Economic Stimulus – Fact or Fiction?
by John Marinho
Clients often ask about the economic stimulus funds made available by the federal government, and whether they may be eligible to apply for some of the funding in order to support their business initiatives. More often than not, the answer is yes, and indeed clients that align with the objectives of the economic stimulus act are very likely to get favorable treatment – the key is to apply for the funding.
The American Recovery and Reinvestment Act of 2009 (ARRA) was passed into law by Congress and the President in February of 2009. The Act appropriated $787 Billion Dollars to promote economic recovery, job creation, and entrepeneurship so as to transform the US’ economy into a model for the 21st Century. The Act looks to establish key investments in critical sectors and next generation technologies in energy, healthcare, telecommunications, transportation, construction and manufacturing.
The guiding principles of the Act are based on economic innovation to drive growth and solve national problems by deploying 21st Century technology and infrastructure. The Obama Administration and the Office of Science and Technology Policy has stated that they are committed to advancing a comprehensive technology and innovation plan that will:
- Develop New Clean Energy Sources: In order to wean the nation off wasteful petroleum products and to create new markets for U.S. energy products abroad, develop new and cleaner energy sources,
- Develop Next Generation Manufacturing Technologies: Create and install new manufacturing methods so America can again create its fair share of the products we use and to revitalize the domestic job market,
- Implement a networked system of Electronic Medical Records to lower healthcare costs and improve patient care,
- Connect the country with broadband networks that reach into every neighborhood and household, every school and library, and every hospital and public safety office through a combination of new investments, reform of the Universal Service Fund, better use of the nation’s wireless spectrum, promotion of next-generation facilities, technologies and applications, and new tax and loan incentives,
- Make Americans more safe and secure by moving away from antiquated 1970s and 1980s-based technology to modern interoperable public safety communication networks,
- Upgrade Education To Meet The Needs Of The 21st Century: Harness new technologies to transform the way teachers teach and students learn. Ensure all public school children are equipped with the necessary science, technology and math skills to compete and win in the 21st century economy.
The act requires that all of the ARRA funds be allocated and spent by September of 2010. As shown in the chart below from the Recovery.gov website, one can see the change in spending focus over time through 2012. While all the funds must be spent by September 2010, per the statute, the project implementation horizon allows for a two-year period.
Private firms and public sector institutions are on relatively equal footing in applying for the ARRA funding. The actual funds are managed and distributed through various federal agencies such as the Department of Commerce, Department of Energy, Department of Transportation, Health and Human Services, Department of Agriculture, Treasury, etc. Each federal agency is responsible for its portion of the ARRA funds and they manage programs to distribute the funding in three basic formats: 1. Grants, 2. Loan Guarantees, and 3. Tax Credits, or payments in lieu of tax credits. Each agency provides for and manages an application process whereby private firms, states and local municipalities can apply for the funds based on the schedule and guidance documentation that each agency provides in support of the Act. Such information can be found on the agencies website under the heading of Recovery.gov.
As of October 2009, the federal government has announced and committed $309 Billion Dollars and spent slightly over $110 Billion Dollars in paid out funds. It’s anticipated that the bulk of the ARRA funds will be spent between now and September 2010. So indeed the opportunity for Stimulus Funding is a Fact, but act quickly because the time is now to consider whether a project, technology or start-up initiative fits within the ARRA funding opportunity.
Business Expansion Challenges
by Carol Stuckley
Client Situation:
A successful life sciences entrepreneur was lured into expanding his global business into a new, higher fixed cost, lower margin and higher risk business segment, with the further complexity of adding multiple international locations. Exacerbated by the global economic slowdown, this business segment expansion increasingly gobbled up cash, eroded margins and depressed earnings.
What We Did:
RES Partners identified opportunities to augment margins in the new business segment by identifying new services and applying premium pricing to niche projects where competition was de minimus. Additionally, contracts were revamped to comprehensively reduce business risk and improve cash flow. International operations were streamlined to eliminate inefficiencies. Importantly, this successful entrepreneur learned to say “no thanks” to new business opportunities that could not meet his newly defined risk/reward threshold.
Results:
This successful entrepreneur was able to arrest the cash drain attributable to his new business segment expansion, simplify his international footprint, improve profit margins and protect his legacy as a successful entrepreneur.
When do I … ?
by Lou Wagman
I am often asked by clients who are early-stage technology entrepreneurs “when do I start contacting potential investors and strategic partners”. My answer is that it is never too early. Even if a company is not ready for angel or venture capital financing, it’s never too early to start establishing relationships with potential funders. If you have selected funds or angels who are interested in the technology sector you are playing in, who invest in the geographical area you are located in, and who have an appetite for earlier stage companies, they may want to learn what you are doing and start tracking your progress. Remember that venture funds and angels are always interested in learning where technology is moving so that they can be at the head of the pack rather than the rear. It takes little effort on their part and yours to stay in touch – perhaps as little as a conversation every three months. And when you start to approach their investment threshold, they already know a lot about you, especially how well you do in meeting your business goals and how credible you are.
The same holds for strategic partners. But here one needs to be very selective so that you do not waste their time and yours. Identifying your appropriate potential strategic partners requires careful research. It’s not only the obvious fact that your product or service may be important to their business. It’s also how they do business. Do they go outside for new technology and products? Are they an active acquirer? If so do they have a good reputation for working with outside companies? Are they a leader or a laggard in their field? But don’t forget that sometimes it’s the laggards who are most open to new products and services that will get them out front of their competitors. Once you have done this screening, you need to determine where to make contact within the organization, especially if it’s a large company. You need to identify the person who will become your champion.
So why have I come down so strongly on it being never too soon? The reason is that more times than not, by the time the entrepreneur starts his quest for funds it’s too late. Entrepreneurs typically become mobilized about six to twelve months before they run out of cash believing it’s ample time to get additional financing and establish strategic relationships. Unfortunately, the process often takes longer than a year and being desperate is not the time to be seeking and negotiating financing. This plays to the advantage of the funder, not the entrepreneur. So err on the side of starting too soon, not too late.
If you’d like to comment, please visit the “When Do I? ” Discussion as part of our Res Partners Group on Linkedin. If you are not a Res Partners Group member on Linkedin, please request a membership.
