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THE BRUSH CREEK BULLETIN Volume 6, Issue 1 January 2004   KAUFFMAN FOUNDATION RELEASES GROUNDBREAKING REPORT Venture Capital-Backed Minority Firms Outperformed S&P500 A recent Kauffman Foundation report, “Minorities and Venture Capital: A New Wave in American Business” finds venture capital funds that make significant equity investments in minority business enterprises (MBEs) result in healthy returns equal to, if not slightly higher than, traditional investments by mainstream venture capitalists. The report, the first profile of venture capital funds that make significant equity investments in MBEs, is based on a study by Dr. Timothy Bates of Wayne State University and Dr. William Bradford of the University of Washington. Recent studies, including the Kauffman Foundation's “The Entrepreneur Next Door,” reveal that minorities, especially African-Americans, are 50 percent more likely than any other demographic group to engage in business start-up activities. "Access to capital is one of the biggest hurdles for any entrepreneur - and even more so for minority entrepreneurs," said Carl J. Schramm, president and chief executive officer of the Kauffman Foundation of Kansas City. "We hope this report helps to lower those capital barriers." Larry Hayes, (left) president and chief executive officer of Metro L.L.C. in Kansas City, is representative of the entreprenuerism the Kauffman Foundation of Kansas City is encouraging nationwide. The report, which is an analysis of venture capital funds operated by members of the National Association of Investment Companies (NAIC) - a group of investment companies that share an interest in financing MBEs - is the first to explore the approaches to financing MBEs and calculate the rates of return of minority-oriented venture capital funds. "We set out to find out if minority-oriented venture capital investing was solid," said study co-author Bates. "We found strong, preliminary evidence of a robust minority venture capital industry." Key findings of the study include: Minority enterprise venture capital investing is quite profitable. The average investment per firm was $562,000; the average gross yield per firm was $1,623,900, generating an average net return of $1,061,500. Taken together, 117 investments tracked by Bates and Bradford from the 24 MBE-targeted venture capital funds surpassed a 20 percent rate of return. During that same time period, according to industry analysts, the S&P 500 Index had a 17 percent return. Minority-oriented venture capital funds did not concentrate in high tech. Unlike the broader industry, which invested heavily in high-tech ventures, a more diverse portfolio kept funds focused on MBEs from their colleagues' steep slump. Twenty of the 24 funds surveyed that invested in communications firms were primarily in broadcast, not broadband. Sixteen invested in services (excluding medical), and 15 in non-electronics, non computer-related fields. While 13 invested in wholesale and retail trade operations, 12 invested in manufacturing related to electronics and computers. Because the niche had little exposure to the Internet bubble, the authors predict it will sustain profitability even as mainstream venture capital firms and funds generate losses. "Picking 'broadcast over broadband' gave minority venture capitalists a healthier return than the industry as a whole," noted Rhonda Holman, a Kauffman Foundation vice president. "No one would be surprised to hear that a minority-oriented venture capitalists’ last three investments were in broadcasting, especially radio stations, high-tech electronics manufacturing and restaurant chains." Public pension funds are the leading source of venture capital funds for minority businesses. Of the 24 responding NAIC member venture capital funds that are MBE oriented, capital was raised from six major and four secondary sources. The six major sources include: commercial banks and insurance companies (14), miscellaneous, including families, foundations, endowments and individuals (11), corporations (10), intermediaries known as funds of funds (7), public pension funds (6) and corporate pension funds (6). While public pension funds were the largest source of capital, corporations provided the fewest dollars. Of these major sources of capital, only banks and insurance companies, say Bates and Bradford, have been accessible to newcomers. Minor sources ($5 million or less) have therefore played a key role in the industry's development. These include government, corporations, foundations and endowments, and individuals. In the early 1990s, only several million dollars in venture capital had been invested in MBEs. According to Bates and Bradford, the minority venture capital sector now has well over $1 billion in capital under management, with $2 billion within reach. The authors found that minority-oriented venture capital funds grew enormously during the 1990s. The 24 funds that responded to the detailed questionnaire had raised $1.3 billion through year-end 2000. In 1998 alone, five of the surveyed minority-oriented venture capital funds had raised over $700 million in capital from institutional sources. The study’s sponsor, the Ewing Marion Kauffman Foundation of Kansas City, is the nation's largest supporter of entrepreneurship. More information about the Kauffman Foundation and this report is available at www.kauffman.org. BI-STATE FLOOD CONTROL PROJECT FUNDED The Kansas City area’s Congressional delegation worked across state lines to secure funding for several flood control projects affecting both Kansas and Missouri, including the resources to begin examining and planning for the entire Brush Creek Basin. The Brush Creek Basin Study, funded in the 2004 Energy and Water Development Appropriations Act, will be multi-purpose. It allows for comprehensive planning for flood damage reduction, ecosystem restoration, water quality and flood warning in the entire Brush Creek watershed, which includes Missouri and Kansas. Because it is multi-purpose, federal funding to initiate projects for watershed improvements is not necessarily tied to economic benefit/cost ratios for approval. The Plaza looking north during the 1977 flood. The floating cars, with their engines acting as rudders, are moving downstream. Note that the street lights are still on. (Photo courtesy of UMKC Geosciences Department.) During most traditional feasibility studies, various alternatives are analyzed for a single purpose, typically flood control, and the cost of each alternative is compared to the flood damages it prevented. The damages prevented had to exceed the cost of the final project for Congress to approve the project for design and construction. This study, supported by local officials and Brush Creek Community Partners, had been previously authorized by Congress but had not been funded. According to John Grothaus, chief of plan formulation for the Kansas City District of the U.S. Army Corps of Engineers, the initial allocation of $100,000 provides the means in this first year for the Corps of Engineers to determine if there is federal interest in developing a project. A second phase would involve local and regional agencies in determining the extent of the project or development of an optimal plan for the watershed. This would be followed by the project’s design and construction, with as much as 65 percent of it being funded by the federal government. "This is an essential flood protection project that will protect area residents, stimulate the economy and create jobs in Kansas City," said U.S. Senator Jim Talent of Missouri, a member of the Senate Energy and Natural Resources Committee. "I was pleased to work with area leaders in both parties to secure this funding in the Senate on behalf of this – a pro-jobs, pro-growth, pro-environment effort. Working together we have reached a milestone that will help save lives while protecting property, ecological habitats, infrastructure and wildlife." “I am pleased that Congress approved the federal funds that will launch the long-awaited Brush Creek Basin Study,” said U.S. Representative Karen McCarthy of Missouri’s Fifth District. “The Brush Creek flood control study allocations confirms that Congress recognizes the impact this bill will have for the greater good of this community. The $100,000 earmarked for the Brush Creek study will help determine the future of expanded development of this area.” REMEMBERING DR. KING Many organizations honored the memory of civil rights leader, the Rev. Martin Luther King, Jr., through observances on the national holiday celebrating his birthday. The Kansas City Art Institute circulated this button to the people who attended its community event this month. PARTNER UPDATES Shirley A. Scritchfield, Ph.D., has been named dean of Rockhurst University’s College of Arts and Sciences, the institution’s largest academic unit. Scritchfield is vice president for academic affairs at Nebraska Methodist College, a school of nursing and allied health professions in Omaha. Prior to that appointment, she served in faculty and administrative positions for more than 20 years at Creighton University in Omaha. Creighton, like Rockhurst, is one of 28 Jesuit colleges and universities in the United States. She will begin her duties in Kansas City on July 1. Richard W. Brown has been named the co-chairman of the Board of Directors of the Stowers Institute for Medical Research. In this capacity he will lead the institute’s efforts to commercialize its discoveries. Brown, the former president and chief executive officer of Health Midwest will also serve as chairman, president and chief executive officer the Stowers Institute for Resource Development, Inc., and Biomed Valley Corp. Midwest Research Institute has named Sandra Lawrence its treasurer and senior vice president. This appointment represents Lawrence’s return to MRI, where she previously served as director of the Center for Regional Development, Statistics and Economics. She has also been President of Stern Bros. and Gateway Inc.’s General Manager for Kansas City and Global Vice President of Administration. More recently Lawrence has been president and chief executive officer of Global Packaging Solutions Inc. and interim chief executive officer of Frontier Medical Research. The Kemper Museum of Contemporary Art has named Elizabeth Dunbar as its new curator. Dunbar is currently chief curator at the Ulrich Museum of Art at Wichita State University, where she organized several exhibitions of contemporary art. Prior to that she was Special Projects Coordinator at the Los Angeles County Museum of Art and Assistant Curator at the Whitney Museum of American Art in New York. She will begin work at the Kemper Museum in March. Saint Luke’s Hospital of Kansas City has signed a five-year strategic alliance agreement with Roche Diagnostics to establish a Molecular Center of Excellence. The agreement allows the hospital to perform molecular diagnostic testing using Roche’s patented Polymerase Chain Reaction and other advanced genomic technologies. Molecular diagnostic testing offers the opportunity to expand and improve Saint Luke’s diagnostic services by providing for rapid, reliable detection of genetic markers for infectious diseases, cancer and genetic disorders as well as give physicians greater insight into the progression and management of life-threatening infections. The University of Missouri – Kansas City will offer bioinformatics as an emphasis area in biology and computer science beginning this year. The Missouri Coordinating Board of Higher Education’s approval of the new bioinformatics emphasis coincides with the Kansas City region’s focus on developing expertise in life sciences research. The emphasis will be noted on the diplomas at the bachelor’s level in biology and computer sciences and at the master’s level in cellular and molecular biology and computer sciences. The Heart of America Shakespeare Festival is staging Julius Caesar in Southmoreland Park this summer. The four-week run of the Roman drama, which begins June 15, will feature popular local actor and director Mark Robbins in the role of Brutus. Julius Caesar will be directed by HASF Producing Artistic Director Sidonie Garrett. Her direction of Hamlet last season attracted 24,125 people to the park during the festival’s eleventh season of offering free, professional productions of Shakespeare’s plays in Kansas City. NELSON-ATKINS MUSEUM CELEBRATES 70 YEARS   Monday, December 11, 1933, the Nelson Gallery-Atkins Museum (as it was then known) opened its doors to an opening day crowd of 7,950. The formal dedication ceremony was broadcast live from Atkins Auditorium on radio station WDAF with an NBC hookup to more than 40 stations throughout the country. The newly formed Kansas City Philharmonic Orchestra, under the direction of Karl Krueger, made its national debut. The opening coincided with the arrival in Kansas City of the famous canvas "Whistler's Mother," lent by the Louvre to the Century of Progress Exposition, the world's fair in Chicago. After its stay there it went on tour to a number of American cities, including Kansas City.   Museum Director/CEO Marc Wilson (right) cites the extraordinary vision of Kansas Citians who, 70 years ago, opened a full-blown art museum with a majestic neoclassical building that signaled Kansas City's extraordinary ambitions to build a temple to art and culture that would inspire and uplift all. Founder Mary McAfee Atkins, in the form of stand-in Susi Matthews (left), joined in the Nelson-Atkins' December 12 anniversary observance. PAUL CARTTAR'S "RICH AND VARIED" - AND WELL-TRAVELED - CAREER STOPS AT HOME Paul Carttar’s life and career has taken him from Lawrence, Kansas, to New York, hitchhiking cross-country, back to Lawrence and the University of Kansas, to Washington, D.C., Stanford Business School, Germany, California again, and Boston. But experiences, family and a convergence of professional interests have led him home and working in the city that’s part of his growing up. Carttar, chief operating officer of the Ewing Marion Kauffman Foundation since last June, was elected to the Brush Creek Community Partners Board of Directors last October. However he is not brand new to the Brush Creek Corridor. “I am stunned at how different this area is now from how it was when I was growing up and coming to the area,” he said. “What has happened in the last several years during the time BCCP has been working is amazing.” Carttar appreciates the foundation’s role in that work and its responsibility to the community. “We were one of the founders and major funders involved in improving this part of Kansas City. While this related to our program strategy, it's also important because we're a citizen, we live here.” But Carttar’s value to BCCP is broader than simply as the Kauffman Foundation representative. He spent the last four years as one of the founding partners of the Bridgespan Group in Boston, one of the largest consulting firms serving the nonprofit sector. “We did a lot of work relating to community development in Boston, New York and Washington, working with community development corporations (CDCs) and community development financial institutions. So I have a perspective on serving the organization’s goals, particularly in the economic development field.” Carttar’s role at the Foundation is similar - to support the organization’s goals, prioritize needs and move strategies forward. Carttar works closely with foundation President Carl Schramm and the senior management team to devise strategy, and with program staff to drive efficient program execution. Before Kauffman and Bridgespan, Carttar served as a vice president at Bain & Company Management Consulting, in health care industry management, as special assistant to the ambassador at the U.S. Embassy in Germany, and as an economist for the U.S. Senate Budget Committee. He received his bachelor’s from the University of Kansas, then started moving, earning an M.B.A. along the way. However, when he got the call from Kansas City, he made one more stop. “I have a lot of respect for the Kauffman Foundation, and it's home,” Carttar said. “There’s no greater privilege than to be in a position than where you can take advantage of the skills and experiences of a rich and varied career and apply them in a role you care about and in a place you care about. This applies to my job and to my role in Brush Creek Community Partners.”