Members of the Grand Forks Growth Fund Committee reelected two members to committee leadership positions, then made additional adjustments to a business loan program that enables the city’s economic development wing to take an ownership stake in startup companies.
Committee members on Monday, July 12, reelected Bret Weber, a City Council member, and Jonathan Holth, a local businessman, to serve as chairman and vice-chairman, respectively, of the Growth Fund. After that, the committee worked out details on how the Jobs Development Authority can convert a startup loan for tech companies into an equity stake, if the company proves successful. The committee then entered into such an agreement with a drone company named First-i.
The question of how the Growth Fund can get a larger return on some of its investments has been floating in the minds of city and economic officials for some time now, according to Keith Lund, president and CEO of the Grand Forks Region Economic Development Corporation. Lund spoke at the Growth Fund meeting Monday.
The notion was conceived, then discussed, to include the option of changing a loan made to a tech startup -- through the Accelerate Loan Program -- into an equity stake equal to the amount of the loan. The JDA, at its meeting last Tuesday, OK’d that proposal, and Monday’s Growth Fund meeting fleshed out some remaining questions.
“The question was asked: Is there a way to create a greater upside for the Growth Fund financially?” said Lund.
Turning a loan into partial ownership of a company with great growth potential answers that question. With the new policy change, Accelerate loans may include what is called a “convertible note,” meaning the JDA has the option, at its discretion, to buy at a discount shares in a company to which it has loaned capital.
That doesn’t mean the JDA will be buying stakes left and right, however. Accelerate loans may or may not include a convertible note, and some may remain at their usual terms: a maximum of $250,000 with no payments or interest for three years, followed by two years of 2% interest, also with no payments, followed by a balloon payment at the end of five years.
On Monday, committee members agreed that acquiring a 10% stake in a company should be sufficient, should that option be chosen, and that state funding qualifies as a needed match in the program. Loans given through the Accelerate program require a dollar-for-dollar match from “private or institutional investment.”
The committee took steps to address the potential for a conflict of interest, if the city does business with a company in which the JDA owns a stake. Should such a company answer a city-offered request for proposal, a third party would likely be called in to weigh the matters.
With the convertible note program largely hammered out, the committee voted to give an Accelerate loan to First-i, a drone/UAS data management company. The loan is for $250,000, which will back up $850,000 in state funding. Should the JDA turn that loan into equity, it can buy shares at a 20% discount.
Also at Monday’s meeting, committee members voted to give Grand Forks City Attorney Dan Gaustad permission to authorize a public sale, via sealed bid, for the JDA-owned Corporate Center II, on Demers Avenue downtown. The building is valued at $3 million. Gaustad said the JDA is under no obligation to accept bids that come below that amount.
Corporate Center I needs further review before going on the auction block, as some tenants there have the right to purchase the spaces they lease.