Tag Archives: April 2008

Arizona's venture capital market receives boost

Arizona’s Venture Capital Market Receives Boost

Venture capital is still out there, but startups remain starved for investors

Arizona’s venture capital market has received a welcome boost, but startups and early-stage businesses are still looking for financial angels. Experts in the field say a new wave of venture capital is vital if the state’s economy is to continue growing at the pace it has been in recent years. Because Arizona is an attractive place to do business, experts expect to see an increase in interest by venture capitalists, perhaps later this year. They also believe that the flagging national economy is not a factor.

Yet, a PricewaterhouseCoopers’ report shows slippage in 2007, when Arizona companies received $200.7 million in venture capital compared to $262.6 million in 2006. Providing some relief in 2008 is the recent formation of the Translational Accelerator LLC (TRAC), a private Arizona-based, $20 million bioscience venture capital group. TRAC plans to invest between $500,000 and $2 million in any one company devoted to developing diagnostics, services, prevention agents and treatments directed to cancer and central nervous system diseases, including Alzheimer’s and multiple sclerosis.

Barry Broome, president and CEO of the Greater Phoenix Economic Council, calls the TRAC fund “an example of the investors’ commitment in taking the needed risk to help drive Arizona’s economy.”

Broome says reports indicate that virtually all of Arizona’s recent venture capital funding is in late-stage activity, funding mergers and acquisitions of built-up companies.

“The key component is getting a venture-capital model more aggressively focused around seed and startups,” he says. “That’s where you’re going to get long-term economic benefits.”

Venture capital peaked in 1999-2000 with the telecommunications industry and Internet-based companies. But since the dot-com bust, venture capital has yet to recover.

“People took big losses on them,” Broome says, “and subsequently there was a cooling of venture capital.”

Terree Wasley, director of entrepreneurial services at Arizona State University, sees gradual improvement in the venture capital arena, with no huge moves forward or back.

“Things are on a slow but steady incline going forward,” she says. “But if we’re looking at some sort of downturn in the economy, I’m not sure what impact that might have.”

Wasley says ASU Technopolis, which hosted the Invest Southwest Capital Conference in December, and ASU entrepreneurial services strive to train entrepreneurs who are worthy of investments.

“Our mantra is: ‘Good ideas always find funding, even in tougher times,’ ” she says.

Arizona’s venture capitalists often partner with out-of-state firms.

“They’re looking for good deals,” Wasley says. “They hear about them from other investors. Arizona is turning out a lot of good local talent. Investors look for that.”

Investors also look to stay within their geographic area, which bodes well for Arizona’s potential to attract some of the many venture capitalists in California.

“It’s an advantage for Arizona,” Wasley says.

Dee Harris, senior managing director at Alare Capital Securities LLC, an investment banking firm, doesn’t blame the economy for a shortage of venture capital.

“The primary problem is that venture capital firms in Arizona are basically fully invested,” Harris says.

Being fully invested is a two-sided coin.

“It’s a good sign in that they were able to find some good investments,” Harris says. “But, presumably, it’s a bad sign, because until they raise their next fund — which could take months — they’re not going to be much of a player in Arizona.”

Most of the interest is in life sciences, which means venture capitalists are not investing in technology information and semiconductor companies, Harris says.

Bob Morrison, executive director of Desert Angels in Tucson, says angel investors are not necessarily swayed by the general economy. Angels typically invest their own money, unlike venture capitalists who manage the pooled money of others in a professionally-managed fund.

“It’s a fairly small percentage of their total net worth,” he says. “Generally speaking, it’s their mad money. Nobody puts their lifetime savings into very many of these ventures that can be so risky.”

He dismisses suggestions that venture capital is drying up.

“For ventures that are well conceived and have a reasonable prospect for success, there is ample money,” he says.

But angel investors are reluctant to invest in biotech, he says, because it often takes a long time to make money, especially if the project requires approval from the Food and Drug Administration.

What can the state do to improve the venture capital climate? Broome says Arizona could dedicate 1 percent of the state’s pension fund for early-stage investment, as other states have done.

“If well managed, the use of 1 percent, or even one-half of 1 percent, of the pension fund into a venture strategy would be a major source of capital,” he says.

Wasley says angel investment tax credits also could help.

“Anything that gives investors any kind of incentive to invest in Arizona versus someplace else would be welcome,” she says.

For more information visit the following websites,
asuresearch.asu.edu
gpec.org

Superstition Vistas - AZ Business Magazine April 2008

Superstition Vistas: A New Master Planned Community

Golf has played an important role in residential development in Arizona for years. Maybe it’s time the planners, developers and builders took a mulligan.

Superstition Vistas, a 275-square-mile area in northern Pinal County about 30 miles east of Phoenix, represents a chance for a sort of developmental “do over.”

If we knew then what we know now, would metropolitan Phoenix look different? Would, say, the western half of Mesa have more job centers? Would the downtowns of various municipalities be closer to the geographic center of each instead of at one end where the town first developed? Would our freeways and other transportation be routed differently?

With questions such as those in mind, a team of consultants has started developing models for Superstition Vistas that will guide the development of the area over the next 50 years or more. The area eventually is expected to be home to about 1 million people.

Except for one section — the area known as Lost Dutchman Heights, which was auctioned in December 2006 — the Arizona State Land Department owns the entire tract. Superstition Vistas is about as close to a blank canvas as it gets in the development game.

The consulting team will look at finding a better use for the land, better use of water and lowering emissions for greenhouse gases.

“We’re not really reinventing the wheel,’’ says Robert Grow, whose consulting firm will lead the research effort. “We’re trying to tap into knowledge that’s already there.”

At the heart of what Grow calls “the visioning process” is the idea of sustainability. There’s also an effort to make it easier for the Superstition Vistas residents to find a balance in their lives, to be able to “work, live and play” — as the current development catchphrase goes — without hopping in a car and taking it out on a freeway.

Grow’s team includes Harris Interactive, the well-known polling and research company from Rochester, N.Y.; EDAW, a San Francisco-based environmental and regional planning firm; Fregonese Associates, a Portland, Ore., land planning company; and Robert Charles Lesser & Co., based in Washington, D.C., which offers expertise in real estate strategic planning and market intelligence.

Grow is the head of Robert Grow Consulting in Salt Lake City. He has been involved in regional vision planing for more than 40 metro areas, including New Orleans after Hurricane Katrina.

Grow says all the firms were eager to participate, adding the project has the potential to show the world new ideas about how to make development work better with the environment.

“It’s unique,’’ he says. “There’s nothing like this that I know of.”

While Superstition Vistas may be larger than other master-planned communities, and its completion time frame longer, the concept is not new to Arizona.

“One difference is the others, such as McCormick Ranch, were mostly residential,’’ says Jay Butler, head of Arizona State University Polytechnic’s Realty Studies program.

One of the key elements behind Superstition Vistas is that jobs will be available for residents. Unfortunately, you can’t just build space and expect employers will come.

“It’s easier said than done,’’ Butler says. “You have to salt the mine a bit.”

Another challenge is to come up with a framework that will make sense economically, says Roc Arnett, president and CEO of the East Valley Partnership.

“It’s not just what people say they want but what they can afford and what they’ll buy,’’ he says.

Harris Interactive is spearheading efforts to ascertain what Arizona residents would like in an urban area. The consulting group is also creating a database about land use, water use and energy efficiency.

In May there will be an event involving the major stakeholders and the public. Grow stresses that the public will have input throughout the process.

The consulting team will eventually come up with scenarios for the steering committee. The steering committee is made up of the State Land Department, Pinal County, the town of Queen Creek, the cities of Apache Junction and Mesa, and others. Chuck Backus, the former provost at what is now Arizona State University Polytechnic, is chairman of the steering committee, which is facilitated by the East Valley Partnership and Pinal Partnership.

The municipalities that border Superstition Vistas have all made noise about making it part of their planning areas.

“I have asked everyone to stand down on any annexations until we come up with a plan,’’ says Mark Winkleman, the state land commissioner.

So it may be years before it’s decided whether Superstition Vistas is part of existing municipalities, its own city or some combination.

Since he came to the Land Department in 2003, Winkleman has been protective of Superstition Vistas. He has called the 176,000-acre area the most valuable asset of the more than 9 million acres the department oversees.

The department’s mission is to use the acreage set aside in a trust by the federal government in 1912 when Arizona became a state. Money generated through the land — by sale, lease or royalties — goes to fund K-12 education in Arizona and other state-supported entities.

In order to realize the full value of Superstition Vistas and ensure that any master plan is followed, Winkleman believes the department needs to operate with slightly different laws. He has pushed for reform to give the department flexibility in how it sells the land.

In 2006, there was a ballot measure that would have allowed that flexibility and created more oversight for the department. The Republican and Democratic parties, teachers, environmentalists and major news media backed the measure. Homebuilders and cattlemen backed a competing proposition. Voters rejected both measures.

“We’re operating under laws,’’ Winkleman says, “that were fine at the time of statehood.’’

For more information visit the following websites,
www.land.state.az.us
www.poly.asu.edu
www.evp-az.org
www.pinalpartnership.com

International business - AZ Business Magazine April 2008

International Business Opportunities Increase In Arizona

Arizona leaders are pushing the state’s businesses to the international forefront

When principals from United Kingdom-based txtNation, a technology solutions provider, wanted to spread their global wings they turned to Arizona to set up a U.S. location. Similarly, when the German firm Ubidyne, a wireless technology developer, was looking to establish its first U.S. global footprint, it zeroed in on Scottsdale and SkySong, the Arizona State University Scottsdale Innovation Center, to make an imprint. Ditto for Sebit, a Turkish e-learning company. Somehow, the Grand Canyon State is on the international radar these days.

Obviously, Arizona’s expansive blue skies and mountain vistas are appealing to these international companies. But the strategy behind such international business in Arizona hasn’t occurred by accident — it has been clearly mapped out by statewide economic development officials keen on building Arizona’s economy far beyond tourism, real estate and retirement mainstays.

Today, Arizona is playing on the global business stage and it is not a bit part. In 2007, according to the U.S. Department of Commerce, Arizona exported $19.18 billion worth of goods to a collection of countries around the globe — up from $18.28 billion in 2006.

The bulk of Arizona’s exports came from the Valley. According to 2006 figures from the U.S. Census Bureau, the metro Phoenix area logged almost $11 billion in exports, placing it in the top 20 metro areas nationwide. Tucson exported more than $3.2 billion worth of goods in 2006.

Based on the 2006 figures, Arizona’s increase in exports outpaced that of Texas and California. In addition, Arizona’s per capita exports in 2006 were at $2,966, besting Utah, New Mexico and Colorado.

Along with increasing exports, economic leaders’ are also working to bring more international businesses and foreign direct investment to the state.

“We strive to put Arizona on the international map,” says Barry Broome, president and CEO of the Greater Phoenix Economic Council and one of a handful of statewide economic experts pushing for Arizona’s global business success, in large part with his role in an economic statewide partnership called the Arizona Global Network (AGN). “Arizona is emerging as an incubator for international firms expanding in the U.S.”

The AGN includes economic brainpower from Flagstaff to Tucson to Yuma and everywhere in between. All have partnered with the goal to put Arizona’s business on the international scene. This stepped-up spotlight can be attributed to a number of factors. But for txtNation Director Michael Whelan, the decision for his firm came down to the fact that Arizona is a state on the ascension in the international business community.

“TxtNation chose Greater Phoenix due to its location, being a West Coast city on the rise,” he says, adding there is a global sense that Arizona is becoming an international “entrepreneurial hotbed” and that it also played a role in the expansion process.

Northern and Southern Exposure

Of course, Arizona has long counted its brother and sister to the North and South — Mexico and Canada — as global business family partners. These efforts continue today.

Glenn Williamson has experienced success in the international business market. He’s founded, sold and run various enterprises, but today he’s gunning for Arizona to build successful partnerships and business relationships with Canada. Much like Canada’s wide-open lands, the opportunities are vast.

“Our primary goal is to push bilateral trade between Canada and Arizona to the $5 billion mark by the end of 2008,” says Williamson, founder and CEO of the Canada Arizona Business Council (CABC). “We are well on our way to achieving that goal.”
Canada is Arizona’s No. 2 global trading partner behind Mexico. In 2006, according to U.S. Department of Commerce numbers, Arizona exported more than $5.3 billion worth of goods to Mexico compared to just more than $1.8 billion to Canada.

Williamson says the CABC has several primary goals. First, besides significantly increasing the trade between the two countries, the CABC is seeking a direct flight between Montreal and Phoenix, while also upgrading the seasonal flights between various Canadian cities and Arizona. Then, there is fostering the huge impact of Canadian residents who are interested in, or already are, doing business in Arizona.

“Gov. Janet Napolitano gets international business, the tourism folks get it, Tucson gets it and the Arizona Department of Commerce gets it,” Williamson says. “Now, we have to convince everyone else.”

Williamson is quick to praise statewide efforts such as AGN and calls statewide leaders, including ASU President Michael Crow, key catalysts to pushing Arizona onto the international business stage.

“ASU is huge in these efforts,” he adds. “We need their brainpower to make this successful. Everything is pointing in the right direction, but we need to put the pedal to the metal.”

International EDU

Besides Crow’s intensity at ASU and the hotbed of activity at SkySong, which Julie Rosen, ASU’s assistant vice president for economic affairs, touts as an atmosphere of “unparalleled opportunity,” other educational institutions in Arizona are aiming for the international business beacon.
Consistently ranking in the top echelon of international business schools, the Thunderbird School of Global Management has operations in Latin America, Asia, Europe and Russia. The school has forged public sector partnerships like those with ASU to better compete in the international education arena. Over the past two years, Thunderbird has pioneered significant relations with ASU, especially ASU’s West campus and the School of Global Management and Leadership (SGML).

In addition, the Arizona Department of Commerce has foreign trade offices in London, Mexico and Japan, as well as investment offices in Ireland, Japan and Hong Kong.

“Broadly, business executives and community leaders recognize that attracting out-of-state and foreign direct investment and business, as well as increasing trade, should receive significantly more emphasis to secure Arizona’s growth and provide good, well-paying jobs,” notes Gary Waissi, dean of the ASU SGML. “There are several organizations with advanced initiatives working aggressively on these areas.”

ASU, GPEC, AGN and others are continually pushing for increased international business opportunities in Arizona. But, as Arizona Department of Commerce Director Jan Lesher points out, while exports and international business opportunities continue to increase in the state, there is a baseline that needs to be established before Arizona can truly “go global” now and into the future.

“Arizona companies need to establish first a solid domestic market, and then consider expanding to national markets,” she says. “International customers can be ideal for Arizona-based businesses; however, this is a decision that needs to be done carefully — international means a company must have the resources, market know-how and commitment to stick with it.”

It’s a point not lost on those who, like Lesher, are continually working to cultivate these relationships.

“It is all about recognizing that in today’s world, business is truly global,” Waissi says. “And at the same time knowing there is a need to strategically diversify in select industries.

For more information visit the following websites:

azcommerce.com
gpec.org
commerce.gov

small business open sign - AZ Business Magazine April 2008

Small Business Is Big Business In Arizona

There’s really no need for small business owners to feel like they have to go it alone in Arizona, not with the variety of programs, organizations and resources available to provide help.

There are obvious places to start. The Arizona Department of Commerce has an online resource center that is filled with links and information. Be sure to download the free resource guide. Also, go to the U.S. Small Business Administration’s Arizona District Office Web site to find out about the many resources, services and tools available there.

The Arizona Small Business Association is an organization that serves as an advocate for small businesses and is dedicated to helping them grow. There is a modest $125 annual membership fee that provides access to various services, networking opportunities and value-added programs such as a group health care plan. A worker’s compensation program, in association with SCF Arizona, may lead to bonus dividends based on the safety success of association members.

“Small business is big business in Arizona and small businesses need to understand how to partner, how to connect, how to access resources in a cooperative mode,” says Joan Koerber-Walker, ASBA’s chief executive officer. “And that’s what ASBA gives them.”

The SCORE Association is well-represented in Arizona with chapters across the state. Successful retired executives and business owners provide free one-on-one counseling and stage low-cost seminars that deal with virtually all issues, including raising capital. In fact, according to Chet Ross, chairman of SCORE’s Phoenix chapter, a team of counselors will actually visit a client’s place of business.

Another place to turn for answers is the Arizona Small Business Development Center Network, a partnership between community college districts and the SBA. The AZSBDC offers free business counseling, workshops, programs, and help with technology development and commercialization.

These resources are in place to help businesses of all types, so take advantage of their offerings throughout the start-up process and beyond.

For more information visit the following websites:

sba.gov/localresources/district/az
asba.com
azsbdc.net

options grow for telecommunication providers - AZ Business Magazine April 2008

Options For Telecommunications Providers Steadily Growing

Choosing the right telecommunications system for a growing business is no small decision. In fact, the array of available products and services can be a bit overwhelming. But, in the end, everyone seems to want the same thing.

“One of the things that we’ve found through the surveys that we’ve done is that reliability is key,” says Mark Geiselmayr, senior vice president for Integra Telecom of Arizona.

“Obviously, once telecommunications have been evaluated and selected and implemented, as a business owner you don’t want to have to deal with it anymore. You expect it to be there and you expect it to work, and you don’t want to have to deal with any issues or problems surrounding the service.”

Reaching that endpoint starts with picking a telecommunications provider. That requires several important considerations, according to Jason Cate, director of Arizona midmarket sales for the competitive local exchange carrier formerly known as McLeodUSA, which was recently acquired by PAETEC Holding Corp.

“A big thing when you’re looking for a provider is you want to look at their customer service,” Cate says. “Can they deliver a personalized solution for your business needs? Can they do all of your locations and tie everything together for you? Do they provide, and have for a long period of time provided, the products that work?”

The telecommunications umbrella covers everything from basic business lines and calling features to Internet and data services. One of the biggest changes in the industry is the move away from traditional private branch exchange, or PBX, telephone systems to Voice over Internet Protocol systems. Whereas separate networks were required for voice and data communications with the older approach, the IP PBX converges voice and data networks on a single T1 line.

This results in the availability of a lot more features, says Clark Peterson, chief executive officer of Scottsdale-based Telesphere.

It’s possible, he says, to have voice mail show up in an e-mail account with a WAV audio file attached. Faxes can come directly into e-mail accounts, eliminating any need for a fax machine. Office phones and cell phones can ring simultaneously. Connectivity between multiple offices becomes a reality with four-digit dialing linking the various locations and just one receptionist monitoring calls from a single site.

One of Telesphere’s specialties is providing VoIP over a private dedicated connection rather than a public Internet connection. Also, it eliminates the need for an on-site PBX system at a client’s place of business. All voice and data services are hosted in secure data centers.

“You have small to medium businesses now seeing that they can have all the robust feature functionality of the Fortune 500 companies,” Peterson says. “And really, they’re getting the feature functionality of an $80,000 to $100,000 PBX system that they would have had to buy themselves to do everything that this full-on hosted service does.”

Integra Telecom, one of the largest telecommunications providers in the West, has been in Arizona since acquiring Electric Lightwave Inc. in 2006. The company, which has a fully staffed local presence in each of its markets, takes a long-term approach with clients.

“We’ve got some really nice options in terms of purchasing systems that if you outgrow them, you can return them, and then we will provide you with the next level of capacity without having lost the original investment,” Geiselmayr says. “So there are all kinds of neat programs there to help a business that’s really growing much faster than their ability to predict what they want to invest in a system until they get to that level of need.”

Small- and medium-sized businesses that have multiple locations with telecommunications hardware in place may want to take a look at securing services from a company like PAETEC.
“Most of our focus now is on circuit-based IP products because that’s really the way to take the midmarket sector and increase profitability and productivity for midmarket companies,” Cate says.

He sees his company as a one-stop shop with local and long-distance telephone service, site-to-site data networking, and dedicated Internet service among its varied offerings.

“We can tie nationwide companies together and do everything in all of the markets,” he says.
One of its more popular products is something called Dynamic Integrated Access. It combines a variety of attractive options such as rerouting inbound calls from one business location to another without long-distance charges, and speed dialing between various offices.

The bottom line is Arizona is a very competitive market for telecom services.
“We’ve seen a lot of consolidation recently, so the number of competitors has dropped,” Geiselmayr says. “But there are solid providers here and they all have their unique approach to the marketplace.”

For more information on the telecommunications providers mentioned, visit the following websites:

integratelecom.com
paetec.com
telesphere.com