THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, April 3, 1995 TAG: 9504010160
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
SOURCE: Ted Evanoff
LENGTH: Medium: 83 lines
Lots of people figure Hampton Roads' engine for new jobs will be high technology.
As federal spending declines, defense contractors in Tidewater can turn ideas on the shelves of the area's research labs into profitable products for the commercial market.
At least that's the assumption. And it makes sense. An array of small companies are capable of high-tech production. So you'd think banks and investors would be lined up three deep trying to finance deals.
Well, hold on. There's a debate underway. The question is whether there's enough cash on hand.
The whole issue is underscored by the Expotech trade fair set to open Wednesday in Hampton. The fair is designed in part to showcase commercial uses for technology hatched in the labs of the NASA Langley Research Center in Hampton.
With NASA facing budget cuts, NASA Langley wants to recast itself as a business partner. It's offered to shower technology on companies with the savvy to make use of its ideas.
Joseph Heyman, head of NASA Langley's technology transfer effort, describes an alluring scene. Clusters of small companies join hands with Tidewater universities and research labs, create a thriving economic base employing thousands in Hampton Roads. There's one problem. Cash.
Moving an idea from the laboratory into production takes money and a stomach for risk. Regulations make banks shun risk, particularly for a new product for which the market is a gamble.
``There's a very poor potential of getting help for business from the banks,'' Heyman said. ``If it's not a loan secured by land, they're not interested.''
While banks may be reluctant, there are wealthy investors. People and institutions will invest their money, or pool it with others in venture capital funds that invest in new enterprises.
Last month, Expotech organizers went prospecting. Meeting at Nauticus in Norfolk, the organizers convened bankers, investors, venture capital fund managers and high-tech business operators. They missed pay dirt.
``We came away with a sense that there's some capital out there, but it's not well formed for what we want to do,'' said Clyde R. Hoey II, president of the Virginia Peninsula Chamber of Commerce.
``The big problem with high technology is the time between getting it ready for commercial application and then going into production,'' Hoey said. ``It's that time window that has everybody buffaloed.''
He's talking about working capital, money for machinery, raw inventory, workers. Many small defense contractors rely on cash from their federal contracts for working capital. But producing for the commercial market often means there is no upfront contract providing cash. The cash comes with the sales and the sales come only after the idea is in production.
Hoey senses a solution. Virginia could earmark lottery proceeds for business development. Put in a state fund, the money could guarantee bank loans to high-tech enterprises.
This idea circulated in Richmond when Gov. George F. Allen's Commission on Base Retention and Defense Adjustment looked for ways to shore the economy.
``Right now we don't know how large that loan guarantee program would have to be,'' said Bob Stolle, base retention commission director.
``We recognize venture capital is a problem right now,'' Stolle said. ``We're in the process of studying the situation. I know this sounds state governmentish, but we're trying to find out what should be the state's role.''
Opportunity Virginia, an economic development arm the administration formed in December, has begun the homework. ``A significant amount of Virginia capital is already invested in venture capital funds in other states,'' wrote Opportunity Virginia strategic planning director Gerard W. Ward.
Some states, including Maryland and Pennsylvania, create their own capital funds using state pension system money, Ward wrote.
Despite the talk about absent capital, not everyone says capital is scarce in Tidewater. Money finds good deals, but the deals have been scarce, said Bill Holloran, director of the Small Business Development Center, part of the Hampton Roads Chamber of Commerce.
``We are evolving,'' Holloran said. ``It's not that we're not ready. It's more a case of we have a budding technology sector that will begin making demands for capital. As the deals become available, and there is more of a need for financing, you will see more venture capital come in.'' by CNB