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Technology center lacks funding Sunday, April 27, 2003 If you were mingling with economic development leaders last
week, you may have heard a big gulp. It was the swallowing of
their pride as they admitted they could learn a lot from, of
all places, Manhattan. "We're nowhere close to where they are," said Matt McClorey, CEO of the Lawrence Regional Technology Center. "There is not even a comparison at this point. Manhattan just flat has us beat." Those are tough words to hear in a city that ranks Kansas University's 20-year basketball road winning streak against the Wildcats as one of its proudest accomplishments. But when it comes to helping potentially lucrative, high-tech companies get started, McClorey said, Manhattan provides a winning example. Manhattan has an incubator facility where startup businesses can locate at below-market costs. The facility is 20,000 square feet and has office space and laboratory space where companies can do small-scale production. The Lawrence facility, located at 1617 St. Andrews Drive, is 3,500 square feet and doesn't have laboratory space. Lawrence's incubator has an operating budget of $360,000. Manhattan's is nearly twice that amount, plus it operates out of a city-owned building that is essentially leased from the city for $1 a year. Manhattan city commissioners also agreed to use $600,000 of city money to team up with Kansas State University and officials with the Kansas Technology Enterprise Corp. to create a nearly $2 million investment fund. The fund is used to provide early-stage capital for promising, young companies. The fund has had enough success that it already has made a $140,000 payment back to the city of Manhattan, and Manhattan leaders are optimistic they'll eventually be paid back more than their original $600,000 investment. Matt McClorey, chief executive of the Lawrence Regional Technology
Center, is urging public officials to step up their funding
efforts to help high-tech startup companies. McClorey discussed
the issue recently at the center's offices at 1617 St. Andrews
Drive. A partnership Ron Sampson is president of Mid-America Commercialization Corp., which operates the incubator in Manhattan. He said the biggest key to his center's success, which was chronicled in the Washington Post, had been the willingness of both the city and the university to fund its efforts. "That's what has made us different from other places," Sampson said. "We've really worked well together." In addition to the $600,000 the city put into the investment fund and the $300,000 building it bought for the incubator, it has given MACC anywhere from $69,000 a year to $118,000 a year since 1996 to help fund the organization's operating costs. The organization was founded in 1996. Sampson said MACC officials promised Manhattan city commissioners two things in exchange for their support. One was that MACC would ask for less operational money each budget year. The second promise was that the group would produce better-than-average jobs. Sampson said MACC had delivered on both accounts. In 1996, the group was 100 percent government funded. Now it is 38 percent government funded. Sampson said MACC had helped create companies that had produced 100 jobs for Manhattan with an average salary of about $40,000 a year. That's well above Manhattan's average salary, which is in the mid-$20,000 range. "We're creating jobs that absolutely wouldn't be there otherwise," Sampson said. "Many of the employees are K-State students who would have left the state." Sampson said there was no reason Lawrence couldn't replicate Manhattan's success. "Lawrence has more capacity to do this than we did in Manhattan," Sampson said, noting that KU has a wider range of professional and technical degree programs than K-State. "You've got all the ingredients here. It is just a question of people buying into it and deciding to do something together." More money In particular, what McClorey would like to see government leaders decide to do is spend more money on LRTC programs. City and county officials have never funded any of the center's operational budget. LRTC, which formerly was known as the Kansas Innovation Corp., receives all its operational funding from KTEC, which amounts to about $300,000 a year. That's beginning to change. Recently, the Lawrence Chamber of Commerce agreed to set aside $25,000 a year, for up to four years, to help fund the center's operations. The money comes from the chamber's recent $1.2 million private fund-raising drive for economic development. McClorey said the chamber's help was a good start, but more would be needed. "It is going to require the city getting involved, the chamber getting involved," McClorey said. "We can't be successful if KTEC is the only group putting money into the system." The center's budget, which may take a $35,000 to $45,000 hit next year because of state budget problems, has forced the center to start a waiting list for its consulting services. Now the wait is five months and growing. Building search But the city and county haven't completely ignored the center. During the early 1990s, city and county commissions set aside $500,000 for the then-Kansas Innovation Corp. to either build or purchase a new incubator facility. The project never materialized under the center's previous directors. In the meantime, the $500,000 has sat in a bank account monitored by the Chamber of Commerce and has grown to about $600,000. The project still hasn't materialized under McClorey, who took over as CEO last year. He said there was a simple reason for the delay: The $600,000 isn't enough to buy the type of facility the group desires. McClorey has said he'd like at least a 10,000-square-foot building that is able to house laboratory space for startup biotech firms. Center officials have looked at several locations in town, including leasing space from the city in its west Lawrence police annex, but there has been concern about using the center's money to lease and renovate space that the city may ultimately have to use for other purposes, sources close to the situation have said. Sources also have said that building a new facility at the East Hills Business Park has been discussed, but the $600,000 likely would be inadequate to construct the building. McClorey said he believed the project would move forward this year, but he declined to discuss possible locations for the incubator. "We need to move aggressively and quickly to get it figured out," McClorey said. "We have a very modest facility right now. It is just inadequate to meet the demand we have from potential startup companies." McClorey has said that LRTC likely would need another $500,000 to build the facility it needs to meet future demand. But McClorey said it was unlikely the center would ask city and county officials for the money during this summer's budget sessions. Instead he said LRTC would try to develop the incubator in phases, starting with the $600,000 it has. He also said center officials might ask city commissioners for a tax abatement for the incubator facility. "It doesn't make sense for governments to give money for the building and then assess property taxes on it," McClorey said. Public money Elected officials will be hearing funding requests from the center. "I think we will have to talk to them (elected leaders) about future funding, but at the right time," said Don Johnston, a Lawrence banker and chairman of the LRTC board. "We're not there yet." In particular, McClorey said, the center is interested in city and county government using public money to fund a seed-capital fund, essentially like the one Manhattan has used. He said he'd like for the Kansas University Endowment Association to become involved in the fund as well. McClorey said finding startup funding for potentially lucrative, high-tech companies was the biggest challenge the center faced. "There have been some very promising technologies in the hands of some very talented people, and it just didn't work because they couldn't find the money," McClorey said. Getting involved in a seed-capital fund would be a major undertaking for elected leaders. Neither the city or county commissions has ever committed funding to such an idea. The amount of money needed also would be sizable. McClorey estimated the center needed a fund of at least $2 million to be able to provide meaningful help to startup companies. Whether the center will find support for its funding requests is unknown. Lawrence Mayor David Dunfield said he could see how the high-risk nature of the center's business could be a turn off to elected leaders. "I have to say I think it would be a hard sell, but that's not to say it couldn't be done," Dunfield said. "But in the current economic situation, high risk probably isn't very attractive to anyone." County Commissioner Jere McElhaney said he'd be open to future funding requests because the area needs new jobs, but he also has misgivings about government becoming more involved in private enterprise. "I'm willing to listen to anything or anybody, but I sure can't promise anything," McElhaney said. "I'm a big believer that not only this community, but communities across the nation, were built on private investments, private initiatives. I think the reason we've been successful in the past is because we've taken government out of the way and allowed the economy to work on its own." Copyright © 2003 Lawrence Journal-World
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