Genesis of Innovation for South Dakota

Board of Directors’ Meeting

Wednesday, January 21, 2004 @10:00 am

Board of Regents’ Conference Room

Pierre, South Dakota

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(Many thanks to Greg Barton for passing this along. This is a great example of how a State can be very innovative in developing the supportive environment for entrepreneurs and the companies they build.- Russ)

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I. President Mike Derby called the meeting to order at 10:10 am. In attendance were board members: Randy Morris, Dennis Anderson, Rick Rylance, Bill Griffin, Mel Ustad, Gary Archamboult, Marcia Hendrickson, Rich Naser, Stuart Kellogg, Tad Perry, Joel Dykstra, and Mike Derby. Guests included: Bob Sutton, Jim Mirehouse, Jim Doolittle, Royce Engstrom, Dale Skillman, Shawn Pritchett, Jim Rice, Lynn Jensen, Jess Wright and Jamie Rounds. Staff: Greg Bartron.

II. Board member Joel Dykstra began discussions by relating he sensed considerable enthusiasm for Governor Mike Round’s 2010 Initiative. Joel mentioned two specific proposals, including a plan to earmark $12,000,000 of the REDI Fund for loans to qualified “capital investment entities” which, in turn, would invest these funds in South Dakota startups and expansions. The Board of Economic Development will promulgate rules and regulations for the process of obtaining and disbursing these funds. This legislation will be introduced by Governor Rounds. (Senate Bill 202)

The second measure, one which Dykstra intends to introduce, (House Bill 1145), is a companion piece which Dykstra says the Governor is less enthusiastic about. This legislation would seek to create a new subfund within REDI, called the South Dakota Entrepreneur Support Subfund, the purpose of which is to make loans of $30,000 to $50,000 to South Dakota entrepreneurs and South Dakota startup businesses to develop and promote new business activity and create employment in the state. The REDI Board would designate $5 million of the money in the REDI Fund to support this new subfund. Other components include: one-to-one match from non-state sources; loans unsecured for the initial three year period, interest free (debt service holiday); and following the initial three year period, the Board shall adjudicate each applicant business as being either successful or failed:

a) if business fails, loan converted to grant and no repayment is due; or

b) if business is successful, loan will be set up for repayment on twenty (20) year amortization, five (5) year balloon payment, with the Board to be able to grant a further two (2) year extension before repayment begins.

Additional criteria includes:

1) Developing an innovative business concept with a reasonable probability of creating a new market or filling an existing market need;

2) A five year strategic plan for developing the business, creating jobs, and securing qualified employees to execute the plan with sufficient justification to support the amount of the request; and

3) Demonstrable support from economic development and academic professionals or business consultants who can provide advice and guidance to the applicant.

Again, the Board of Economic Development will promulgate rules and regulations for the process of obtaining and disbursing these funds.

Genesis Board members were urged to support these measures by contacting legislators, and, where appropriate, testifying before the committees hearing these Bills.

Both of these Bills support entrepreneurship through less “hunting” and more “gardening” of homegrown businesses with local, South Dakotans developing businesses.

Joel also mentioned the work of Genesis of Innovation in helping the LRC to develop an issue memorandum on the subject of venture capital, which was circulated to the legislators for consideration.

III. Tad Perry briefly mentioned he and staff are working full-time on the Research Proposal outlined in Tad’s “South Dakota Opportunities Report”, which is funded through the Governor’s budget at 3.7 million to increase research faculty and graduate students.

IV. Lynn Jensen, Director of USDA – Rural Development for South Dakota, related that the Omnibus Spending Bill has now passed the Senate and Lynn is waiting for the USDA portion to arrive in South Dakota, so he may begin to fund revolving loan funds and other projects.

V. Stuart Kellogg, professor of Mechanical Engineering at Tech and GOI Campus Coordinator, introduced Dale Skillman of Tech, currently acting as a consultant, who will be playing an expanded role in GOI.

Both Kellogg and Skillman reported how excited they are about the Black Hills Business Development Center, which will now be built on the Tech campus. Kellogg felt this Center will present tremendous opportunities for students and faculty to facilitate the flow of technology from the School into the Incubator and then to the point of commercialization.

VI. Greg Bartron then reported on progress being made with the Black Hills Business Development Center, to be located on the School of Mines campus. GOI, Rapid City Economic Foundation and Tech are working closely to quantify additional costs, if any, given the new location of the facility. A proposal is being developed by Jamie Rounds for the last piece of funding to complete the project, as CDBG funding is not an option. Construction is slated to begin late this spring. Obviously, the potential for all of Western South Dakota is substantial given this new collaboration. More will follow on continuing progress.

VII. Gary Archamboult, Director of SBIR in South Dakota, then spoke of the need for a West River SBIR person, suggesting there is a strong possibility for a half-time person yet this year. Gary further mentioned the efficacy of research institutes across the state to increase commercialization.

VIII. Marcia Hendrickson, Director of the Enterprise Institute, reported on the activities of Mike Gjerstad, Paul Bachelor and Christine Hamilton, who are forming a new capital investment entity called “Prairie Gold Venture Partners, LLC”. The goal of this company is to raise a minimum of $5,000,000, with a maximum of $10,000,000 to invest primarily in South Dakota startup and expansion businesses. The company will be located in Sioux Falls and is actively seeking investors.

Marcia also mentioned Senator Daschle’s “High Technology Summit” which will be held at the Sheraton Convention Center in Sioux Falls on Monday, May 24, 2004. That evening, the Enterprise Institute will host a “Power of Angel Investing Seminar” in concert with the Kauffman Foundation, also in Sioux Falls.

IX. Genesis of Innovation will also host a “Power of Angel Investing Seminar” in Rapid City at the School of Mines and Technology, beginning with a reception at the home of Dr. Charles Ruch, President, on Thursday night, May 20, 2004. The seminar will follow all day Friday, May 21, 2004. More information will follow.

X. Marcia Hendrickson also reported the Enterprise Institute now has four full-time employees and seven students all working to help commercialize innovation in South Dakota. The staff is working on expanding the Inventor’s Institute, and has assisted two new businesses begin operations. The first involves a guidance interactive diagnostic system for detecting glucose levels in humans with a glucose meter attached to a gameboy, and the second business will help promote secure livestock identification for the traceability of cattle.

XI. Rich Naser then advised the group of progress being made with the South Dakota Technology Business Center in Sioux Falls. The facility opened on January 2, 2004 and is providing administrative space for the Enterprise Institute, Prairie Gold Venture Partners, LLC, a medical research software company, as well as the SBA beginning in April. Naser advised that the facility would devote 75% of its space to startup technology businesses and 25% to administrative tenants.

The vision for the Incubator, USDSU and Southeast Technical Institute is to develop a knowledge community which will conduct applied research and work with universities and the medical sector to drive technology- based economic development in the fields of Biotechnology, Information Technology and Engineering.

XII. Mel Ustad then reported on N2TEC, a program funded by NSF wherein schools such as USD work with other universities across the country to effect technology entrepreneurship commercialization.

Mel gave the example of a team of MBA and law students working with scientists and engineers at universities across the country to work on projects of mutual interest, and at the same time having the ability to attract venture capital from anywhere in the country. Mel will travel to a conference at USC on February 20, 2004 to pursue funding for such projects. Several of the universities involved worked through a virtual format.

XIII. Royce Engstrom of USD then explained his new role as a Regents’ Fellow, which is a mechanism to bring someone into the Regents’ office from campus for professional development and to work on a specific project, in this case, technology transfer. Royce is working to expand the research capabilities within the South Dakota regental system, and reported South Dakota is lagging behind every other state in PHD production. The health of PHD programs in South Dakota is being reviewed, as there are currently only twelve programs in South Dakota, while North Dakota has twenty-eight and is expanding. Royce mentioned the need for a letter from Genesis of Innovation to our Congressional delegation in support of EPSCoR.

XIV. GOI Board member Bill Griffin then reported on his progress in developing a database of executives to assist new businesses which will locate in the Black Hills Business Development Center in Rapid City. Bill has divided the data into two parts, an executive pool and a technical pool, and is currently working with the South Dakota School of Mines and Technology to gather additional talent. This talent can come from any segment of society, and, as Jamie Rounds noted, Score members should definitely be considered.

XV. Jamie Rounds then spoke of the Administration’s Research and Commercialization proposal, which involves an office of Research with two full-time employees devoted to an efficient, single point of contact for intellectual property management, in part to avoid delays in processing intellectual property. The commercialization component will involve two full-time employees devoted to coordinating business services available to South Dakotans everywhere, with a strong commitment to resources such as SBIR.

Jamie told the group that GOI and the Enterprise Institute are essential to the success of commercialization in South Dakota, but we don’t carry the weight of the Governor’s office, and must prove commercialization can work. Jamie is asking for our assistance in cooperating with the Office of Commercialization in developing a public-private partnership comprised of SBDC’s, Tech Centers, Incubators, GOI and EI.

The advantages of working with GOI and EI are that we are fully staffed, can take ownership and equity positions in companies, and can receive royalties from licensing agreements.

Jamie formally asked GOI to come together with EI to develop methods of feeding business to venture capital firms in South Dakota, and asked if we could work together, given the East-West turf tension that has existed in the past. We need to have the Governor’s office involved, or the concept can die as soon as it begins. Jamie indicated that if we have success, we can approach the legislature for further support. Finally, Jamie instructed GOI and EI to meet and determine what it will take to create a statewide organization, with sources from the Governor’s office on board. More will follow on this exciting development.

XVI. Randy Morris then spoke of the perfect timing involved with Jamie’s initiative, indicating that if GOI is going to continue, further grants and Future Fund assistance will be needed, as GOI is out of funds at present. Randy suggested that if GOI and EI are cooperating, it will be easier to sell and believes the State should get something back from any economic development and Future Fund dollars it applies toward this effort, in the form of royalties and state ownership, noting state ownership is a problem at this time. Jamie asked how we will protect the process if it’s working, and Marcia advised she would be speaking with the EI Board next week and remained confident GOI and EI could work together.

XVII. Dennis Anderson then made a motion that GOI aggressively pursue ways to work together with the Enterprise Institute, with Mel Ustad providing a second that includes a deadline of May 1st, 2004 to have a documented plan for Jamie to consider. Upon vote, the motion unanimously carried.

XVIII. Jim Rice, Director of the South Dakota EPSCoR project, then asked how we bring researchers and technology transfer people together in South Dakota, as we need to establish a dialogue between the two groups.

XIX. Lynn Jensen of USDA then indicated GOI will score low in a subsequent application for RBEG funding, indicating that the EI has never applied and perhaps should. Discussion followed on whether a memorandum of understanding should be developed between GOI and EI, or perhaps a super governance board. It was decided that representatives from the two groups would meet to work out details.

There being no further business to come before the Board, the meeting was adjourned.