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Down economy still offers options for entrepreneurs

Premium content from Phoenix Business Journal - by Lynn Ducey, Phoenix Business Journal

Date: Sunday, August 31, 2008, 9:00pm MST - Last Modified: Wednesday, August 27, 2008, 1:58pm MST

Entrepreneur Dan Rees turns restaurant waste oil into biofuel for vehicles through his Arizona BioDiesel business. He says he is benefiting from two trends in the marketplace: people

Many Valley entrepreneurs are ignoring the negative economic signals, opting to transform their ideas into viable businesses and products.

"Yes, the economy is challenging, but with that challenge comes opportunities," said Peter Burns, co-founder of Club E Network, a social network of entrepreneurs in the Valley and across the country. "And the reality of it is, if you bring entrepreneurs together, there is no lack of optimism."

Club E has chapters across the Phoenix area attracting entrepreneurs in all stages of business, from concept to growth. In addition to the groups' meetings, Burns said about 30 people have expressed interest in a new incubator-type idea to bring entrepreneurs together in shared office space, such as the facility being developed in Gilbert.

"We can thrive in this economy if we combine our efforts," he said. "People in the Valley are embracing the entrepreneurial spirit and bolstering each other. We are figuring out different ways of doing that."

While entrepreneurs are reaching out to build connections, investors are looking for promising businesses ready to blossom.

Kevin W. McHolland, a partner at Ernst and Young LLP in Phoenix, said the venture capital arena across the Valley is alive and well.

"Even though there has been some weakness in our economy, we've seen an influx of venture capital into Arizona. We have seen funding come across for various industries," McHolland said.

According to Ernst and Young, $88.7 million in venture capital was invested in business in the metro Phoenix market during second-quarter 2008. That's a significant increase from the $67.6 million invested in the first quarter, and even more so from the $25.4 million invested in second-quarter 2007.

McHolland attributed the increased investments to a capital market relatively flush with cash, set aside after the real estate boom faded.

"Venture capitalists have money to deploy and, even today, we are seeing a nice level of funding. We are not seeing funding drying up," he said.

Entrepreneur Dan Rees said he is benefiting from two trends in the marketplace: a desire to be green and a desire to economize.

Rees owns Ultimate Image Inc., a Chandler firm that remanufactures ink cartridges for use in copying and printing machines that he started in 1994. In 2007, he launched Arizona BioDiesel, a company that recycles used restaurant oil into fuel for vehicles.

"I am on both ends. I have a long-standing business, and I have a newly formed company," Rees said.

But despite the presence of some venture capital, Rees said it's been difficult to get funding for his new company. Initially using capital from his existing business to fund the startup, he developed a relationship with a corporate bank to find an appropriate avenue of funding. That was in 2007.

"Today, because we are green and because we deal with fuel, we now have private investment companies calling us daily," he said.

While Rees is fielding those offers, he said the response from the consumer and supplier side has been great.

It's been difficult working through municipal planning and permitting processes to get a facility up and running, he said, but the recycling plant is expected to open soon in Gilbert.

"Business has been good for me, but I wouldn't open a swimming pool business today -- maybe swimming pool repair. It just really depends on what this down economy will support," Rees said.

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