The Dayton region has received nearly $128 million in Ohio Third Frontier funds since 2002, but emerging changes at the bipartisan economic development program have slowed the pace of statewide funding for the current fiscal year.

Only a fraction of available funds has been awarded, raising concerns among some of the program’s industry and academic partners.

Ohio voters passed a four-year, $700 million extension of the Third Frontier in May 2010.

Third Frontier funds have helped pay for research and other work in the Dayton area.

Recently, $7.6 million in Third Frontier funds were used to help secure the General Electric-University of Dayton aviation electric power systems research center now under construction near UD’s campus.

As of last month, only $24 million of an available $190 million for promising new projects and technologies has been allocated for the current fiscal year that ends June 30.

Third Frontier officials attributed the slower release of funds to the installation of new programs and a shift in strategy that includes a greater emphasis on loans and short-term results.

“What we have done is refine the processes and programs to focus on the areas where we really can see the quicker benefit to jobs and wealth creation,” Lisa Delp, Third Frontier executive director, told the Dayton Daily News.

The shift from grants to loans, as well as an increased focus on projects with three- to five-year time frames, could mean that some area companies and organizations won’t be able to participate in Third Frontier programs as fully as in the past.

“We are for the best use of the taxpayers’ dollars to revitalizing Ohio’s economy,” said University of Dayton Research Institute Director John Leland. “With that said, there are fewer opportunities for us because we are not in a position to pursue loans to fund what we do.”

Cutting-edge technology companies with longer product development and market acceptance cycles are “concerned that they may not be as readily accepted or as readily able to participate because of the short-term emphasis,” said David Swenson, vice president of business initiatives for the Edison Materials Technology Center.

EMTEC, a nonprofit that aided in technology business development, announced Thursday that it will end operations June 29. Officials cited changes in state funding.

The Third Frontier was launched in 2002 to foster technology-based economic growth in Ohio. The $2.3 billion initiative has generated nearly 79,500 jobs and $6.6 billion in leveraged funding, and has created, attracted or funded 701 companies through June 2011, according to a November report prepared by the Battelle Technology Partnership Practice.

The Third Frontier’s Entrepreneurial Signature Program “was instrumental in the spin-off of our high-tech, investment-grade business,” said Chrysa Theodore, vice president of Cornerstone Research Group. That business, Spintech Ventures of Xenia, commercializes smart tooling technology and consumer repair products based on shape memory materials.

“The credibility gained from early ESP investment directly led to additional outside investors,” Theodore said.

One of the largest line items in the Third Frontier budget, the ESP program has $40 million allocated for Ohio’s entrepreneurs in the next two years. Delp said ESP proposals are under review, and responses from the Third Frontier Commission are expected in the coming weeks.

Proposals also are being reviewed for the $25 million Pre-Seed Fund Capitalization Program. Those awards are expected later this month.

“I think once we’ve got a cycle in the new strategy behind us that everyone will be much more comfortable with what we are doing, and understanding will grow over time,” Delp said. Unused funds that were allocated for fiscal 2012 can be rolled over to the next fiscal year starting July 1, she said.

The Third Frontier has evolved in the last 10 years and is now operating with a “more business-like mind set,” said Delp, who was named interim executive director in November.

Some of the Third Frontier money that previously would have been awarded as grants to companies with promising technologies is being channeled into a loan fund for such firms, allowing the state to receive a return that can be used for reinvestment.

“The state constitutionally cannot hold an equity position in a company, so that was something that constrained our ability to receive that return back to the state,” she said.

Traditionally, much of the Third Frontier’s risk capital has been focused on early-stage innovation. Delp said $10 million has been allocated to a new Growth Fund program to bridge a gap in growth-stage funding for existing Ohio companies.

The Growth Fund program seeks to stimulate the formation of two to six Small Business Investment Company funds of at least $25 million each. The SBIC funds each can be leveraged against $50 million in matching federal dollars to inject a total of $100 million to $300 million in new investment money into Ohio’s economy to help companies grow or expand.

The shift toward commercialization from research and development activities represents “the quicker path to jobs,” Delp said. “That is what Ohio needs in large degree right now,” she said.

Source: Dave Larsen, Dayton Daily http://www.daytondailynews.com/business/changes-to-job-creating-project-to-resonate-here-1388516.html