Slater: Not the time to eliminate state aid

A $9 million federal grant may eventually help the Slater Technology Fund wean itself from state funding, though fund managers say they are not ready for that to happen just yet.
Slater has been receiving $2 million from the state since 2010, when its annual funding was cut by $1 million. Richard Horan, senior managing director of the fund, said his goal is to get to a point of no longer needing state funding.
But until that can happen, “the hope would be that we can continue to maintain state support consistent with past practice or, better still, increased levels of investment,” Horan said. “Given the cost-effectiveness of the program … there is certainly a case to be made.”
But Keith W. Stokes, executive director of the R.I. Economic Development Corporation, says the $9 million from the U.S. Department of Treasury’s State Small Business Credit Initiative should be a major step toward Slater becoming self-sustaining. “That money [now provided annually by the state to Slater] has to go to more economic development.”
The Slater fund, created in 1997, was set up to focus on supporting entrepreneurs who had vision, leadership and a commitment to build business enterprises, providing seed-stage capital to technology-based companies in Rhode Island.
Over the years it has garnered money from entrepreneurs, businesses and government.
The $9 million will help Slater begin to expand programs, bring in more investors and start more businesses to benefit the Rhode Island economy. Slater will be able to launch 20 or more companies over the next several years, with money left over for follow-up investments in firms that are making good progress, Horan estimates.
On Oct. 3, Gov. Lincoln D. Chafee and others announced a $13.1 million federal award to Rhode Island to expand access to its capital-lending programs, hoping to stimulating small-business financing in Rhode Island. The State Small Business Credit Initiative from the federal government, which was established by the Small Business Jobs Act of 2010, wants the money to be used for states to strengthen existing and new programs that support lending to small businesses and small manufactures.
Besides Slater, there are two other Rhode Island grant recipients.
Providence-based Betaspring, a private incubator for startups that give potential entrepreneurs training and mentoring, as well as seed money, to establish and expand their business, will get $2 million.
Alan Tear, a Betaspring founder, says the money will attract and mentor more top talent in the state.
“They continue to expand and with this capital to cement Providence’s status as an attraction to young entrepreneurs and high-growth venture forms,” he said. “This program will be critical to high-wage job creation, highly-skilled talent attraction, and stopping the brain drain from Rhode Island institutions of higher learning.”
The other Betaspring co-founders, Owen Johnson and Jack Templin, are successful Providence entrepreneurs who have been on the founding teams of 10 technology startups and have raised more than $30 million from investors and strategic partners.
Slightly more than $2 million will also be awarded to the EDC’s Small Business Loan Fund for additional capital, including funds for urban small-business investment.
“Through SSBCI investments in [the EDC loan fund], we will also be able to provide more direct financial resources to businesses in our state’s core urban communities, Stokes said. “This new capital infusion will help renew those areas into vibrant and attractive mixed-use environments in which to work, live, visit and own a business.”
The Slater fund typically invests at the inception stage of a new venture, often based upon ideas and technologies originating in academic institutions, government-research laboratories or commercial enterprises located within the region. In addition to the yearly state funding, it also gets angel funding. Even though Slater would like to continue getting state funding, Horan says he is pursuing a strategy to replace that through private-sector fundraising.
“Continued state funding and more so, the infusion of $9 million in federal funding from the SSBCI grant, will provide a solid foundation from which to launch such private-sector funding initiatives, Horan said.
“The goal is no doubt to become self-sustaining, both on the basis of returns on investment as well as the ability to raise successive funds over time,” he said. “We have already seen some evidence of the former in returns realized on prior Slater fund investments. While meaningful thus far, owing to an increased emphasis in recent years on the ROI component of our ‘hybrid return’ model (the primary emphasis being economic development), returns have not yet been sufficient to achieve self-sustainability overall.”
However, he said the investments Slater makes are long-term in duration and inherently high-risk, so sustainability will take time, meaning continued state support, leveraged by significant federal funding and private-sector investment, will go a long way to achieving the goal.
“As for cuts or elimination of our funding, that has certainly been a concern, particularly given issues of fiscal austerity at the state level,” Horan said. The federal grant will relieve some of the pressure, at least in the short-term.
“While a modest amount of funding in the grand scheme of things, it will be of great value to the entrepreneurs and investors we serve at Slater,” he said. &#8226

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