Enterprise Legacy Foundation: Making the

UNCLAS BRATISLAVA 000004 SIPDIS SIPDIS STATE PASS TO USAID FOR MDUGAN AND SEASTHAM E.O. 12958: N/A TAGS: ECON EAID EFIN PGOV LO SUBJECT: Enterprise Legacy Foundation: Making the Most of Limited Funds REF: A) Post/USAID conference call 12/18/07 B) Laitinen/Eastham emails ¶1. Summary: With the end of active investment operations in March, the Slovak American Enterprise Fund (SAEF) is completing its plans for a legacy foundation with assets of approximately USD 8 to 10 million. SAEF proposes creating an entrepreneurial center that will offer support and assistance to targeted groups of entrepreneurs and small companies. We are concerned that SAEF's current proposal would not be an effective use of taxpayer resources: it duplicates well-funded Slovak government efforts to develop regional innovation centers; a significant portion of the resources would be lost in unusual and inappropriate high administrative costs; and it lacks flexibility in how the funds can be used, thus lessening prospects for the success we all seek. A lean grant-making foundation supporting entrepreneurial initiatives and new project proposals based on U.S. models would be a better fit to continue SAEF's legacy of strengthening private sector development in Slovakia, a goal that Post strongly shares. Slovakia needs to emphasize development for the future in the area of information technology to move toward a knowledge-based economy and society. For this reason we would ask SAEF to consider a foundation targeting information and high technology. Partnerships could be developed with Slovak technical universities and the impact increased by leveraging through matching funds. End Summary. SAEF's VISION -------------- ¶2. The SAEF Board is currently developing plans for legacy activities after the fund ceases active investment operations in March 2008. Following the December Board meeting in Washington, DC, SAEF board member Maria Hurajova and staff members Matej Fekete and Peter Spron met with Emboffs in mid-December to brief us on their current proposal for the expected 8 to 10 million Dollars that will be available to the legacy foundation as the fund's assets are sold off. SAEF proposes establishing an entrepreneurial center, The Slovak American Entrepreneurial Center (SAEC),on the premises of its current offices in Bratislava, employing four current SAEF staff members. The SAEC would offer support and assistance to start-ups, to existing SME's in growth stages, and to university students and women in business. SAEC would also contract out some of these services. The SAEF board plans to send its final proposal to USAID by the end of February and expects to establish the center in April. ¶3. The SAEF board has asked Maria Hurajova, who is currently Head of the small Bratislava stock exchange, to be director working with up to three additional members from the current SAEF staff. Although SAEF acknowledges its lack of operational experience for an entity like the SAEC, Hurajova told Emboffs that she does not envision the need to bring in new staff. The center plans to work with partner organizations (NGOs, government, universities, private sector, etc.),but would not provide direct grants. SAEF plans to expend 40 percent of the budget on administrative expenses. That figure could actually rise in a couple of years when the legacy foundation is no longer able to share administrative costs with SAEF. FINDING A NICHE IN AN ACTIVE ENTREPRENEURIAL SECTOR -------------- -------------- ¶4. The environment for a legacy fund has changed significantly in recent years and even months. Although SAEF was one of the first programs in Slovakia with the specific goal of strengthening and promoting private sector development, there are now several initiatives that have been organized or are being planned by the government, NGOs, universities and the private sector designed to encourage innovation and an entrepreneurial spirit in Slovakia. The largest source of funding that is pursued by all of the above sectors is EU Structural Funds. The GOS is set to receive more than Euro 150 million (USD 220 million) in Structural Funds targeted at innovation projects through 2013, as well as an additional Euro 150 million targeted at education. The innovation funds are managed by the Ministry of Economy, while the Education Minister controls the education resources. The government has also pledged to contribute an additional 300 million Slovak Crowns (USD 13 million) per year for innovation programs. ¶5. The Ministry of Economy's (MOE) primary goal for these funds is to set up Regional Innovation Centers (RICs) throughout the country. RICs will be new entities designed to provide consulting and counseling services to entrepreneurs and small businesses. The RICs will also help individuals and small companies obtain funding from both the EU and private sector sources. The MOE does not plan to provide EU or GOS resources to other projects or initiatives, but MOE noted that the centers are designed to run in partnership with regional governments, NGOs, educational institutions and the private sector. Although the program is still in the planning stages, MOE expects to begin building the basic infrastructure in the first half of 2008. ¶6. The Regional Innovation Center program is similar to earlier efforts by the National Agency for Development of Small and Medium Enterprises (NADSME),which is a joint GOS/EU project founded in 1993 to support the growth and development of Slovak SMEs. NADSME still operates incubators and innovation centers in at least 16 cities and towns throughout Slovakia, although the individual programs are no longer financed by the GOS. Although the RICs are similar to the already functioning NADSME center, the GOS decided not to combine the two projects. ¶7. In addition to government efforts, several universities have established incubators and/or innovation centers to help commercialize research and innovations developed by staff and students. These programs offer cheap rent for start-ups and a basic level of services. Other NGOs and private companies provide training for entrepreneurs, business plan contests, lecturers and other initiatives to support entrepreneurs. There is also an American aspect to some of these initiatives: the University of Texas is working with a local NGO to bring together some of the more successful university initiatives into a cohesive program based on a U.S. public/private partnership model that has been successfully implemented in other central European countries. FUTURE DIRECTION -------------- ¶8. As outlined Reftel, we are concerned that the current proposal to create a new entrepreneurial center is not the most efficient or effective use of taxpayer resources for the following reasons: -- The SAEC proposal is almost identical to the well-funded RIC initiative proposed by the GOS and previous and ongoing efforts by NADSME. We question whether entrepreneurs would utilize the SAEC as opposed to the RICs, especially if SAEC charged fees for the services, while the government-funded program is free and seen as an avenue for obtaining EU funds for individual projects. It is also not clear that there is a large pool of entrepreneurs looking to take advantage of the types of services proposed for the SAEC or the RICs; -- SAEC could struggle to attract EU financing to leverage the SAEF resources if the program is similar to ongoing EU initiatives. This would hurt the long-run sustainability of the project; -- High overhead costs in establishing and maintaining a center with a four-person staff mean significantly less money for program activities; -- SAEF acknowledges that it does not have experience operating a non-profit foundation, but wants to use only its staff and not hire anyone with such expertise from the outside; and -- Putting all of the resources into establishing a new center limits the flexibility of how the resources can be used. ¶9. To address these concerns, meet the current needs in the market, and help provide the best of U.S. entrepreneurship practices, we recommend a fundamental change in the concept outlined by SAEF. We propose a lean grant-making foundation that would support entrepreneurial initiatives and new project proposals. As we mentioned in the summary, Slovakia needs to emphasize development for the future in the area of information technology to move toward a knowledge-based economy and society. For this reason we would ask SAEF to consider a foundation targeting information and high technology. Partnerships could be developed with Slovak technical universities and the impact increased by leveraging through matching funds. With the board as the primary advisory unit, the foundation could exist with limited staff (possibly one person) and much lower administrative costs, which we understand is a model that has been successfully used in other neighboring countries. This would extend the reach and impact of the legacy foundation by maximizing the amount going to program activities. OBSITNIK