Arundel incubator's time may be short

Center to help homeland security startups awash in red ink

March 27, 2007|By Allison Connolly | Allison Connolly,Sun reporter

They crowded into a room at the Chesapeake Innovation Center one day last fall for cocktails and finger food, and more importantly, introductions. A sprinkling of entrepreneurs worked the room of venture capitalists, attorneys and high-ranking officials from the National Security Agency, Boeing Co. and Northrop Grumman Corp.

As they chatted, it was hard to figure out who was more impressed with meeting the other.

That's the way the Chesapeake Innovation Center, the nation's first homeland security incubator, is supposed to work. Startup companies pay monthly rent not only for space but for mentoring and access to potential customers and partners. Big companies and government agencies sponsor the incubator in hopes of finding the next big idea.

But a little more than three years after it was created by Anne Arundel County to capitalize on the growth of the post-9/11 homeland security industry in the area and in Washington, the incubator has been beset by challenges.

It's paying top rent for office space and now has too few tenants to fill it. Directors have come and gone, and the incubator is now being run by one person and two support staffers. Many of its original sponsors are no longer contributing money. And it is about to finish its third consecutive year in the red.

Time may be running out. Robert L. Hannon, the county's economic chief who assumed direct control in January, estimates that he and his staff have only a few months to fix it.

"The CIC is a terrific economic development initiative in terms of growing new businesses and supporting the aerospace and homeland defense industries, as well as a valuable tool for the technology community in Anne Arundel County and the region," Hannon said. "It needs to be done with discipline."

For the fiscal year ended last June 30, the Annapolis incubator's loss ballooned to $457,000 from a negative $60,000 in the previous year.

This fiscal year, it is expected to lose between $150,000 and $200,000. Its total annual budget is $1.4 million, including the $480,000 it receives from the county each year.

To justify his funding request for fiscal 2008, which starts July 1, Hannon plans to present a turnaround plan to the County Council.

"We have some stiff challenges in getting CIC back within those chalk lines," Hannon said.

Last month, interim executive director Laura Neuman resigned her post and returned to the board so the organization could focus on its turnaround. Neuman took over in June after the county dismissed the management team of John Elstner and Mark Sauter of the private firm J2 Strategies after only three months. Elstner was CIC's chief executive and Sauter was the chief operating officer. As the for-profit J2, they signed a three-year deal with the county to manage the not-for-profit CIC while scouting new technologies for J2 to invest in. But the county felt J2 was focused more on its own business ventures than CIC tenants and terminated the agreement, paying $215,429 for its service.

Neuman, who had opposed hiring J2, said she was able to trim the deficit during her tenure and make inroads with sponsors, signing Boeing in September, but felt it was time to step down after discussing strategies with Hannon.

"We have a difference in opinion about the new direction the incubator is taking," Neuman said, declining to comment further.

Hannon said he won't start looking for a new director until the turnaround is in motion.

One chance may come at the end of April, when the incubator's lease at 175 Admiral Cochrane Drive expires. The organization rents 27,000 square feet of Class A office space that at one time housed 21 companies. But with fewer than a dozen tenants now, and less money coming in from both tenants and sponsors, Hannon said the space needs to be "right-sized." He and his staff are negotiating with the current landlord to downsize to a cheaper space and are shopping around to find the best deal.

Meanwhile, the staff has approached its six original sponsors and asked them to resume funding.

The National Security Agency, for example, gave the incubator $500,000 when it first joined but has not contributed financially since. Roger London, the technology scout who runs the incubator's daily operations, said NSA is still a valuable partner with "a blue- chip name."

In a statement, NSA spokesman Kenneth D. White said the agency wants to be a "continued partner" with CIC.

"Though the agency contract with CIC was not renewed due to fiscal realities, NSA remains aware of locally developed technologies," he said.

London said he'd like to bring on more paying sponsors, but his time is limited by running the incubator's daily operations. This year, sponsors and partners have paid $227,500.

The incubator also plans to raise tenants' rent. That galls Mark Vasudevan, president of Vsi Corp., who said the incubator isn't delivering on its promises of client contacts and sales leads.

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