Integrated Finance Framework & Regional Economic Impact Model

1. Exploring Innovation A Conference on Community Development Finance Integrated Finance Framework & Regional Economic Impact Model Federal Reserve Bank of St. Louis May 2-4, 2007 Stan Halle, HHCG Frank Knott, President, ViTAL Economy, Inc. 410-321-1484 fknottmd@earthlink.net

2. Agenda 9:00 - Welcome, Introductions and Objectives 9:10 – Role of an Integrated Finance Framework for Regional Rural Economies 9:40 – Role of a Regional Economic Model in Transforming an Economy 10:15 –Adjourn

3. Overview • Approaches economic & community development from a practical, business standpoint--we are business strategists first • Provides all the components needed to drive economic growth • Cluster based economic and community development strategy • sources of new business financing • business incubator • connectivity plan • Insures that all economic development efforts are focused and consistent by linking the financing facility strategy and the business incubator strategy to the economic and community development strategy Integrated Finance & Funding Strategy Economic and Community Development Plan Innovation Entrepreneurship Incubation Connectivity Enabled Strategy The ViTAL Economy Approach Components

4. Challenges to Growing Rural Regional Economies • Access to specialty finance services and early stage venture capital networks • Networks that encourage entrepreneurs and allow businesses to share ideas • Intermediary resource networks that support new businesses • Perception that quality managers do not live nor come to such economies • Increased financial literacy of prospective users and providers of capital • Capacity to evaluate intellectual property versus traditional asset-based risks • Community environments which encourage entrepreneurship and risk taking • Market research capabilities that allow businesses to expand to new markets and that allow entrepreneurs to turn ideas into viable new products Sources: NGA Center for BEST PRACTICES, RUPRI and ViTAL Economy Research

5. Your Thoughts: What Challenges have Your Communities Facedin Accessing Capital to Transform Your Regional Economy?

6. Rural Community Refrain “We are risk averse and opportunity handicapped” Industry Cluster Participant Olympic Peninsula, Washington

7. PotentialFunding Sources $500,000 $10M $100M 0 $50M Finance Gaps RESULT • Technologies by local entrepreneurs do not get commercialized • Entrepreneurs leave the region or state • Entrepreneurs are not attracted from outside the state • Communities do not develop technology focused industries Mature Growth • Public Equity • CommercialPaper • Medium TermNotes • Public Debt • Venture Capital • Short-term loans • Intermediate-termLoans • Private Placement • Mezzanine Financing • Trade Credit • Public Equity • Commercial Paper • Medium-Term Loans Early Stage • Insider Financing • Angels • Venture Capital • Short-term loans • Intermediate-termLoans • Private Placement Start-up Company Growth Sustainable Economic Development is Inhibited by Funding Gaps Faced by Growing Companies • Insider Financing • Angels • Micro-loans/Grants • Venture Capital

8. Conducting an Integrated Finance Assessmentfor a Rural Regional Economy • What are the specific finance needs of entrepreneurs, early stage businesses and established companies located in the economic region? • What are the funding requirements for implementing the regional economic strategy and addressing private and public infrastructure deficits? • What are the finance products, finance advisory services and risk assessment capacities available in the economic region? • What gaps exist between what the regional economy needs and what finance products, capacities/capabilities and finance advisory services are available? • Given the above, what funds, or finance products and services does the region need to develop locally, or access regionally and nationally? • What is the recommended legal structure for managing a family of integrated fund structures and finance services to serve the region?

9. Sample Equity and Specialty Capital Requirements Angel Investors $3.1M Economic Development Financing = $336.2 Million EDC Micro-Loans/ Micro-Grants $14.7M Venture Capital $4.8M Private Investors $145.7M + EDC Revolving Equity& Loan Fund $26.1M Community Development Financing = $100 Million Bank Loans $107.0M Ag. Development Loans $33.3M Port Authority Loans $1.5M

10. Regional Intermediary Finance Facility Regional Board of Directors National Finance Network Local Finance Partners Non-Profit Financing and Advisory Entity Equity & Specialty Debt Financial Services Best Practice Strategy & Resource Services Business Development & Marketing • Micro-Loans • Angel Pools • Grants • VC Funds • Specialty • InfrastructureFinancing Funding • Public Finance • Sale lease back • Loan Pools • Participations • Risk Analysis • REITS • Economic and Finance Vehicle Development • Community Development Asset Finance Services • Early Stage Company Business Advisory Services • Global Market Research • Promote Services to Business • Market Financing Services • Build Innovation Climate • Grow Entrepreneur Interest • Increase Financial Literacy • Support Business Incubation

11. ViTAL Economy Capital Capital, Innovation & Literacy 501-c-3 Intermediary Equity & Specialty Finance Access, Expertise & Literacy Global Best Practice Collaborative Technical Support Services Setting Climates of Risk Taking and Innovation A Self-Sustaining Finance Framework for Regional Rural Economies

12. Foundational Tools for Transforming Rural Regional Economies Regional Economic Impact Model Frank Knott, President, ViTAL Economy, Inc. 410-321-1484 fknottmd@earthlink.net

13. Why We Need an Economic Model for Measuring A Regional Economy! • Nations measure and manage their economy with an economic model • States and provinces measure their economies with an economic model • Rural economic regions typically don’t have an economic model • Makes it difficult to manage a rural regional economy • Difficult to plan without benchmarks • Impossible to reliably assess progress without a model • Forecasting impact of competing economic strategies is impossible • Without measurement and benchmarks there is no accountability If You Don’t Know Where You Are Going, Any Road Will Get You There! Alice in Wonderland

14. What is Economic Impact? • Measure of spending and employment • Associated with a business, sector of the economy, or a specific project • Common ways to measure economic impact: • Jobs or person years of employment • Spending in the region (economic output) • GDP, value-added or value of capital used

15. Types of Economic Impact • Direct Economic Impact • Employment within the region • Indirect Economic Impact • Employment in downstream industries that result from employment in the region • Induced Economic Impact • Employment generated from expenditures by individuals employed directly or indirectly • Total Economic Impact = Direct + Indirect + Induced

16. Methodology for SI Economic Analysis • The Base: Bureau of Economic Analysis (BEA) RIMS II multipliers • Multipliers created to allow for regional analysis of jobs and earnings • BEA created a specialty run of multipliers for the 20-county Southern Illinois region; most rural region multipliers are from multiple MSA • GDP for multipliers was developed using a ratio method recommended by BEA (state industry jobs : state industry GDP) • Induced impacts not included in RIMS II multipliers • Model driven by BEA jobs data at the county level • Multipliers are applied to the jobs data to generate earnings, GDP and output measures • Use of multipliers was checked with BEA staff to ensure correct application

17. Foundational Tools for Transforming Rural Regional Economies VE Regional Economic Model Launched in Southern Illinois February 2007

18. Uniqueness of VE Economic Model • Refined to calculate Jobs, Earnings, and GDP by County & Region • It also can instantly calculate the economic impact of capital investment • Specific BEA multipliers have been built that are tied to Southern Illinois and, therefore, are not distorted by large Metro-areas nearby • The data is easily updated, but not directly accessible to the users • Will be web-based for open access to all • Allows for easy scenario-comparisons & forecasting re job creation, percentage wage growth • Developed a specific micro-model for assessing the economic impact of building a new health-care institution • Model is applicable to other economic regions with different multipliers

19. Analysis by County or by Sub Region

20. Industry Sector — by Jobs

21. Industry Sector — by GDP

22. Scenarios — by Jobs or Capital Investment

23. Your Comments? Discussion — Feedback