COMMENTARY | COLUMNISTS | PHIL BAKER

The EmTek Fund wins award but may lose budget fight

The EmTek Fund, San Diego's innovative venture loan program targeting early stage growth companies, has made 15 investments ranging from $100,000 to $250,000 totaling $2.5 million since its inception in 1996. These loans have leveraged an additional $18.5 million of outside investments and have created 170 jobs.

Though EmTek is revenue neutral to the city -- funded by bank investors, not taxpayers -- it has inexplicably been placed on the city manager's chopping block due to the budget crisis.

Ironically, EmTek is simultaneously being recognized at the national level. It will receive the prestigious 2004 EDA Excellence in Urban Economic Development Award from Commerce Department Secretary Donald Evans on June 9 in Washington, D.C. Evans cites "its outstanding efforts to empower California residents by attracting private sector investments and creating higher-skill, higher-wage jobs. This award is a great example of our appreciation of organizations like this one to help grow the economy and create jobs for local citizens."

EmTek provides funding at the fragile early stage of a small company's life, in most cases making the difference between a company's receiving outside financing or never getting off the ground. Charles Mathews, past president of San Diego Tech Coast Angels, said, "EmTek has played a crucial role in investing in smaller and less advantaged entrepreneurs and in providing additional funding for companies in which Tech Coast Angels have invested."

As an unpaid advisory board member for EmTek for several years, I've been impressed with what it has accomplished, relying on a small team of city staff and unpaid volunteers from San Diego's business, finance and legal communities. Mark Sullivan, the city's business finance manager, has piloted this program from a concept to one of the few effective government-run venture loan programs in America. Mark's skill in working among government bureaucracies, the private investment community and entrepreneurs, and his ability to attract outside investors to participate in many of EmTek's investments, have been the basis of EmTek's success.

Streamload (www.streamload.com), an online storage company founded by Steve Iverson five years ago, is typical of how EmTek helps startups to become self-sufficient, create new jobs and repay the loan to be lent again to others. Iverson was able to raise $400,000 from a private angel investor in tandem with a $250,000 EmTek loan in October 2000.

As a result of the recent investment from Windward Ventures, Streamload's total investment from all sources has reached $1,225,000. The company is profitable, employs 11 people in the downtown Renewal Community redevelopment zone, and has over 10,000 paying customers. And Iverson is one of this year's three finalists for Ernst & Young's Entrepreneur of the Year Award from San Diego.

Apparently needing to show a headcount reduction in "non-core" functions, the San Diego city manager's FY05 budget proposes eliminating Sullivan's position, along with one of his three business finance officers, effective July 1. This move has already shaken the confidence of EmTek's investor banks.

Mark Lee, senior vice-president of California Bank and Trust, EmTek's advisory board chairman, told me that City Council approval of this proposal will effectively kill EmTek. "I think I'm speaking for all the investor banks when I say we would have a hard time supporting EmTek without Mark's continuing leadership."

Lee and other EmTek stakeholders are rapidly developing an alternative win-win solution that addresses both the city's budget woes and keeps EmTek on track as a growing resource for local entrepreneurs. EmTek's existing investor banks, the Jacobs Center for Nonprofit Innovation and California Southern Small Business Development Corp., are organizing an orderly privatization and expansion of EmTek which, if successful, will achieve the City Council's original objective to grow EmTek, then move it out of the city for it to become a private nonprofit entity where it could stand on its own.

This privatization effort is without cost to the city budget and requires only that city bureaucrats do not cherry-pick EmTek's existing loan assets or redirect EmTek's portfolio income and program reserves to solve their other budget problems.

So within a week of receiving Commerce Secretary Evans' award, EmTek's fate will be decided at a City Council hearing on the Community & Economic Development Department's budget, scheduled for Monday June 14 at 2 p.m., 12th Floor, City Administration Bldg., 202 C St., downtown San Diego. Let's all hope they make the right decision, allowing EmTek to survive and continue to help San Diego entrepreneurs like Iverson.


Baker has developed and marketed consumer and computer products for Polaroid, Apple, Seiko and others. He is the holder of 30 patents and was named San Diego's Ernst & Young Consumer Products Entrepreneur of the Year in 2000. He can be reached at phil.baker@sddt.com.

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