GO SUCCESS : Supporting Economic Growth and Entrepreneurship

Innovative Strategies for Community Foundations...

Five Grantmaking Strategies to Support Economic Growth

1. Entrepreneurial Education
2. Workforce Training
3. Business Technical Assistance
4. Community Economic Development
5. Research and Feasibility StudiesAspen Institute Community

Entrepreneurial Education Feeding the pipeline with new businesses

1. Most common place to begin
2. Focused on teaching entrepreneurial skills
3. Many curricula available – (see ruralship.org)
4. Common partners – Extension & colleges
5. Scholarships vs. program support
6. 501(c)(3) Purpose = Educational
– No limits on whom you serve
– No limits on what you teachAspen Institute Community
Examples:
Entrepreneurial Education Programs
- NxLevel
Entrepreneurial
Training
– Pre-start-up basics
– Business planning and
feasibility analysis
Support: program
underwriting
Outcome: Go/No Go
decision
- Small Business
Management Program
– Post-start-up
management basics
– Three-year self-directed
curriculum
Support: Scholarships
Outcome: improved odds of
survivalAspen Institute Community

Workforce Training Grants Building Productivity to Boost Economic Outcomes

1. Powerful way to build business profitability
2. Improves stability of jobs
3. Increases worker pay
4. Best when business driven
5. 501(c)(3) purposes – educational and charitable
6. Made through an intermediary or via expenditure authorityAspen Institute Community
Example:
Workforce Training Grants
- Workforce 2020
– Industry specific incumbent worker training
– Technology or productivity systems (e.g. lean
manufacturing)
Support: Grant through intermediary with required
employer match
Outcomes: Improved wages ($4:$1 invested), better
profits, job stability, global competitiveness.Aspen Institute Community

Business Technical Assistance Removing roadblocks to success

1. One-on-one consultation with an expert
2. Common topics:
– Finance -- Marketing -- Management – Sales --Technology – Loan Packaging
3. 501(c)(3) purpose = educational – just at a
more personal and in-depth levelAspen Institute Community

Example:
Business Technical Assistance
- Small Business Development Center – Business Consulting Services
– Financial analysis, marketing, business planning
– Loan packaging
Support: Program support to expand capacity &
match federal funds
Outcomes: Improved access to capital, improved
profitability, increased sales, better Go/No Go
decisions.Aspen Institute Community

Community Economic Development Anything from infrastructure to direct subsidies

- Grantees = Units of Government
- “Normal Purposes” rule:
– Grants for any activity commonly undertaken by a unit of
government qualify as being for 501(c)(3) purposes – even
if it isn’t otherwise charitable, educational, scientific or
religious – so long as it is legal for the specific jurisdiction.
- Must be focused on a “class” of businesses not an
individual endeavor or considered a pass-through
- Examples: blight reduction, site preparation, main-
street marketing, tax abatement, free utilities…Aspen Institute Community
Strategies Group, March 2006 14
Examples:
Community Economic Development
- Storefront Renovation
– Grants to city for “blight
removal”
– Regranted to mainstreet
businesses to spruce up
storefronts
Support: Grant to City
Outcomes: Capture of
tourist dollars and more
local shopping
- Demolition/Site
Preparation
– Grants to tear down
dilapidated structure and
prepare site for
redevelopment
– $1.00 sale to business
Support: Grant to City EDA
Outcome: Business start-up
or expansion.Aspen Institute Community

Research and Feasibility Studies
Useful but with limiting rules
- Research, especially feasibility studies are a common request.
- Falls under “Scientific” 501(c)(3) purposes
- Special rules on dissemination require equal access to the results/findings
- Not useful to provide a competitive advantage
- Most useful for site-specific issuesAspen Institute Community
Example:
Research and Feasibility Studies
- Minnesota Wheat and
Barley Growers Study
– Feasibility study: value-
added manufacturing
opportunities.
– Frozen bread dough
identified.
Support: Grant - repayment
provision if built
elsewhere.
Outcome: Idea “stolen.”
Project built in Georgia.
Repayment forgiven.
- Kaddatz Hotel
– Feasibility study of
converting decrepit
historic hotel for artist
lofts and commercial
space.
Support: Grant to arts
organization
Outcome: Successful
redevelopment – lofts
completely full,
commercial space still
vacant but project cash-
flows.Aspen Institute Community

Loan Programs
Yes, they are legal!
(if done right)Aspen Institute Community

Community Foundation Lending Basics
…or how to stay legal
- Loans must have a charitable purpose:
– Creating jobs in economically distressed areas
– Creating/retaining/improving jobs for low-
moderate income workers
– Diversifying the local economy to promote
economic stability
– Critical community services (e.g. healthcare,
groceries)Aspen Institute Community
Strategies Group, March 2006 19
Community Foundation Lending Basics…more on staying legal
- Rates and terms must reflect charitable intent
– Below market rates for the risk incurred
– Must fill a “financing gap”
- Reasonable expectation of repayment
– Due diligence
– Collateral (not up to bank standards)
- Appropriate servicing and collection
– Firm but appropriate to your charitable purposeAspen Institute Community

Three types of loans
Different tools for different situations
1. Revolving Loan Funds
2. Micro Loans
3. Forgivable LoansAspen Institute Community

Revolving Loan Funds
A sustainable and effective tool for economic growth
- Usually $5,000 and up
- “Gap” loans (e.g. 60/30/10)
- Subordinate collateral
- Interest and fees can cover admin costs and loan losses
- May be capitalized by government grants
- Banks and utilities like to give to support these fundsAspen Institute Community
Example
Revolving Loan Fund Loan
- BTD Manufacturing
– Two equipment loans 1987 & 1991: $40k & $50k
– Approximately 30% of each project
– Allowed company to expand much more quickly
than if they had saved up the full downpayment.
Outcome: Opened new markets and facilitated rapid
growth of company from 20 workers in 1987 to
350 today. Company is now a significant donor to
WCI and has set up an endowed corporate
foundation in WCI’s structure.Aspen Institute Community

Micro-Loans

A great tool for new business formation
1. Small loans – usually up to $5,000
2. May not have a participating bank
3. Often riskier than larger loans - but with less to lose
4. More costly to administer than larger loans
5. Technical assistance is a must!
6. Some grant programs exist to help capitalize
micro-loan programsAspen Institute Community
Strategies Group, March 2006 24
Example:
Micro Loan
- Embroidery shop
– Small loan to buy
embroidery machine
– Bank unwilling to
participate without 100%
iron-clad collateral
Outcome: Initially employed
three people, now more
than 20 plus very nice
income for entrepreneur,
- Welding Service
– Small loan to buy mobile
welding rig to mount on
pickup truck.
– Pickup truck as collateral
Outcome: Good income for
entrepreneur and a
service needed by area
farmers.Aspen Institute Community

Forgivable loans

When charitable and business purposes collide
1. Loans structured to convince a business to undertake a charitable purpose
2. The use of the loan funds directly enables the charitable benefit
3. The value of the charitable benefit is
estimated and is forgiven over time as long
as the business continues to meet the
charitable purposeAspen Institute Community
Strategies Group, March 2006 26
Example
Forgivable Loan
- Childcare Forgivable Loan Program
– Loans up to $2,000 forgiven over 24 months for
families starting childcare businesses that
pledged to accept TANF subsidized families
– Monthly loan coupon certifying service to TANF
families or accompanying loan payment
Charitable purpose: supporting workforce
participation of low-income families
Outcome: Created 500 childcare openings - 20%
filled by TANF recipientsAspen Institute Community

Equity Investments

Big benefits –
but not for the faint-hearted!Aspen Institute Community

What are Equity Investments?

1. Purchase of an ownership (stock or partnership) interest in a company.
2. You ret repaid if the company prospers.
3. Exit strategy and timetable.
4. No guarantees!Aspen Institute Community
Strategies Group, March 2006 29
What are the benefits and drawbacks?
5. Benefits – Company gets “patient capital”.
– Equity investment
leverages more loan
dollars.
– If successful, your
returns can be much
greater than with a loan.
– Especially useful for
high-tech start-ups.
6. Drawbacks
– Exit strategy may not
work.
– Far more “due diligence”
than with loans & more
complex paperwork.
– Small deal flow –
therefore hard to
diversify portfolio.
– Must keep on top of
deals on an ongoing
basis.Aspen Institute Community
Strategies Group, March 2006 30
Examples
Two models for equity investment
- Angel investor networks
– You buy into a network
of experienced equity
investors.
– Pool of funds from many
sources reduces risk for
all.
– Allows more diversified
portfolio.
– Volume allows you to
support more expertise
at lower cost.
- Direct investment
– You select the deals
yourself and do your own
due diligence.
– May hire outside experts
to help.
– Higher risk but more
control.
– Diversification and “deal
flow” are hard to attain in
rural areas.

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