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Sometimes the system works; ARTECH of Clarksville shows how ASTA's seed capital program is supposed to work.

Sometimes The System Works

ARTECH Of Clarksville Shows How ASTA's Seed Capital Program Is Supposed To Work

"Chasing the butterflies" is how Jerald Stokes describes looking for venture capital in Arkansas. "It does not exist," says the president of Arkansas Technologies Inc. in Clarksville. His is the voice of experience.

Four years ago, with a sound business plan in hand, the fledgling company went looking for someone to invest in its future. "These people are tire Kickers -- they'll talk to you all day long," says Stokes. ARTECH's principals set a time limit of 2 to 3 months to raise the $500,000 needed to be a player in their capital equipment-intensive business.

Finally, ARTECH's persistence and initiative got representatives of five different funding entities together in a room, and a financing package was hammered out. The end result was not an investment package, as the company had originally hoped, but instead a loan package.

One of the five lenders was the Arkansas Science and Technology Authority, taking its first dive into seed capital lending waters since the program was funded by the state legislature in 1985.

Recently, ARTECH repaid the $150,000 ASTA loan -- ahead of schedule -- and today both parties point to the experience as proof "the system" can work.

How Does Your Garden Grow?

In 1986, pre-loan ARTECH spent its first summer "incubating" in the basement of the business building at the University of the Ozarks. The three partners (Stokes, Dan Leed and Ray Thompson) "lived off credit cards" during this uncertain time, says Stokes. "We were gambling we'd get orders."

Their first sizable equipment order was from a Chicago customer for $100,000. The customer flew down to meet with ARTECH and asked where they were going to manufacture the specialized equipment. Stokes drove them past a 30,000-SF building near the Clarksville airport and said, "We think we're gonna be in here."

The company has since prospered in that location. They projected for ASTA that by the end of year one they would employ 20 Arkansans and have sales of $1 million. Today they have over 40 employees in Clarksville and are on track to do over $4 million in 1990.

Notably, the firm buys most all of its materials, (over 75 percent of sales in 1989) from Arkansas companies.

Designs on the Future

ASTA's seed capital revolving fund of $1.8 million was legislated in 1985 to help high-risk, technology or science-based Arkansas companies get off the ground, and ARTECH fit that bill.

The company designs, builds and installs specialized manufacturing equipment; many of its machines are one-of-a-kind. Their work is focused on the brick and clay industry, with a lesser emphasis on the defense industry.

Two projects recently completed by the company for Acme Brick in Denton, Texas, and LTV in Camden are typical company products.

ARTECH has patents pending for a brick setting machine design for Acme. The "EFFIE Hacker" (a hacker is an old brickyard term for the guy who stacked the bricks) automatically sets the wire brick molds before the clay is pressed and then adjusts stacking patterns.

The equipment built for LTV is a precision "joining machine"; it joins a rocket motor to a warhead. One slight miscalculation of where to drill and rivet could result in an explosion.

"In our opinion it is the most sophisticated machine in Arkansas," says President Stokes.

Let The Good Times Roll

Successful jobs have allowed ARTECH to pay off the ASTA loan and a portion of the balance of the initial financing package. In addition, this past summer the company acquired a competitor of Asheville, N.C. This move essentially doubles ARTECH's capacity and launches it into a new market, the tobacco industry.

"We needed instant capacity," says Stokes. "It wasn't possible to do it short order here -- it would have taken too long -- so we had to look elsewhere."

Stokes says this as if he's apologizing, but ASTA is proud of its "firstborn" and considers the company a program success, even if it has grown out of state.

Back home, ASTA has funded five companies, or one each year since the inception of the seed capital program. The agency hopes the money lent will help to stimulate the state's economy through increased employment and leveraging of private investment. (The authority seeks at least a 3:1 match by other parties of its investment.)

To date, ASTA has invested more than $1 million, leveraged an additional $4.2 million, and the start-up companies have created over 120 new jobs in Arkansas. Of the five start-ups, two have already repaid ASTA; two company's loans are still on the books, and one has been written off.

Micoil Corp. of Conway, a maker of microelectronic components through laser technology, was funded in 1987, but the firm did not make it. Their $150,000 loan was charged off this summer.

"We're OK with that," says an ASTA representative. "We know going in these are high-risk ventures." An 80 percent success rate to date is rather impressive for high risk taking.

PHOTO : PRECISION WORK: The ARTECH machine at LTV joins a rocket motor to a warhead.
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Title Annotation:Arkansas Science and Technology Authority
Author:Ford, Kelly
Publication:Arkansas Business
Date:Oct 8, 1990
Previous Article:Pain in the assets: J.B. Hunt's OneBank Group will no longer suffer asset growth at the expense of profitability.
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