Funding for Life Sciences

Day 3 - September 9, 2009 – Traveling to Hangzhou

I was really looking forward to traveling by train to Hangzhou and I was not disappointed.  It was a great opportunity for me to learn more about the Chinese culture and see more of China's beautiful landscape.

Hangzhou is in the Zhejiang Province located about 112 miles southwest of Shanghai.    Hangzhou has a population of over 6 million people, which is small by Chinese standards, and has a beautiful fresh water lake called West Lake.  West Lake is surrounded by mountains on three sides and is very well known in China.

Many Chinese homes, especially in farm villages, have temples on top of them to pay homage to their ancestors.  Ancestry and history play a large part of the Chinese culture and the temples are another example of these influences.

I also thought it was interesting, that unlike the U.S., Chinese grooms and their families pay for about 80 percent of the cost of their weddings.

It is early in the day of September 9, 2009 – 9/9/09 – and 9 is a very lucky number in the Chinese culture.  If fact, the Chinese celebrate the ninth second, of the ninth minute, of the ninth hour, of the ninth day, of the ninth month of the ninth year.  The luck of nine did not rub off on the number four in this culture.  Four is considered very unlucky, similar to the U.S. perception of the number 13.

I look forward to reporting more about this day's events in tomorrow's blog.

September 8, 2009 - Day 2

We spent the first part of our day with the American Chamber of Commerce for a discussion on "green collar" jobs.  Chinese carbon emissions are escalating and China has seven of the 10 most polluted cities in the world.  As a result, environmental protection has become more important to the Chinese.

Later in the day we traveled to Eli Lilly's facility at the Pudong Science Park.  Lilly has over 2,000 employees in China, which means China has the second largest Lilly operation in the world.  Pudong is one of Shanghai's newest districts with a focus on three main industries: life sciences, software and integrated circuits.

Some of us were also able to visit ShangPharma.  ShangPharma provides research services to pharmaceutical and biotech companies.  They currently have over 1,600 scientists.  An interesting question was raised about how intellectual property is protected for the company and its clients.  The uncertainty of intellectual property protection is not isolated to just ShangPharma.  It is an issue that China is addressing as a country.

Following these visits we had a traditional Chinese lunch that was again served on a lazy Susan.  There were six different courses that included duck, shrimp, squid, scallops, fresh vegetables, jellyfish and fried rice.  Beer and wine were again offered.  Chinese meals are traditionally very  large.  I was curious how the society remains so thin.  Meal preparation seems to hold the answer.  They use vegetable oils and other "waist friendly" and heart healthy preparation methods.

The day concluded with a Friends of Indiana reception.  Guests included companies that have a business connection to Indiana or have an interest in doing business in Indiana.  Eli Lilly, Cummins and Alison Transmission all attended.

I'm really looking forward to traveling by train to Hangzhou tomorrow.  It will be a great opportunity for me to see some of the rural parts of China and its landscape.

We've arrived in Shanghai China!  China is the world's most populous country with a population of 1.3 billion (with over 700,000 million living in rural farm villages) and one of the largest producers and consumers of agricultural products.  Over 40 percent of China's labor force is engaged in agriculture, even though only 10 percent of the land is suitable for cultivation and crops.  China is among the world's largest producers of rice, corn, wheat, soybeans, vegetables, tea and port. Industry and construction account for about 46 percent of China's gross domestic product (GDP). 

China is the second largest producer of oil after the U.S.  Coal makes up the bulk of China's energy consumption and is the largest producer and consumer of coal in the world.  China is home to 7 of the world's top 10 most polluted cities. 

China is now one of the most important markets for U.S. exports and in 2007, U.S. exports to China totaled $65.2 billion. 

Shanghai is beautiful with many high-rise buildings and lovely architecture.  It's approximately 200-300 years old, relatively new by Chinese standards.  It's very cosmopolitan and has one of the world's largest buildings.  The highways are elevated and the transportation system is very efficient with subways and lots of taxis, but traffic jams are not uncommon. 

The average age of marriage is 25 and it's not uncommon for many generations to reside in the same household.   This makes defining China's "middle class" difficult.  A young adult will have low expenses because they live with their elders, but they have a large impact on spending.

We concluded the evening with a wonderful 7 course dinner.  Keeping with tradition, we changed chopsticks with each course.  Dinner consisted of many "firsts" for me including sautéed prawns in chile sauce, shredded chicken soup, steamed garoupa, pan-fired beef and mushrooms, and a sweetened almond crème with pastries for dessert. 

During dinner many toasts were given, as is tradition in China.   When a person receives a toast they must participate by taking a drink.  Many high ranking officials and business leaders have people who help "protect" them from toasts so the leader isn't required to drink a large amount of alcohol.  When receiving a toasting you should hold your wine glass below the glass of the person who is making the toast as a sign of respect.

Monday, Sept. 7, 2009
We had a briefing at the hotel by the U.S. Commercial Service and we talked a lot about China.  We started off breakfast before the presentation with a combined traditional Chinese/American breakfast.  On the Chinese side we had soups, dumplings, fresh seafood, salad and loose leaf tea.

China's GDP is about one-third of the U.S. and they have the third largest global economy.  China has had 5 years of rapid double-digit GDP growth.

Shanghai is not representative of China as a whole.  The standard of living between large metropolitan cities and farm villages is vast with marked differences in health care and education.  It is very cosmopolitan and an important economic center.  Like most countries, China has been impacted by the worldwide recession.  Exports are down 7.8 percent as of last year and they have had over 100,000 factory closings.  There are 26 million unemployed Chinese migrant workers.

China was the first major country to enact a stimulus package.  They injected $582 billion in their economy with a majority of the stimulus funds targeted toward infrastructure (air, railways, highways and power grids) and earthquake reconstruction. They have had a 2009 economic revival with a growth rate of 7.9 percent, mostly due to the stimulus package and an increase in lending.  Auto sales are up 25 percent and for the first time China has surpassed the United States.  Home sales have also improved recently.

Daniels was the featured speaker at a conference hosted by Cummins, Inc. for representatives of some of Cummins’ top Chinese suppler companies and members of the Indiana delegation.  Steve Chapman, Cummins’ group vice president for China and Russia, who lives in Beijing, introduced Daniels. The governor discussed Indiana’s business climate and encouraged conference attendees to visit the Hoosier state as they consider setting up operations in the U.S.  The governor was the guest of honor at a luncheon hosted by Cummins at the conclusion of the conference.

There has been quick growth in U.S. exports to China since China joined a common trade union in 2002.  There are many U.S. companies in China and a significant U.S. presence in human capital.  China has surpassed Japan as the U.S.'s largest export market behind Canada and Mexico.  U.S. companies with a presence in China tend to be profitable in their operations and include companies such as General Electric, 3M, GM, Boeing, Cargill, IBM  and Caterpillar.  The Chinese are less likely to have large corporate centers in the U.S. because they don't experience managing a worldwide work force and because labor is much more expensive in the U.S. compared to China.   The average labor cost in the U.S. is $25/hour compared to $1/hour in China.

Shanghai has a population of 20 million and is the commercial capital and one of the wealthiest areas of China, similar to Manhattan.  Shanghai is the economic powerhouse so an important area for Governor Daniels an our delegation to visit.

In the evening we met with the Shanghai Foreign Commerce Commission to discuss why Chinese companies should do business in Indiana.  Governor Daniels discussed how businesses would benefit from working with Indiana including the fact that Indiana has higher capital and foreign investments than any other U.S. state and Indiana does not raise taxes to pay for unbalanced budgets.  After we left the commerce commission, we immediately  went to the Hoosier Club of Shanghai reception at the yacht club.  Members of the Hoosier club are comprised of alumni from Indiana universities.  The governor spoke and commented on the importance of student exchange programs.
 
To end the evening we went to an authentic Chinese restaurant featuring several courses including shrimp, soft shell crab, beef and avocado.  The food here is incredible and made from many natural ingredients.

After an overnight flight from the U.S., we arrived in São Paulo, Brazil, the nation's largest city in the southern region of the country.  Brazil covers a very large area along the eastern coast of South America and includes much of the continent's interior region.  The county is equivalent in size to the continental U.S., but has less than two-thirds of the U.S. population.

Once we answered questions from the Brazilian hotel staff on the upcoming NFL season and the Indianapolis Colts, we meet with Scott Shaw, deputy senior commercial officer at the U.S. Consulate.  One of the main focuses for this trade mission is to learn about energy.  Brazil's advances in this area make it an ideal place to learn,  especially with São Paulo on the leading edge of energy independence.  The briefing provided a great overview of Brazil's energy programs and the impact they've made in energy advancement.

Brazil is 100 percent energy independent and they have virtually no carbon issues, which means they also don't have the cap and trade issues the U.S. is facing.  Seventy percent of Brazil's energy is from water.  The rainforests, which comprise about 98 percent of northern Brazil, help stabilize the atmosphere and environment and reduce manmade environmental impacts in the region.  In addition, Brazil doesn't use coal.  Another strong energy source for Brazil is ethanol with sixty percent of Brazil's ethanol being produced in São Paulo.  They've been using homegrown biofuels since 1973 and their ethanol is based on sugar cane.  Sugar cane is not a resource easily grown in the U.S. and our ethanol is based on cellulosic and corn ethanol.

Brazil is so committed to energy and global climate change that they have pledged that the 2014 FIFA World Cup soccer event will be carbon neutral.  The stadium currently under construction will use only solar energy.

After the briefing with the U.S. Consulate, we met with representatives of the Federação das Industrias do Estado de São Paulo (FIESP).  The FIESP is an industrial entity comprised of 127 industrial associations (which make up 42 percent of the industrial GDP).  The FIESP monitors and fosters business relations with countries worldwide.  Major projects for this group include renewable and sustainable energy, climate change legislation and solar energy for heating.

We then traveled to the Fundaçoa de Amparo a Pesquisa do Estado de São Paulo (FAPESP), which is the state of Sao Paulo Research Foundation.  FAPESP is one of the main funding sources for scientific and technological research in Brazil.  Funding is derived from a one percent tax to all employers and the board of directors is appointed by the government.  Even with the funding subsidized by the government, the group has autonomy in how they manage and invest the $350 million annual budget.

We were also able to meet with many Brazilian and São Paulo dignitaries at an evening reception hosted by the FIESP.  The reception again reinforced what we already learned .  Brazil, and São Paulo, has learned to use their environment to improve their country and the lives of their people, without harming the natural resources that provide so much.

The Alliance of Mergers & Acquisitions Advisors and PitchBook Data recently released a study of the private equity industry.  The study showed that there is an overhang of approximately $400 billion in private equity fundraising.  That means private equity firms have raised about $400 billion more than they have invested.  There's a lot of money out there waiting to be invested.  In fact, it's at an all-time high.  Click here to see a copy of the report.

As tough as times have been, people have continued to give their money to private equity funds.  The funds just haven't found companies that they consider good investments.  So what needs to happen?  According to some, it's a matter of companies lowering their expectations.  Companies can no longer expect to get the kind of multiples or the kind of leverage that were used before 2007.  Others say it's all about the stability of the economy and the re-opening of the credit markets.  Still others say that investors need to change the way they do diligence on a company.  The old methods will no longer work in light of the current economic realities.

So which is it?  Probably a combination of all.  Either way, I look forward to the days when we start to use that $400 billion.

U.S. Secretary of Agriculture Tom Vilsack made a tour through Indiana on June 3, primarily to tout the Obama administration’s plans to rebuild and revitalize rural America.   He made three stops in Indiana: Terre Haute, Indianapolis and Danville.  The most interactive of the stops for Indiana residents was in Danville, where the secretary held a forum (part of USDA's Rural Tour) to collect ideas and comments from local residents on how best to revitalize the rural economy.

Vilsack outlined the goals of the American Reinvestment and Recovery Act – providing  assistance to struggling families; investing in the nation’s transportation system; and building “green collar” jobs.  He acknowledged that families are struggling because of the economic crisis.  In rural areas, Vilsack pointed to a few specific areas of relief provided by the stimulus funds, including infrastructure in watershed areas to reduce flooding and promotion of renewable energy production to revitalize local economies.

Rural community residents, ag organization and business leaders in attendance asked the secretary questions on a variety of topics… the struggle to feed a growing world population, the regulatory environment and wind energy issues were just a few.  Another topic though dominated the conversation and also provide the insight into the administration's priorities in agriculture – structural changes in U.S. agriculture and USDA's plans for assisting small farmers.

This has been a recurring theme for Vilsack following the release of the 2007 Census of Agriculture.  Referencing three different segments of producers ("large" farms that produce 75 percent of the nation's output; mid-sized farms and small farms), the secretary outlined priorities primarily for the latter two groups.

Mid-sized farms, he noted, are decreasing in number because they are either being purchased by larger farming operations or are dissolved because they are no longer able to compete in the industry.  USDA and other federal programs will promote job creation in local areas to provide alternative job opportunities for those farmers.

Small farms, on the other hand, are a growing segment and one that USDA will attempt to help more because of the "job opportunities they create in rural America."  How will USDA help these smaller operators?

1. Expansion  of the beginning farmer program
2. Connecting local consumers and local producers to establish more market opportunities for farm products. 
3. Expanded conservation programs will help farmers more efficiently use their land.
4. Increased focus on biofuels,  expanded trade, and climate friendly programs will also create more opportunities for small farmers.

These comments provide much needed reassurance and promises of support to rural communities hard hit  by the current economic downturn.  At the same time, they also foretell a significant shift in USDA focus and programming away from the largest, most productive farms to smaller farms seeking more localized expansion opportunities.  It is still early in this administration's term and so difficult to predict precise directives or outcomes, but it is clear that Vilsack has yet to waver from this theme and these new priorities.

As we all know, we are in a recession.  In these difficult economic times, everyone is wondering where we can find money to help start or grow our businesses.  It seems that everyone is holding their money close to the vest.  In reality, however, there are many different places where a company can obtain equity or debt financing to help its business.  The key is understanding what type of money is available.

Traditionally, the first place to find money when starting a new business is from family and friends.  Obviously, investments from family and friends are made in large part upon the relationship you have with those individuals, but you need to be careful to comply with federal and state securities laws.  This usually means that you want to make sure you investors are accredited investors and that you conduct your private offering in compliance with an exemption under Regulation D  of the federal securities laws.  There are limits on the number of investors and the amount of financing a company can receive in order to fall within one of the many exemptions.  Family and friends are still providing capital during the recession, however the amounts that can be raised from family and friends have diminished as individual investment and savings accounts took a beating from the drop in the equity markets over the last year.

If you do not have close friends or families with the available cash to invest in your business, "Angel investors" can be and are a still a great source of capital.  Angel investors are high net worth individuals that can provide large tranches of capital through equity or convertible debt investments.  Typically, angel capital is the second round of capital that start-up companies and businesses receive and can provide capital in the range of $500,000 to $2,000,000 depending on the needs of the company and the willingness of the "angels" to invest.  Although angel investors are more selective in these economic times, angels are still investing and are looking for the right opportunities and the right companies.  Once again, when raising money from angels, you need to comply with federal and state securities laws and structure your offering to comply with on the private offering exemptions.

Venture funding is another source of capital that can be very advantageous for start-up companies.  Venture funding comes at a price.  Generally, venture capital firms will require a seat on the board, veto rights on major decisions such as additional financing and sale of the company, and a high return on their invested capital.  There are numerous venture capitalists looking to deploy money right now.  They are more selective in these economic times, but the venture capital firms typically do have the money to invest.  Venture funding is one of the key types of financing that provides the necessary capital infusion to allow a company to take the next step.

Private equity capital is generally available for more mature companies that are looking to expand and grow.  Private equity investments can take a variety of forms and generally involve a buy-out or a purchase of a majority equity interest in a company.  As with venture funding, there are numerous private equity funds with millions of dollars to deploy right now.

Traditional debt financing from institutional banks is available to companies as well.  The credit markets have suffered through the banking crisis and the recession, but the current administration's policies have encouraged banks to loosen the reigns to start lending money again.  It remains to be seen whether that will work.  A bank will generally require security interest the company's assets including inventory, real estate and/or accounts receivables, pledge of stock or a personal guaranty.  Bank financing will also require meeting certain financial covenants.

Indiana Department of Environmental Management, DieselWise Indiana  - Application Deadline is May 15, 2009

The DieselWise program is grant availability for projects designed to significantly reduce diesel emissions across Indiana.  The total estimated funding for this competitive grant opportunity is in excess of $2,000,000.  DieselWise Indiana anticipates awarding cooperative agreements from this announcement ranging from $25,000 to $250,000, subject to availability of funds and the quality of proposals received.  Additional funds may be available in the near future.  Project proposals submitted under this grant announcement may be awarded for funding from these additional funds.  Preference will be given to applicants that are willing to provide a financial match and/or in-kind match, provide actual historic idling hours pre-installation and post installation of idle reduction technologies, along with a commitment to maximize the use of any installed diesel emission reduction technology.  Information can be found at http://www.in.gov/idem.5255.htm

USEPA Small Business Innovation Research Program - Solicitation closes May 20, 2009

The U.S. Environmental Protection Agency’s (EPA) Small Business Innovation Research Program supports small businesses in developing new environmental technologies.  The EPA anticipates the total funding that will be available for Phase I projects issued under this announcement will be $1.8 million. A total of $70,000 is available in funding for each EPA Phase I award. Recipients of Phase I awards will be eligible to compete for a much larger (up to $295,000) two-year Phase II award. Companies with fewer than 500 employees are eligible.  Solicitation closes May 20.

SBIR Phase I green building materials and systems research topics are:

• Building Materials and Site Management
• Energy and Indoor Environmental Quality
• Water Use and Management

HUD Brownfields Economic Development Initiative Funds - Application Deadline June 16, 2009
 
The Department of Housing and Urban Development (HUD) published a notice of availability of $20 million in Brownfields Economic Development Initiative (BEDI) funds (74 FR 20494) on May 4.  David Kaminsky, who works on development grants in HUD's Office of Economic Development, said the funds will be awarded competitively, and individual grants are capped at $2 million. BEDI grant funds are targeted for use in redeveloping brownfield sites as part of larger urban economic development projects, according to HUD. Brownfields are underutilized, abandoned or vacant sites where expansion or redevelopment may be burdened by confirmed or suspected environmental contamination, according to HUD. Kaminsky said BEDI grants must be used in conjunction with a new guaranteed loan under Section 108 of the Housing and Community Development Act. Section 108 is the loan guarantee provision of the Community Block Grant Program administered by HUD. The application deadline is June 16. The funds are coming from fiscal year 2008 and fiscal year 2009 appropriations, according to HUD. See http://www.hud.gov/offices/cpd/economicdevelopment/programs/bedi/funding09/index.cfm.

Modern agriculture is affected by more than just traditional farm policy - in other words, the statutes and programs that offer financial supports and incentives for production agriculture.  Today, new and changing policies and regulations require different strategic and business planning considerations.  Agriculture policy now is inextricably linked to rural, energy, trade, climate change, nutrition, transportation and infrastructure policies not to mention food safety, financial services and environmental regulations. 
 
This increasingly important set of policy priorities coupled with a new political administration in Washington, D.C. with a strong will to act suggest that the agriculture industry be prepared for something other than the status quo.  In just the last few weeks, several announcements and actions that connect the Environmental Protection Agency (EPA), the US Department of Agriculture (USDA), the Congress, the court system and the agriculture industry support this view. 
 
Consider the following:
 
1.  EPA's greenhouse gas endangerment finding  After a thorough scientific review ordered in 2007 by the U.S. Supreme Court, the EPA issued last week a proposed finding that greenhouse gases contribute to air pollution that may endanger public health or welfare. The gases in question are: carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, per fluorocarbons and sulfur hexafluoride. 
 
As the proposed endangerment finding states, "in both magnitude and probability, climate change is an enormous problem. The greenhouse gases that are responsible for it endanger public health and welfare within the meaning of the Clean Air Act."  The report continues, "the science clearly shows that concentrations of these gases are at unprecedented levels as a result of human emissions, and these high levels are very likely the cause of the increase in average temperatures and other changes in our climate." 

Many industries send out warning signals at the first sign of "over-regulation" and agriculture is no exception.  This specific finding is a slippery slope for agriculture - especially the livestock industry that could be subject to new permit requirements for structure construction or modification and ultimately naturally occurring methane emission fees per animal to the tune of $175 per dairy cow, $87.50 per beef cow and $21.87 per hog (according to the American Farm Bureau Federation).  

In response, Nebraska Senator and former Secretary of Agriculture Mike Johanns has co-sponsored legislation that would protect animal agriculture from any greenhouse gas regulations promulgated by EPA.  Citing the significant economic value his state reaps from commercial red meat production, Johanns suggests this "cow tax" could cost Nebraska's farmers and ranchers tens of thousands of dollars per farm per year.
 
Before the finding takes effect, EPA is required to hold it open for public comment for 60 days and then issue proposed regulations which again would be subject to a public comment period. So EPA’s “deliberative process” could take another two years or more. Meanwhile, last week's announcement will increase pressure on Congress to move ahead on climate change legislation.

2.  Comprehensive climate change legislation  Climate change is near the top of the legislative agenda. In the Senate, Energy and Public Works Committee Chairman Barbara Boxer (D-CA) says she’ll do her best to work with anyone who seeks to move legislation quickly.  The House Energy and Commerce Committee is holding hearings now on a draft released by Chairman Rep. Henry Waxman (D-CA) and Rep. Ed Markey (D-MA) that proposes a mandatory cap-and-trade system to reduce greenhouse gas emissions.

The House Agriculture Committee wants a seat at the table on climate change, too. Committee staffers are currently reviewing stakeholder responses to a 29-question survey regarding the role of agriculture and forestry in a carbon reduction program. The input will be used in “crafting principles that could be part of any subsequent legislation,” explained Ag Committee Chairman Collin Peterson, who says the panel will launch its own hearings on the issue in the next few weeks.

3.  EPA does not appeal court decision on pesticide applications  The U.S. Justice Department recently announced it will not appeal a federal court decision that could eventually require farmers to seek permits from the EPA for all pesticide applications and open the door to citizen lawsuits.  The U.S. Court of Appeals 6th Circuit issued the decision on the case, National Cotton Council vs. EPA, in January, nullifying an earlier EPA ruling that allowed chemical applications to be regulated under existing federal pesticide regulations. Instead, the pesticides applied in or near waterways will now be classified under the Clean Water Act. The change, if allowed to stand, carries significant implications for agriculture as a user of pesticides unable to completely control runoff caused by rainfall. 

A wide range of other beneficial pest control activities could be subjected to lawsuits from activists claiming that the use of pesticides is prohibited under the Clean Water Act unless authorized by permit.  This is of great concern to mosquito control officials and pest managers for forests, recreational waterways, irrigation canals and parks. 

In a March 6, 2009 letter, Agriculture Secretary Tom Vilsack asked EPA Administrator Lisa Jackson to seek a rehearing and request reversal of the 6th Circuit's decision. Senate Agriculture Committee Chairman Tom Harkin, (D-IA) and Ranking Member Saxby Chambliss (R-GA) weighed in with a similar letter.  But those requests were rebuffed, and the EPA has indicated they would be requesting a two-year implementation plan for the ruling. 

4.  EPA seeks public comment on raising the ethanol blend level to E15  EPA's broad reach into agriculture also is evident in its renewable fuel mandate authorities.  EPA is currently seeking public comment on a waiver application submitted by representatives of the ethanol industry to authorize up to 15 percent ethanol blends with gasoline.  The 30-day comment period will run through at least May 20, 2009. By law, the EPA is required to grant or deny the request no later than December 1, 2009.  Since 1978, the limit has been a 10 percent volume ethanol blend (E10) for conventional (non flex-fuel) vehicles.

According to the EPA release, the applicants contend that increasing the blend rate is needed to bring greater investment to next generation biofuels technologies and commercialization.  And the higher blend rate is arguably critical to fulfilling the 2007 Energy Independence and Security Act's renewable fuel mandates.  Opponents (typically environmental and consumer groups and small engine and car manufacturers) counter that the increased blend rate might damage pollution control equipment, reduce air quality, and undermine vehicle and equipment performance and warranties.

5.  New environmental and climate position at USDA   Agriculture Secretary Vilsack announced last week the creation of a new environmental and climate position in his inner office.  Robert Bonnie will serve as Senior Advisor to the USDA Secretary for Environment and Climate.   Referencing that two out of the three key goals of President Obama for USDA are tied to the environment, Vilsack will rely on Bonnie to help guide broad natural resource and climate policy and program decisions.  Bonnie has worked for the Environmental Defense Fund (EDF) for over 14 years with extensive experience in carbon credit programs and conservation initiatives for endangered species.

Independently, each of the above should be important to agriculture, but taken collectively they are evidence of an intensifying regulatory landscape for the industry.  Every part of agriculture - from crop and livestock production, food processing and manufacturing to alternative energy production - is affected by these developments.  Increasingly, EPA will be shaping environmental and climate policy that directly affects agriculture.  Climate change legislation and related programs will be developed and implemented - it's not a matter of if, but when and what form.  Agriculture must communicate with the new political and policy leaders, engage in the policy formation and influence more beneficial rather than harmful outcomes for the industry.
 

Once a business decides to raise money, management is left to figure out how to make it happen.  Strong advisors help, but there are some steps that any business can take to make it easier to raise funds.  Collecting information to give to investors is a good place to start. 

Regardless of who invests, the information that investors will want to see will be pretty much the same, and the business can get this ready ahead of time.  The information should be readily available to the business.

Managers can be surprised at the amount of information they need to provide.  When a business takes money from an investor, it gives something back – an interest in the business.  What the business gives back – whether it's called "stock," "partnership interests," "LLC interests," "notes," or some other name – is often a security.  When the business gives a security to the investor for their money, the investor is protected by securities laws.  One of the protections provided by securities laws is that, before the investor decides to invest, the business has to tell its investors everything material about itself – that is, it has to make a "full disclosure." 

Many managers see full disclosure as the opposite of marketing.  Sure, full disclosure includes the good parts about the business.  But investors will need to know all of the bad things too, as well as all of the indifferent but important things about the business.  To some managers, it seems that after convincing the investor that buying into the business is a great idea, the manager then needs to tell the investor all of the reasons that they should not invest.  Although this can be contrary to a sales mentality, investors should be left with a complete picture of the business – the good, the bad and the material.

The way you end up raising the money will impact how the information about the business is presented.  But the basic content that a business must provide will largely stay the same.  Time invested collecting this information early is well spent, and will save time later.  At minimum, any business looking to raise money should be sure to have the following available:

Financial Statements:  These are the basic financial statements for the business.  Investors will typically want to look back up to five years (if the business has been around that long).  If the financial statements are audited, investors will want to see the audit reports as well. 

Organizational documents:  These are the official documents that govern how the business exists and will vary depending on what kind of business it is.  For example, if the business is a corporation, they would be the articles of incorporation, bylaws, amendments, board minutes and resolutions, shareholder minutes and resolutions, etc.  If the business is a limited liability company, they would be the articles of organization, operating agreement, amendments, minutes and resolutions, etc.  These are often compiled in a "minute book" for the business.  Many businesses operate with multiple companies – subsidiaries, holding companies, etc.  If this is the case, you should keep one set of organizational documents for each subsidiary.  Investors will want to review these documents, as they are important to the kinds of investments that can be made.

Tax information:  This includes tax returns, tax registrations, tax ID numbers, listings of taxes for which the business has registered, etc.  Many businesses have tax advisors; if yours does, the advisor should be able to help compile and present them.  Investors will probably want to look back three to seven years.

Information about legal proceedings:  Investors will want to see if the business is in the middle of any lawsuits or if it has been threatened with a suit.  Lawsuits involving major owners and managers could be important as well.  The lawyer representing the business can help prepare the information that most investors would seek.  Working with the lawyer to put it together is usually advisable to protect against losing attorney-client privilege or disclosing things against the business's interests.

Information about real estate:  Investors will want to see a listing of all of the properties where the business has an interest.  Does it own the land?  Is it leased?  This will include all leases, deeds, mortgages, etc. on the properties.

Material contracts:  Investors will want to understand the business's important contracts.  Examples can include employee contracts, contracts with key customers and suppliers, leases, licenses, and other arrangements that are important for the business.  You probably do not need to include the office copier lease.

Regulatory issues:  Investors want to confirm that the business has the right authority to do its business.  It is helpful to prepare a listing of all of its applications, licenses and permits that the business has.  This can cover anything from investment advisor registrations to elevator permits.

Intellectual property (IP):  As IP continues to be critical in the economy, investors are sensitive to it.  It is helpful to have a list of any patents, trademarks, copyrights, licenses and any other registrations and applications that the business keeps.  It is also important to include any contracts that let the business use someone else's IP.

Insurance:  Prepare a listing of all insurance policies the business has of any kind.  It is also helpful to get a current insurance certificate for each of the business's policies as well.

Employee benefits: Prepare a list of the business's employee benefit plans, including health plans, retirement plans, 401(k)s, employee discounts, etc. and get copies of all of the plan documents (contracts, summaries, etc.). 

These are general rules that can help any kind of business get ready to work with its investors.  Every business is different, so not all businesses will have all of the information discussed above.  Others will need much more detail about some or all of these categories.  So the listing above is not a checklist but rather a guide to start reviewing your own business.  By preparing and collecting these materials ahead of time, businesses can better balance the burdens of raising funds, save time later in the process and reduce professional fees to collect these items.

When you are raising money for your company, a private placement memorandum (PPM) can be used to provide information to potential investors to help them evaluate the merits of an investment in your company.  It is intended to disclose material information to potential investors about the securities you are selling, your company and its business, in particular, the risk factors associated with an investment in your company.  A PPM is not always required for full legal compliance with securities regulations, but it is a useful way to show that you provided all material information to investors.  Generally, each PPM will include a business plan, risk factors, a description of how you intend to use the proceeds of the offering, a capitalization table and a description of the closing process for the investment.

However, there is no "one size fits all" PPM.  They will vary according to the company's size, industry, development stage, offering size and other factors.  Therefore, it is important that a company offering securities retain competent legal counsel to assist with preparing the PPM and conducting the offering.

Business Plan

The business plan section lets you educate potential investors about your company's strengths and weaknesses.  This section should describe the products and services offered by your company, the needs of the market place, the risks which may be posed by actual and potential competitors, your strategic plans with respect to innovation, marketing and financing, and the overall business environment in which your company will operate during the term of the investment.  In most cases, the business plan section is drafted by you and reviewed by legal counsel.  One of the major purposes of legal counsel's review is to ensure that the PPM, taken as a whole, is not misleading to potential investors.

Risk Factors

The risk factors section of the PPM is a specific description of some of the risks that may be associated with your company, the industry and the particular terms of the offering.  If well drafted, the risk factors section can provide useful protection against some potential claims by investors.  Although the actual risk factors for your company will depend on your company's specific business and activities, there are some fairly standard disclosures found in most PPMs.  For example, a "development stage" company will likely include in its PPM the following as risk factors:  lack of revenue, losses and financing requirements, product development risks, technological risks, manufacturing and distribution risks, dependence on key employees, competition, regulatory risks, potential inability to exercise a redemption right, dilution, no market for shares, and difficulty of determining an appropriate offering price.  The company should also include any other risks relevant to its particular business.

Use of Proceeds

The PPM should include a section that describes how you intend to use the proceeds of the offering.  Naturally, you will want to retain some flexibility regarding the use of the funds, but the investors will likely require at least a general breakdown of uses.  The use of proceeds section might list product development, acquisition of new technologies, facilities expansion, hiring of new employees or general working capital requirements as possible applications of the proceeds.  The key to this section is to strike the delicate balance between flexibility for your company and certainty for the investor.

Capitalization

The capitalization section describes the capital structure of your company.  The capitalization section should include a capitalization table which will allow a potential investor to determine how much of the company he will own (or how much of the company's debt he will own).  The capitalization table should reflect both the actual debt and shareholders' equity of the company prior to the offering, as well as the adjusted figures reflecting the completion of the offering on the terms contemplated in the PPM.

Closing Process

The closing process or subscription procedure (as some refer to it) can be foreign and confusing for investors.  Therefore, it is helpful to provide investors some guidance in the PPM regarding how the closing will proceed.  You can require that a minimum amount of money be raised before you will proceed with the offering.  If that is the case, the PPM should disclose the minimum aggregate capital commitments. After any applicable minimum is met, qualified investors generally have to complete and return a subscription agreement which obligates them to buy the securities, along with a check for the amount of the purchase price (payment may also be made by wire transfer), by a date specified in the subscription agreement.  Sometimes the subscription agreement is included with the PPM.

The investor may also be required to complete and return an "accredited investor" questionnaire to allow the company to comply with certain exemptions from the securities laws.  If required, the questionnaire is typically attached to the subscription agreement. 

After the company has received all signed documentation and funds, it should provide the investor signed counterparts of the documentation.  The company may also provide the investor share or unit certificates or promissory notes, if applicable, and signed copies of the company's governing documents.  If the company is making the private offering pursuant to certain registration exemptions, after the closing it may need to file various documents, including Form Ds and U-2 Uniform Consents to Service of Process, with the state and federal authorities where the investors are located.

This blog was posted by Terry Mumford and Albert Lee.

NCPERS Annual Legislative Conference was held February 3, 2009 and the NAPPA Tax Section Meeting was held February 4, 2009.  Both were in Washington, D.C. and included speakers from Congress, the U. S. Treasury and the IRS. 

National Conference on Public Employee Retirement Systems (NCPERS)

The NCPERS conference is designed to educate attendees about hot topics on Capitol Hill so that they can be well informed in making calls on their U.S. representatives and senators.  I was particularly interested in the comments made by Mildeen Worrell, tax counsel to the Ways and Means Committee because she focused on issues that she believes governmental plans will face in the future.  In particular she talked about the following issues that "cross-over" from the private sector to affect governmental plans:

• Funding.  Worrell observed that articles about the funding levels of public plans can have a negative effect unless governmental plans make their voices heard. 
• Benefit Design.  If Congress allows the private sector retirement plans to be increasingly based on individual plans, that will also threaten traditional DB governmental plans.  In her personal opinion, hybrid plans (cash balance plans) are the future of defined benefit plans.  However, political forces prevent Congress and regulators from doing what should be done on cash balance plans.  Leaving the situation to the courts does not make sense.
• Fee Disclosure.  According to Worrell, the fee disclosure issue will likely expand outside of the 401(k) context – at least to 403(b) and 457(b) plans.
• Other issues on the horizon include providing for independent investment advice and the "auto IRA."

Many Ice Miller governmental clients will be challenged in 2009 and beyond to address these issues at the state and local level.

Read a discussion of regulatory topics at the NCPERS conference.

National Association of Public Pension Attorneys (NAPPA) Tax Section
Terry Mumford is the lead chair of the NAPPA Tax Section.

The NAPPA Tax Section meeting is intended to educate public pension attorneys on statutory and regulatory developments that affect the qualified status of public pension plans and the taxation of member benefits. Martin "Marty" Pippins, IRS EP technical guidance and quality assurance, has addressed this group for many years with regard to IRS guidance projects.
 
Pippins discussed a governmental plan questionnaire (Form 14035) that at the time of the conference had not yet been released.  As stated by Pippins the survey went to 25 governmental plans that were randomly selected to answer the survey.  At the same time the survey was posted on the Web site for a 90 day comment period.  Based upon the comments, the questionnaire will be revised and then sent to additional plans (100-200) for completion.

Read a question and answer session with Marty Pippins that contains more information.

On December 23, 2008, President Bush signed into law the "Worker, Retiree, and Employer Recovery Act of 2008" (Act).

The Act provides numerous technical corrections to the Pension Protection Act of 2006 (PPA) and provides pension funding relief in light of the current economic crisis.  

Read a summary of some of the Act's provisions of interest to single employer plans.

John C. Pickett is the executive director of the Indianapolis Opera.

If there was a clarion call from the roundtable discussion held among CEOs of Indy’s cultural industry, it would be that we all wish to see central Indiana’s cultural portfolio rise to the level and expectations in the vision often articulated by city and state leaders AND that we need those leaders in government and, most importantly, in the corporate community to take up this cause.  While there is agreement that what we produce provides needed vitality to a city/state working to attract high quality talent for employment and visitors, the support from the community – public and private – is not yet enough to sustain the vision.  We all look to the great success of the sports industry knowing that it took strong, active leadership from the corporate community to make it a reality and to keep it growing.  Solutions found in other dynamic cities which have found funding mechanisms need to be explored to see if there is a fit for Indiana.  We often point to Denver which has voted in a 1/10th of 1 percent sales tax option to support cultural growth in their community. The voters have consistently approved this tax in a referendum every four years since 1988.    The first year it provided Denver’s cultural industry $14 million and this past year provided $44 million. While the optional sales tax solution may not fit our situation, funding sources must be identified to provide sustainability.

The clarion call, however, is not just about funds – it is that our community needs the same type of emphasis, focus and recognition by our leaders as the sports initiative has received. The statistics are there to justify this effort with proven economic impact of nearly half a billion dollars.  Aggregate audiences outnumber those of sports.  Studies, local and national, over the past couple of decades continue to demonstrate this.

There is strong agreement among all of us who have the privilege of leading Indy’s cultural organizations that we provide compelling cases for what we provide for our constituents and the community at large.  Do citizens realize the gap filled by many of our programs due to the decline of arts-in-education in our schools?  Everyone agreed that the arts not being more central to our educational systems does not bode well for the future in terms of the city’s cultural audiences and, more importantly, for the education of creative problem solvers of the future.  Do people realize that the public funds that are provided enable our organizations to provide free and reduced admissions, in-school programs and residencies, etc.?

Often, these discussions turn to potential arguments of arts vs. sports.  I personally always resist this.  A first-rate city needs it all.  Indy has the potential to be a well-rounded great city.  The assets are here – whether it be the world’s best children’s museum, one of the nation’s few 52-week symphonies, art and historical museums of great repute, strong and varied theaters and, yes, a vital professional opera company.  We can make the case but we need the validation and work of visionary leaders to build the infrastructure needed to not only sustain quality programs but build collaborations and projects fitting of the results this city has achieved in sports, life sciences, higher education, etc.

The clarion call is there.  We hope discussions like the one facilitated by Inside INdiana Business leader Gerry Dick will continue and garner the support and leadership needed to make visions a reality.

Mike Crowther is the president and CEO of the Indianapolis Zoological Society.

Do Not Go Gently Into That Good Night!

The Indianapolis Zoo is the largest zoo in the country that receives no tax funding.  Nevertheless, with an annual operating budget of more than $20 million and over 200 full-time employees, the zoo creates an economic benefit through our expenditures and employment impact.  Additionally, our growth over the past several years has largely come from markets outside of Central Indiana, so our value as a tourism generator has grown significantly (our attendance last year – in spite of the rainy summer – was 1.12 million visitors).  But I believe that the Indianapolis Zoo’s biggest contribution to the region is that we join so many other organizations in making Indianapolis, well, Indianapolis.

If you haven’t lived in other places, you probably don’t appreciate quite what we have here.  Sure, we’re not perfect, but we’re better than anywhere else I’ve been.  We may not have mountains or beaches, and some may question the breadth and depth of some aspects of our cultural continuum, but we have the best combination of resources, potential, experience, and attitude that I’ve ever seen.  And the cultural institutions of our city play an important role in maintaining and improving that combination.

Where, outside of Washington, D.C., can you find an institution to compare with the Eiteljorg Museum?  What other city of our size can boast an art museum with the collection and vision of the IMA?  Who has a symphony orchestra with better access, outreach, and ambition than ours?  World-class children’s museum?  Top-ten zoo? Opera? Theater? Check. Got it. Covered.

When the companies of our area recruit potential employees, they must frequently battle a preconceived “rust belt” image that casts us as tired, hopeless, and stodgy.  When these recruits spend a weekend here, however, they find diversity, challenge, and energy.  Seven years ago, when Greg and Claudia Schenkel spent a weekend showing my wife and me around town, I could almost feel my prejudices falling away, and when my wife woke up on a bright Sunday morning, threw open the curtains at our downtown hotel room, and gazed at the Capitol shining below her, her only words were “I think I’d like to live here.”  And it wasn’t simply that Indianapolis was clean and fun, it was that the nature of Indianapolis would feed our growth as individuals and as a family.

But it took vision to get to what Indianapolis has become, and I’m concerned that our vision may be fading.

I understand that no one wants to see money go to waste and that we all feel that we are the best custodians of our own wealth.  That’s why the Indianapolis Zoo and so many other cultural institutions have flourished over the past twenty years, as supporters have carefully watched how we have nurtured their investments in us into the fulfillment of their wishes.  But I’m worried that we’re on the edge of an era when too many people only care about hoarding their resources for themselves instead of using them to build a shining future where our children and grandchildren will be able to say “My family helped build this community!”  Fortunately, there are wonderful exceptions, and I’ve had the honor of knowing and working with many of them.  You can see many of their names on walls, buildings, gardens, and in annual reports all over our city.

My understanding of our Hoosier heritage is that we are the beneficiaries of strong, community-minded people who were neither naïve nor cynical.  They always kept some money in the bank (or under the mattress!), but they also built roads, monuments, schools, arenas, and a future that was better than their present.  Visit the Indiana State Museum, and see what Indiana was, and what it is becoming.  Visit the Indianapolis Museum of Art, and look through the eyes of others at worlds both similar and far different than our own.  Visit the Indianapolis Children’s Museum, and watch how our future is revealed by the interactions between children and wonders that are entirely new to them.  Visit the Zoo, and remember that the greatest gift we can give to our children and grandchildren is a future world they would choose to live in, instead of one they are forced to endure.

We must not retreat and hide, shying away from the rest of the world and keeping to ourselves like a miser in a cold, gray room.  We did that once, and it was called the Dark Ages.