level. It took more than nine months but by September 1993, the fund was ready to begin investing.

Included in the investment portfolio so far is the designer of a needle free system for delivering fluids intravenously the maker of fiber-optic systems for industrial control applications, the designer of precision fluid handling systems for use in medical labs: the developer of a pharmaceutical that prevents blood vessels from reclosing after angioplasty. and the manufacturer of printed circuit boards that enable older PCs to play video disks.

On the low-tech end of the scale is the manufacturer of book-quality desktop binding equipment for use on office reports and the manufacturer of super-strong carbon-based archery equipment.

Several other key developments have occurred since the investments began. For one thing, when word of the capital fund got out private investors asked to tag along on the fund's investment portfolio. The result is the Anoka County Investment Club, which so far has 20 members who have put up a total of $130,000.  Jensen said the plan is to have $580,000 in the pot by the end of June. 

Meanwhile, the Economic Development Partnership his landed another ally in the person of Harlan Jacobs, a successful private investor with a truly inventive approach to investing in start up companies. 

What Jacobs, a veteran corporate financial officer, did was form a for-profit business incubator company called Genesis Business Centers Ltd. The aim is to trade equity position's in startup companies in return for office space and such services as management consulting, financial counseling and introduction to potential investors.

Late in 1993 the Anoka County Economic Development Partnership cut a deal with Jacobs  whereby Genesis would assist most of the companies in which the county capital fund had made investments.

The upshot: Jacobs leased 10,000 square feet in the Columbia Heights Business Center at 3989 Central Av. NE, and installed four of the seven tied to the Anoka development effort.  He also provides business services to a fifth company in East Bethel. Of the two remaining companies, both of which operate independent of Jacobs and his Genesis incubator, one his office space in Anoka and the other has moved into the Minnesota Medical Enterprise Center in Coon Rapids.

The results so far took promising: The seven companies which employ 30 people, expect to have 50 employees by year end. What's more, where only two of the companies had products on the market last year producing less than $500,000 in sales, all seven are expected to contribute to a 1995 sales total of about $3.5 million..

Copyright 1995, Star Tribune.  Reprinted with Permission of the Star Tribune.  No further re-publication or redistribution is permitted without the written permission of the Star Tribune.