Tech Capital Scarce in Montana

Three months ago, Dale Johnson was looking for 800,000 good reasons to keep his high-tech business in Montana’s Flathead Valley.

BY MICHAEL JAMISON
MISSOULIAN

The company, Positive Systems http://possys.com/ had been based in Whitefish for 12 years, building digital aerial cameras and contributing some $10 million to the local economy.

But to keep up with changing technology markets and expand his business, Johnson needed an $800,000 shot of investment capital.
"The biggest single issue for expanding high-tech business in Montana is capital," he said. "There’s just no doubt about it."

So Johnson went visiting to local business groups, to state and local governments, to state economic-development czars and to Montana’s politicians.
What he heard was a familiar refrain about how badly Montana needs nonpolluting high-tech jobs that pay high wages. What he found was a system that did next to nothing to encourage those very same jobs.

Johnson turned to private investors but was unable to find the deep pockets he needed. Grudgingly, he and his partners, Ron Behrendt and Cody Benkelman, decided to give up some of their ownership in the business, offering Positive Systems shares to the public.

Initially, the stock was offered only to "accredited investors," generally wealthy individuals who are well acquainted with the market. Later, a limited number of shares was made available to the general public, and by the second fiscal quarter of 2003, Johnson expects the company will be traded openly on international stock markets.

He needed the investment, he said, to help steer the company in a new direction.
"There is only one challenge to being a high-tech business in Montana, and that is investment capital," said Todd Twete, director of sales and marketing for Positive Systems.

In Montana, the cash is out there, he said, but there is no network for tapping into it. And because most investors like to put their money in businesses close to home the wide open of Montana works against small, rural companies.

"There’s no active group or agency putting the guy with the money together with the guy with the need," Johnson said.

http://www.sltrib.com/11022002/business/12735.htm

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Whitefish high-tech business a lesson for state

By MICHAEL JAMISON of the Missoulian

Positive Systems ran into roadblocks to its success

WHITEFISH – Three months ago, Dale Johnson was looking for 800,000 good reasons to keep his high-tech business in the Flathead Valley.

The company, Positive Systems, had been based out of Whitefish for 12 years, he said, building digital aerial cameras and, along the way, contributing some $10 million to the local economy.

But in order to keep up with changing technology markets and grow the business, Johnson needed an $800,000 shot of investment capital.

"The biggest single issue for expanding high-tech business in Montana is capital," he said, "there’s just no doubt about it."

And so Johnson went visiting to local business groups, to state and local governments, to state economic-development czars and to Montana’s politicians.

What he heard was a familiar refrain about how badly Montana needs nonpolluting high-tech jobs that pay high wages. What he found was a system that did next to nothing to encourage those very same jobs.

Johnson then turned to private investors, but was unable to find a deep-pockets sugar daddy to roll out the needed investment. Grudgingly, he and his two partners decided to give up some of their ownership in the business they had built, offering Positive Systems shares to the public.

Initially, the stock was offered only to "accredited investors," generally wealthy individuals who are well acquainted with the market. Later, a limited number of shares were made available to the general public, and by the second fiscal quarter of 2003, Johnson expects the company will be traded openly on international stock markets.

And did Johnson get his 800,000 reasons to stay in Montana?

"Was it 100 percent? Not quite. But it was enough," he said.

He needed the investment, he said, to help steer the company in a whole new direction. For years, Positive Systems built cameras that, when strapped to aircraft, offered a specialized bird’s eye view of the terrain below. They worked for farmers, using spectral signatures from plants to chart weeds and root rot and soil moisture and fertilizer needs. They worked for governments, plotting landscape and environmental changes. They worked for NASA’s Mission to Planet Earth program.

But like many firms on the cutting edge, Positive Systems soon found itself among a field of competitors. Suddenly, there were more satellites being launched, more digital-camera manufacturers, more film, more images available.

By the time it got out of the camera business, there were perhaps 10 million high-tech images a year being shot from above, and the market was bulging at the seams.

There remained a hole, however, in the availability of software to piece those images together.

And so Johnson, with his background in electronics and hardware engineering, and his partners Ron Behrendt (computer science) and Cody Benkelman (physics and hard science) started writing software.

The result was Digital Images Made Easy, or DIME, a software package that pieces individual aerial pictures together into one large image. It also recognizes any individual pixel in an image and can attach that pixel to a specific geographic point on the ground, providing its precise latitude and longitude.

That "geo-referencing" allows users to layer the aerial montage directly atop existing maps, or onto other aerial pictures of the same area. Recently, state agencies used the software to layer a chronology of aerial images from the upper Yellowstone River area, beginning with photos from 1948 and working up through time to the present.

The resulting layered map allowed an unprecedented look at habitat changes, stream bank erosion, land-use changes and the impacts of Interstate 90 on the landscape.

Other agencies have used the software to plot wildfires, aid in urban planning, recognize environmental change, evaluate productivity of timber land, and guide developers.

The program, he said, works great.

Johnson’s problem, however, was that Positive Systems has long been well known as a camera-making outfit. The only way to make it equally well-known as a software company was to pour cash into a marketing blitz.

But cash for high-tech firms, even established and successful firms, is hard to come by under the Big Sky.

"There is only one challenge to being a high-tech business in Montana, and that is investment capital," said Todd Twete, director of sales and marketing for Positive Systems.

The company can find expertise in the local workforce, he said. It can find the technology infrastrucure it needs to operate. It can even find the fiber-optic lines and the supporting services it needs.

But it can’t always find knowledgeable investors.

In California, where Twete once worked in high-tech e-commerce, a quick $5 million investment "was considered chump change by venture capitalists."

In Montana, that kind of cash is out there, he said, but there is no network for tapping into it. Instead, technology businesses looking for private investors are forced to cobble together coalitions of local doctors and lawyers and retired white-collar businessmen to raise the necessary cash.

And because most investors like to put their money in businesses close to home – generally within 60 miles or so – the big wide open of Montana works against small, rural companies.

"We think they’re out there," Johnson said of the big investors. But, he added: "There’s no active group or agency putting the guy with the money together with the guy with the need."

Instead, according to many small-business leaders, state government has focused on propping up the old industries – logging and mining and ranching – despite the fact that those industries are experiencing fundamental change that has resulted in a downward economic trend for years.

In addition, Twete said, government economic development programs often focus on bringing new business in from out of state while existing small business receives little or no investment at all.

A few years back, he said, state lawmakers created the Montana Science and Technology Alliance to mine coal-tax money for investment in high-tech companies. That program was not funded in subsequent legislative sessions, however, and is now defunct.

More recently, during the 2001 session, lawmakers earmarked $42 million taxpayer dollars to be invested as venture capital. The idea was that the money would be invested in Montana companies, providing both a return on the dollar and an investment in home-grown business.

But $40 million of that $42 million actually was invested out of state, because companies elsewhere offered a better quarterly return.

"That’s a real problem," Johnson said. "We need to take a hard look at the way we define success. Is success strictly money returned on an investment, or is success also jobs returned on an investment, employment, payroll, taxes paid into the system?"

The state is very good at helping big business, he said, but the reality is Montana’s economy is in large part driven by small business. The return measured in jobs and payroll for small business, he said, should be part of the success equation.

At Positive Systems, no one doubts the value of the jobs. With an average salary of $45,000 – plus generous benefits – a typical Positive Systems employee enjoys a paycheck more than twice as large as his Flathead Valley neighbors.

"And if we had the capital to grow," Johnson said, "we would hire more of them."

He predicts his office of about 15 could be three times as large in the next couple of years if he finds the investors he needs.

Those additional employees would work on adding an "artificial intelligence" component to the DIME software, allowing the computer to recognize changes on the ground from one photographic layer to the next.

He would use the venture capital to hire more sales staff, and with more sales, he said, comes more product development, and more development means a stronger, more diversified business base.

The market is there, Johnson said, and Montana companies can thrive in high-tech if a better system of investor networks is hammered out. Projected growth in coming years for geographic information systems, or GIS, is between 10 and 12 percent, and there remains a shortage of trained GIS specialists in the workplace.

"We can fill at least some of that need," Johnson said, "right here from Montana. We chose to operate in Whitefish because it’s a beautiful place and we want to live here. We needed this type of lifestyle plus Fed Ex and air transport, and because we’re located here, we don’t have any trouble attracting people to work for us."

But now, he said, Montana’s technology industry needs something else. It needs an investment system as dedicated to looking to tomorrow as it is to looking into the past, and as committed to small business as it is to large.

"We’d hate to have to leave here," he said, "but that’s the only piece missing. If Montana is serious about attracting technology jobs, those businesses are going to need the capital."

InBusiness

This story originally appeared in the fall issue of Western Montana InBusiness, a new quarterly business magazine produced by the Missoulian. For information about subscribing to InBusiness, call 523-5329