KNAU and Arizona News
Mon November 24, 2008
Hi-tech in Down Times
By Mark Herz
Flagstaff, AZ – It's been nothing but bad economic news across the country and in Northern Arizona over the past few months.
Retailers have shut down, and cities and counties have announced huge deficits. But there is a bit of hope on Flagstaff's economic horizon.
Last Tuesday, a "business incubator" opened on scenic McMillan Mesa.
In the beginning of spring, the incubator was still under construction. The smart, modest building is finished now. Five small hi-tech companies have moved in, and there's room for four more.
It was a different economic world at the beginning of spring now is the winter of apprehension, it seems.
"Hey we're all scared," Michael Kerski said. "But I think you can't just freeze up because you're scared."
Kerski is in charge of economic development for the City of Flagstaff. He was at the grand opening, where the room buzzed with optimism.
The incubator provides start-ups with business expertise, state-of-the art offices, and labs. The companies, in turn, are trying to hatch scientific ideas into commercial products. And the hope is they'll grow jobs for Northern Arizona along the way.
Of course, it takes more than just hope.
"It's harder for start-up companies to raise money right now," Kerski said, "versus, you know, in the good times the money would just flow."
Two startups found out about that here: they've had to postpone their moves into the incubator because of investors pulling out on them.
A couple hours after the grand opening, those companies and a few others gathered at the Pine Canyon Club in Flagstaff. Imposing golf-course homes are spread among the rolling hills here.
The companies were getting set to pitch to a couple dozen potential 'angel Investors,' half of them from Flagstaff. They're people who want to get in on the ground floor of cutting edge hi-tech.
"I'm Don Piper, I'm the interim CEO of Ambature, LLC. I'm here today to to complete our $250,000 second round of financing through convertible debenture."
Yeah, it's not just hi-tech, it's high finance to the rest of us. The normal minimum investment is $25,000 dollars, and can reach several million.
So can the returns.
"An old rule of thumb, and I think both venture capitalists and angel investors will still shoot for, will be a minimum of five times return on their investment in five years," Don Piper said.
Now, before anyone starts getting ready to raid their retirement, Piper says the investments are so lucrative, because,
"If half or more of their investments fail which often happens in venture capital they have to have one or more home runs that give them 10 times or 100 times return on their investment."
Piper came to the Pine Canyon Club hoping to convince some high-net-worth individuals that his company was one of those home runs.
Ambature hopes to develop a room temperature superconductor. That's a material that every year could save billions of dollars of electricity currently wasted as heat. Another company pitching was Protein Genomics, they're growing human skin for wound healing and cosmetic applications.
"Some of the technologies were looking at could really, literally change the world," said Tom Rainey
He's the President of the Northern Arizona Center for Emerging Technologies, or NACET, which runs the incubator. He's helping forge partnerships in the region, like the one between NACET and Northern Arizona University that helps bring experiments in the lab out into the marketplace.
And he knows the marketplace's mood.
"People are starting to get nervous about any kind of investment, whether it's in the stock market or a private company," Rainey said. "And quite frankly, the companies we deal with tend to be even more risky than a NASDAQ company or company on the stock market."
Still, even in a down market, there are those who see opportunities. As one old hand told me, "When there's blood in the water, sometimes that's the best time to invest."
"And what's the alternative," Rainey said. "We just bury ourselves in the ground or climb into a cave? We have to try to work our way out of this and this is what I see is the future of our economy right here."
From where Rainey's sitting, the future looks bright, and he's inviting others to see it that way too. He's lending advice on a technology park project being put together in Prescott with Embry-Riddle Aeronautical University, and he has plans to help Northern Arizona Indian tribes start incubators of their own.