Crain’s Detroit Business
June 27, 2023
Mark Sanchez, Crain’s Grand Rapids Business
Nonprofit organizations in Michigan that invest in high-tech startups can seek funding from a new early-stage capital fund through the Michigan Economic Development Corp.
The Michigan Strategic Fund board today approved allocating $23 million for the Michigan Innovate Capital Fund program that will award up to $5 million to nonprofit investment organizations that provide early-stage capital to startups with “competitive edge technologies.”
The program aims to build “a more robust innovation pipeline in our state,” MEDC CEO Quentin Messer Jr. said in a media briefing prior to today’s Michigan Strategic Fund board meeting.
Investment organizations that request funding “will have to demonstrate an ability and willingness to invest in high-growth technology-based companies that are primarily in the earliest phases of commercialization,” Messer said. Once awarded funding, the organizations could invest $250,000 or less in companies to use to prove their technology and market concepts.
“The Innovate Capital Fund Program will add to Michigan’s legacy as a state that embraces innovation and forward-thinking,” he said.
Funding from the program comes from the Jobs for Michigan investment fund.
A memo from MEDC staff to the Strategic Fund board noted that prior pre-seed funds created from 2011 to 2023 funneled a combined $55.2 million to five organizations, including the Biosciences Research & Commercialization enter in Kalamazoo, MSU Research Foundation and Invest Detroit.
The Invest Detroit First Capital Fund received $8.5 million from 2017 to 2020 and made more than 200 investments in 111 companies, 96 of which remain active, and helped to create more than 1,000 jobs. Portfolio companies in the Invest Detroit First Capital Fund went on to raise more than $500 million in private capital, according to MEDC staff.
The MEDC also cited how Ohio presently has 11 pre-seed fund programs. Several of the Ohio funds have more than $100 million in assets under management and receive “significant ongoing financial support from the State of Ohio,” which awarded $73 million awarded to pre-seed funds in 2021 alone.
The application process for the Michigan Innovate Capital Fund Program could begin as soon as this week with information posted online, said Fred Molnar, the MEDC’s senior vice president of entrepreneurship and innovation.
“The need for early-stage, pre-seed capital in Michigan’s high-tech startup ecosystem is real and it’s immediate,” Molnar told Strategic Fund board members.
The MEDC will split applications between “experienced or established” investment organizations such as the BRCC in Kalamazoo and Invest Detroit that have previously received funding and “who have everything in place and are actively doing investments,” and emerging organizations that invest in tech startups, Molnar said.
The MEDC expects about $20 million of the funding will go to established applicants, he said.
“Because these entities are currently investing via returns from earlier investments, they have all of the due diligence and support processes in place,” he said. “This injection of additional capital can be immediately utilized in company investments.”
Targeting funding toward emerging nonprofit investment groups would “expand the pool of pre-seed investment entities beyond the current ones, increasing opportunities across the state for early-stage tech company investments,” Molnar said.