How should Valley EDCs spend their money? Marketing the region, says one business leader. Helping tech entrepreneurs, says another.

MCALLEN, Texas – Former Edinburg assistant manager Brian Kelsey kickstarted a lively debate in the Rio Grande Valley when he unveiled just how much money the region’s economic development organizations have in their coffers.

Kelsey now works as an economic development manager at EY in Arlington Texas.

In a post on LinkedIn that turned into a Rio Grande Guardian news story, Kelsey pointed out that, based on Texas Comptroller’s Office data, EDCs in the Brownsville and McAllen metro areas spent a combined $110.9 million on economic development activities and had $124.3 million in unrestricted cash on hand available for future projects.

When he learned just how much money the Valley’s EDCs have to play with, Joaquin Spamer, founder and president of Valley-based Commodities Integrated Logistics (CIL), was shocked. He questioned whether the region was getting enough bang for its buck when it comes to marketing the region.

Industrial real estate broker Bryan Cook was also surprised. He said he would like to see a big chunk of the EDC’s money leveraged with private funds to create a venture capital fund that would be used to help tech sector startups.

Economic analyst Brian Kelsey

Here is Spamer’s analysis:

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At a CEO Group meeting held recently at the McAllen Country Club, Spamer said the Valley’s economic development organizations (EDOs) have been doing a good job sticking to their mandates. “They’re trying to accomplish their goals. The problem is that they’re doing it separately. We can accomplish a lot more by being united.”

Spamer then ran through the numbers on how much Valley’s EDOs combined spend on marketing. He said it topped $115 million a year. “If you put it all together, the amounts are huge.”

Spamer said that with a much smaller budget, Avocados of Mexico achieve a much bigger bang for their buck. Their $55 million secures national commercials during the Super Bowl and name recognition across the world.

“So, what is our problem? The problem is that we are spending a lot of money. We have a lot of people involved in economic development. We are not working synchronized. Everybody is working differently from each other.”

In fact, Spamer said, that $115 million could be boosted if one included the marketing dollars produced on the Mexican side of the Rioplex region.

“(You have) the Mexican side, all the budgets that they use for economic development. And then you have the private sector, you have the banks that are spending money every year on economic development. You have companies like mine, like Transcasa, all of the companies… my company, we spend about $700,000 a year on economic development. When you put it all together, the private, the U.S. side, the Mexican side, you’re probably looking at $140 million a year. The numbers are huge,” Spamer said.

Spamer reiterated that he was not saying the Valley’s EDCs do not spend their money well.

“But I am saying it can be spent better. And let me give you another good comparison. Avocados from Mexico, their annual budget is $55 million. And with $55 million, they put ads in the Super Bowl. And they have placed the brand all over the world. They’re doing it and it works. They have been extremely successful. If you go to Dubai, if you’re in Singapore, and you talk about avocados from Mexico, they know what you’re talking about. So why don’t we put all of our efforts together on one brand name. We may be able to accomplish more than Avocados from Mexico is accomplishing every year.”

Here is Cook’s analysis:

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On a recent Rio Grande Guardian podcast, Cook said the biggest economic challenge the Valley faces, outside of water supply, is a lack of startup capital.

“I think, geographically we’re well situated. I think the challenge that faces the RGV is the lack of of investment capital, venture capital and startup capital. We’re behind the curve about 20 years compared to other communities,” Cook said.

“On the economic front, my concern is that we’re trying to look at everything from a top-down type of approach where promotion and attracting companies is the only means by which we can achieve or improve our well-being, our economic well-being, our wealth growth in the community.”

Cook continued: “I think that’s fine. That’s good for companies that want to promote, and they want to market the area. I like what Joaquin Spamer is doing in bringing a lot of the interested parties together and focusing on a regional approach. McAllen and Reynosa have always been very well connected in terms of their promotional efforts. But I think what we really, really, need to look at in the RGV is, we need to put millions and millions of dollars into startup and venture capital to grow from the bottom up.”

Cook said he had a specific figure in mind to kick things off.

“I think you need to start with about a $2 million fund to get started and match that with the private sector to have a $4 million fund project.”

In fact, in the podcast, Cook said $20 million would not be unreasonable for a Valley venture capital fund.

“That is less than 20 percent of the money sitting on the side lines at the EDCs,” Cook said.

Cook acknowledged that putting venture capital into startup businesses can be risky.

“I realize that eight out of ten of those companies are not going to survive after the third year. Those are the statistics. But you have to start somewhere, and you have to start developing that economic eco-base so that you will learn from what works and what doesn’t.”

Cook said that when one looks at what made Silicon Valley so prosperous, it wasn’t just the fact that it had a nice climate and a lot of smart people.

“It is that they had access to venture capital. They had companies, individuals, wealthy individuals willing to place a bet on XYZ to become successful. And let’s think about it. Google, Apple, HP, Microsoft, Amazon, Dell, all were startup companies, these were not legacy companies.”

Cook said the focus of EDCs needs to be placed on wealth creation, not job creation.

“If job creation was the source of wealth creation all we would need is retail jobs. And we’ve realized that’s not the case. But you have to look at wealth creation.  Wealth creation comes essentially from the bottom up. It comes from entrepreneurial activity.”

Cook said he spends a lot of time in Austin in New York City and therefore studies their economies.

“What I’m seeing strangely enough – oddly enough, I should say – in New York City is a growing sub-market of entrepreneurial tech activity. What you have is a community of young people that want to live in that community. There are like-minded people. They are willing to sacrifice some of the comforts you have… the easy life of other places. New York City is not an easy environment to live in when you’re young. It’s a struggle. But they have access to venture capital, they have access to capital.”

Cook said the Valley is “starving” local entrepreneurs.

“Banks don’t provide capital. It’s not venture capital. You know this money, you’re going to lose money on placing your bets, okay? But two out of the ten are going to do well and out of those eight that didn’t survive, we’re going to learn a lot about what works, what doesn’t work.”

Cook said the Valley’s cities need to do more to help the entrepreneurial ecosystem.

“The reason I say cities and communities need to rethink is because we’re not going to have the private sector come in on its own and put money into these new-found businesses. We’re going to need some public and private cooperation.”

By way of example, Cook cited the City of McAllen.

“The City of McAllen has $44 million in its discretionary fund that it generates, I believe, from the half cent sales tax. That’s a lot of money. And so, when you see what cities have, that they have access to, they’re going to have to be willing to invest in local entrepreneurs. Not just simply invest in the education of these entrepreneurs because we have a good education system, especially with UTRGV and the medical school that they’re developing. We’re having a very good infrastructure from our educational base. But what we’re starving from is a lack of capital, investment capital. And it’s going to really take that (city involvement) in order for the RGV to catch up.”

Cook spelled out how much is needed.

“It’s not just one $50,000 contribution. We need 50 $50,000 contributions each and every year. It takes an enormous amount of money. And I don’t know if the Valley community understands that. I don’t think a lot of them see how other communities like New York City are thriving in their entrepreneurial activities. They really need to take a look at that. Like the City of Austin. They don’t need capital from the public sector. They have a vibrant private capital sector. We don’t have a vibrant private capital sector here for startups and venture capital.”

Cook pointed out that the McAllen Foreign Trade Zone started out thanks to startup capital from the private sector.

“The foreign trade zone in McAllen was the beneficiary of startup capital. There was a group of individuals who all put in $10,000. I don’t remember if it was 50 or 60 people that all put in, I believe, $10,000 a piece and said, we need a foreign trade zone. We have a bridge, we have Mexico, we need a foreign trade zone,” Cook said.

“And so, you see, that’s where private capital came in, early on. And they’ve benefited significantly from that. That needs to be applied to the tech sector, the same principle, we need investment capital.”

Cook said the Valley is still transitioning from an agrarian economy.

“Fifty years ago, we had a large agrarian economy and we’re transforming out of that into trying to become a manufacturing community. I think we need to ask ourselves, where do we see ourselves 20 years from now? Where do we see ourselves ten years from now?”

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