EDC is raising bar on reporting

The recent rift between the R.I. Economic Development Corporation and Slater Technology Fund over reporting requirements for up to $9 million in federal capital highlights the difficult balancing act in government job-creation efforts between public accountability and private enterprise.
Although both sides have declined to discuss any details of ongoing negotiations, differences over reporting requirements attached to potential investments are identified in EDC meeting minutes as apparent stumbling blocks that have caused Slater’s initial $1.2 million installment to be held up.
After facing questions in recent years about how it monitors the performance of companies it assists, the EDC made measuring the return on its public investments a new priority in 2011.
But in increasing the amount of information required from companies that receive assistance – be it equity infusions, debt or loan guarantees – the EDC and other public-development entities risk making their programs less attractive to the entrepreneurs they hope to help.
“There is a balancing act. On the one hand you want accountability, and there is a challenge to have transparency. And on the other you have technology, trade secrets and investments you are making in your strategic plan,” said Peter C. Dorsey Jr., president of the Business Development Company of Rhode Island and executive director of the Cherrystone Angel Group. “There is certainly an issue of having certain levels of confidentiality and strategy: put yourself in the shoes of a company.”
While the Business Development Company uses only private money, Cherrystone this year is working with Providence on a new program that potentially would offer $50,000 in convertible debt to companies the angel investor is putting money in.
So far, Cherrystone hasn’t had a candidate take advantage of the city money, so Dorsey said he doesn’t know whether reporting requirements will be a concern.
Among the things emerging businesses of all stripes may be wary of making public are their hiring plans, what private funding they are receiving and from whom, and what areas they are investing in.
While he has declined to discuss talks with Slater, EDC Executive Director Keith W. Stokes last week acknowledged that the agency’s efforts to measure performance and guarantee accountability require a careful touch. “Everything we are trying to do at the EDC, any public dollars either as loans or guarantees, there has to be a level of performance and there has to be measurement and accountability. This is not private equity, this is public equity,” Stokes said. “That is a hard trade off when you are going to get public funds.”
The $9 million going to Slater to invest in Rhode Island companies is the largest part of a $13.1 million package of federal money awarded to the state in September through the U.S. Treasury Department’s State Small Business Credit Initiative.
Of the total Rhode Island award, which is managed by the EDC, $2 million is going to startup accelerator Betaspring and another $2 million to the EDC-run Small Business Loan Fund.
Betaspring came to an agreement with the EDC to receive the first $1.4 million of its funding during the fall.
Through spokeswoman Melissa Withers, Betaspring co-founder Allan Tear said he “does not have any concerns about reporting requirements” attached to the federal money.
The SSBCI program requires states to provide a plan for how the money in the program is going to be used and how they will measure progress. According to a Treasury fact sheet, the states have discretion in how they measure program performance.
When the EDC and Slater could not reach an agreement in November, the EDC had the first $1.2 million installment that had been planned to go to Slater instead transferred to the Small Business Loan Fund, where it is being held.
In minutes of an SBLF Board of Directors Nov. 29 emergency meeting, EDC Managing Director of Finance Earl Queenan said Slater’s objections to “reporting requirements” threatened the prospects of getting a deal that would have the funds distributed by Treasury’s Dec. 5 deadline.
The EDC negotiates individual agreements for every organization it partners with and the terms Betaspring has agreed to would likely be different from what might be worked out with Slater, Stokes said. Slater Senior Managing Director Richard Horan denied that the public venture capital firm had any objection to SSBCI reporting requirements or had not been prepared to hammer out a deal before the deadline.
Officials from Slater and the EDC met just before Christmas in talks that both sides emerged from optimistic that a deal eventually will be struck.
“We remain hopeful that we are going to be able to deploy the capital in support of entrepreneurs and investors at Slater and do so in a timely fashion,” Horan told Providence Business News. “We are all on the same team, and the goal is to make this capital available.”
While he declined to offer any idea what the sticking point has been in reaching an agreement, Horan re-emphasized the importance of the $9 million to Slater’s efforts to create jobs and stimulate economic activity in Rhode Island.
The fund currently is receiving $2 million from the state annually, but has expressed a desire to eventually end its reliance on the state through a mix of federal money and private investments.
“Our goal is to take the Slater program to scale basically on private-sector fundraising, but in the face of fiscal austerity, our ability to rely on that has been an uncertainty,” Horan said.
Asked for his take on the talks with Slater, Stokes said he does not see any “major sticking point” between the two sides.
“These things can all be solved,” Stokes said. “I don’t see that anything has gone wrong. This is the nature of the transaction.”
When Stokes took over management of the EDC in January 2010, programs such as the Small Business Loan Fund did little monitoring of what companies that received assistance actually produced for the community in long-term jobs and economic activity.
Since then Stokes has made data collection and analysis a point of emphasis at the agency.
In the past year, the EDC has been developing performance measurements for each of its programs along with a new reporting system to make information available to the public.
The EDC now has a task force that includes Bryant University professor Ed Tebaldi working on performance metrics and data collection. &#8226

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