Home / Opinion / Rochester needs a program
for growth

Rochester needs a program
for growth

It is well-known that economic growth in the past three decades has come from the emergence and growth of new companies. It should be obvious to all that the large companies in this community have been shrinking. Unfortunately, this trend is likely to continue.
Some communities have been alarmed by the continual loss of jobs, due to shrinkage of large corporations or due to companies moving to other regions. In an attempt to replace jobs lost, local governments often have offered inducements to companies to move to their region.
Geneva recently attracted a glass manufacturing plant. This is the first new large manufacturing facility in New York in many, many years. The plant will create many jobs both directly and indirectly. The cost to taxpayers, however, was very high. There is considerable statistical evidence that it is far less costly to create jobs by helping small local firms grow than to make the substantial concessions necessary to attract an estab- lished company. Further, healthy homegrown companies are less likely to be attracted by offers to relocate to other regions.
Rochester has long been a spawning ground for new ideas, new technologies and new companies. There is no shortage of good business concepts in the region. The excellent universities and colleges in the Rochester area continually turn out viable ideas with commercial value.
Additionally, commercial ideas that are not central to the core business frequently are introduced, patented but not developed at the region’s large corporations. For the most part, these concepts are either not pursued, cease to exist or they go elsewhere because the Rochester area does not have the infrastructure to support them.
In order to flourish, companies need a good business concept, they need good management and they need capital to fuel growth. While the number of commercial ideas is plentiful, the other elements conducive to growth have not been readily available in this area. If we recognize that the major source of economic development comes from the emergence and growth of small companies, then we should address the issue of creating an environment in which such companies can form and grow.
For many years articles have been written about the lack of capital and the lack of a nurturing environment in Rochester to support the growth of small companies. It’s like the weather: Everyone complains about it but nobody does anything about it. In truth, there is plenty of capital in the Rochester area and many millions are already being invested as venture capital in small companies. However, whatever portion is directed to small companies is invested elsewhere, in places like Silicon Valley, Boston, Research Triangle or Texas under the guise of “fiduciary responsibility.” Perhaps a little community responsibility is needed–or to put it another way, perhaps some vision is needed. If we were to focus our efforts to exploit the ideas generated in this region, the potential would be enormous.
What do we need to do to get this area growing again? Three fundamental elements are required:
1. Ideas. Rochester is recognized as a hot spot for new commercial developments. Good concepts are continually generated by the talented professionals at our educational institutions, but they are not fully exploited. Similarly, ideas developed at local corporations often are not exploited, if they are not mainstream, and often they are lost within the corporate bureaucracy.
A program could be developed to provide for technology transfer to help form new companies. The source of the concept could retain an equity position in the new company and benefit from its growth.
Consider the benefits: Ideas that were lying fallow now can be exploited for the benefit of the community, the originator and for the investors.
2. Capital. A pool of $5 million to $20 million is needed over a period of several years. This capital would be invested in worthy companies and ideas with significant growth potential. The objective of the investments would be to maximize returns.
In any group of emerging companies there will be some that are superior to the others. By focusing on investment return, the major portion of the capital will be channeled in those companies that successfully convert their ideas into winning products creating strong companies. The returns thus generated will create a replenishable and growing pool of capital that can be used forever to create growth in the region.
The initial capital pool should come from our own local institutions and corporations, which already invest hundreds of millions in similar endeavors in other regions. If a small fraction of this capital can be diverted to this region, the institutions and corporations will benefit in several ways:
Commercial exploitation of their fallow ideas will lead to asset appreciation from ownership in companies that otherwise would not have existed.
A robust, growing community is to everyone’s benefit. For example, attracting and keeping key employees suddenly becomes easier. Layoffs become less traumatic as there are more job opportunities in the region.
It is conceivable that returns from the investments made by this fund may not achieve the results that the institutions and corporations normally achieve when they invest in like securities elsewhere. This fund would be small and at a relative disadvantage. Countering that would be the shortage of capital for new companies in this region, minimizing investment competition. In any case, the performance of the fund should not have a large effect on the overall performance of the investments made by the institutions and corporations, because this fund would require only a tiny fraction of their investing resources. To the extent that any downside risk exists, the side benefits are so great as to swamp this consideration.
It is expected that some of the capital would be provided by private investors. This region is blessed with several high-net-worth, community-minded individuals who would support a program of this sort if properly organized and managed. This program would provide them with the opportunity to support the community both in a tangible and profitable manner.
3. Management. Good ideas and capital are necessary, but they are not sufficient by themselves to ensure success. Management is a critical element to the equation. Only good strategic decisions can properly combine the ideas and the available capital. Giving a weak management team capital without providing guidance is simply throwing money down the drain.
Managers for new companies can come from several sources. The originators of the ideas can provide management. Graduates from the region’s business schools also can provide management talent. Like at any venture-capital firm, the manager of this pool of capital also must have a cadre of managers who can supplement the skills and guide the originators of the ideas as well as the business-school graduates. Often these people may act as interim managers until permanent managers can be hired from other sources.
If these requisite elements–ideas, capital and management–are in place in the community, then economic development can be ensured.
Frankly, the program that I have outlined would require far more than $20 million to create substantial growth in this region. However, once the program has been properly organized it should attract capital from the major financial centers in the order of hundreds of millions of dollars. Until venture capitalists are convinced that we have the infrastructure to nurture new companies, they will continue to invest elsewhere. Previous technology forums did not achieve their goal of attracting capital because there was no focal point with which major venture-capital groups could co-invest. This program would provide such a focal point.
The program outlined above should provide the beginning of a plan for growth. Once in place it should become self-sustaining and provide the basis for an expanding community. The Rochester area has the potential for significant growth. However, it will not happen unless we use vision and take the initiative. It will not happen unless those who would benefit from an economically strong region set aside some capital for this program, where it can be invested in promising young local companies, where it can be invested in the future of Rochester.
(Paul Cherin is president of Tech Ventures Inc.)

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