$100 million NWA capital fund unveiled at economic forecast luncheon

by The City Wire staff ([email protected]) 154 views 

You know the economy is bright when a local entrepreneur can take the stage in front of nearly 1,000 business professionals and announce his plan to establish a $100 million venture capital fund in Northwest Arkansas. 

That is precisely what Dr. John James, founder of Acumen Brands, did as the moderator for the University of Arkansas’ Annual Business Forecast Luncheon held Friday (Jan. 30) in Rogers. James, a professed tech junkie at heart, recently stepped away from the day-to-day management of Acumen to focus on the capital fund as well as establish a new residency program for startups and entrepreneurs.

“This $100 million (capital funds) venture, that’s a stake in the ground. It’s a first step, not the step, because I think there is a series of $100 million funds that we can raise and put to work and provide great return for the investors. Perhaps even a better return for Northwest Arkansas and (the state) of Arkansas,” James said following the event.

He’s wasting no time in getting started. James officially starts his new gig next week and said nearly 30% of the funds have been pledged as he and others have actively worked behind the scenes for the past 18 months.

James reflected on his own successful venture to say when he and partner Terry Turpin decided to launch Acumen Brands a few years ago, the doctor and lawyer, both with successful track records for startups, could not raise $100,000 in Northwest Arkansas. He said the father of one of his early employees wrote them a check for $320,000, which ended up delivering a 50-times return on investment.

While there’s money to made in the local entrepreneurial sector, there is also plenty lost. James said his new residency program modeled after a medical residency protocol is designed to give the mentorship and guidance that could mean the difference between failure and success. 

During the question and answer session following the prepared economic remarks, John Silvia, chief economist with Wells Fargo Securities, warned against regulations that could stifle market disruptors. He appealed to state and local lawmakers to think hard before they enact laws to protect against disruptors like Uber, which is now grown to a $40 billion company. He said the early success stories that founded the region, Sam Walton, J.B. Hunt and John Tyson were also disruptors. 

James agreed, saying that the future of Arkansas depends on whether it can be a disruptor, because the alternative is being disrupted.

Kathy Deck, director for the Center for Business and Economic Research at the University of Arkansas, said entrepreneurship is important to the future growth of the local region and the state at large. She said while the big engines that drive the local economy are responsible for massive growth in Northwest Arkansas and largely the improving economic employment metrics for the state, the times are changing as the world becomes a smaller place.

Carl Tannenbaum, chief economist for Northern Trust, said for the first time in a long time the U.S. economy is moving at a faster pace while other economic powerhouses around the globe aren’t following.

For much of the past decade companies looked to China for growth investing heavily there, including two local companies, Wal-Mart and Tyson Foods. Tannenbaum said China’s slowing is the reality for several years to come as they wrestle with environmental pollution and unraveling from corruption and credit issues.

He said India holds some promise because they are more of a service industry and have not been impacted from falling commodity prices. Japan is again in a recession following years of deflationary prices. Russia is far too dependent on oil and will remain under economic pressure this year, Tannenbaum said.

As oil prices remain low this year, Tannenbaum expects U.S. consumers to fare well with an added $750 in additional per capita income. He said importers like Japan and India also benefit from lower oil prices. Some manufacturers will also benefit as do logistics companies like J.B. Hunt Transport. Lastly the lower prices also create a buying opportunity for more investors.

On the downside, he said the fracking industry is stalling as they have higher breakeven costs. Russia, Venezuela, Nigeria and Iran also will see lower revenue because of the falling oil prices. Tannenbaum warned that political and civil unrest is more likely when these affected nations face economic distress.

Silvia spoke about the U.S. economy in terms of failed expectations noting that “what you get is not always want you expect” which has been case this past year.

He said when governments print money inflation is an expected consequence, but inflation remains modest even with the $4.4 trillion the Fed has purchased in its bond buying stimulus program. Silvia said this was not the expected result.

Silivia said interest rates kept low by the Fed have created a flat yield curve that is compressing margins for lenders. With the reduction in Fed purchases, interest rates where expected to rise, but in fact the 10-year treasury rate has declined in recent months. That also was not the expected result, Silvia said.

He said oil has plummeted and the global markets have suffered which has pushed more investors into U.S. treasury bonds which is keeping the yields down. At the same time the U.S. dollar continues to strengthen not whats expected given the high U.S. debt levels. 

The impact of these “not expected” results has meant less pricing power for goods producers and it’s meant lenders are now venturing into more subprime areas chasing yield.

He warns that chasing yield into the subprime markets can be a slippery slope that must be dealt with gingerly.

Another shift at play in the U.S. economic picture is housing. He said with unemployment improving and consumer confidence strong the single family home building sector should be better, but it is not roaring back on a national level. Instead, multifamily home building is a robust market — not the expected result.

Looking ahead Silvia expects sustained U.S. growth, he is a little cautious on the consumer overall noting the recovery has not been equal among the various income demographics. He expects to see governments – state and local — continue their restructuring. 

Silivia sees the country’s long term fiscal policy as unsustainable.

Northwest Arkansas is expected to lead the state in low employment but projected job growth is expected to slow this year.

Deck said the 3.9% unemployment rate is problematic at a time when employers’ number one concern is lack of qualified workforce. She said Northwest Arkansas is expected to add just 3,000 jobs in 2015, which is a downward departure from the 5,000 jobs added in each of the past years. One of the biggest problems for this region is that employers with open jobs say they can’t find qualified candidates with the necessary skills.  

“I often wonder if they can’t find these people or if they don’t want to pay the wages to attract them, because I know our schools have worked diligently for some time to ready a workforce,” Deck said.

She said construction is a hot industry across the state largely because of the roads being built. Locally, she said commercial, residential and multifamily building is on the rise, which is somewhat conflicting against declining workforce and job growth estimates.

With the Razorback Greenway and the Amazeum opening this year, Deck expects Northwest Arkansas to attract more tourism dollars which is helping to fuel the hospitality industry.

In Fort Smith, Deck expects to see an improving economy albeit from a low baseline as the city added no new jobs between 2011 and 2014. 

“The recession came to Fort Smith and never left,” Deck said. “There is just recently some investment and new opportunities springing up there that should help the city’s economy move slowly forward this year.”