State allocates $7 million in funds to back early-stage entrepreneurs

State allocates $7 million in funds to back early-stage entrepreneurs
Fred Molnar, vice president of entrepreneurship and innovation, MEDC

An assortment of state-backed capital funds and initiatives to support business startups, innovation and entrepreneurs recently earned renewal in Lansing.

The Michigan Strategic Fund Board last month allocated more than $7 million that will go to back entrepreneurs working to bring innovations to market.

Half of the money will go to the Grand Rapids-based Michigan Small Business Development Center’s Business Acceleration Fund and the Emerging Technology Fund. The $3.5 million will keep both funds operating through 2020.

The SBDC’s Acceleration Fund grants up to $50,000 to high-tech businesses to access specialized professional services they need that are not otherwise available at any of the 19 business accelerators in state-designated SmartZones. 

Since October 2014, the Business Accelerator Fund has served 464 high-tech startups and helped to create 51 new companies and 500 full-time jobs. Those companies secured more than $20 million in federal funding, nearly $80 million in venture capital and angel investments, and collectively increased sales by $65 million, according to the memo from staff at the Michigan Economic Development Corp. to the Strategic Fund Board.

The SBDC’s Emerging Technology Fund awards matching grants to innovators that receive federal Small Business Innovation Research or Small Business Technology Transfer grants. The fund provides up to $25,000 for Phase I and $125,000 for Phase II clinical studies.

In nearly six years, the Emerging Technology Fund supported 112 high-tech companies that created 467 full-time jobs, according to the MEDC. The program also helped to attract nearly $95 million in federal funding, and more than $20 million in venture capital and angel capital.

The two funds together fill a gap for funding for young startups, said Fred Molnar, the MEDC’s vice president of entrepreneurship and innovation.

Molnar cites as an example a startup that wants to secure a patent but can’t afford the high legal costs. The company can apply for funding through the Business Accelerator Fund in one of the state’s SmartZones to arrange legal counsel to work on the patent application, Molnar said.

In addition to renewing the Business Accelerator and the Emerging Technology funds with the SBDC, the Strategic Fund Board in December approved issuing a request for proposals to form a third pre-seed capital fund.

The MEDC will accept RFPs during January and make a recommendation to the Strategic Fund Board in February, Molnar said. As with its two predecessors, the planned $3 million Pre-Seed Fund III would provide early-stage capital to startups “to support their efforts in moving competitive-edge technologies to commercialization,” according to a memo from the MEDC.

The early stage is typically where startups have the most difficulty securing needed capital, Molar said. That’s an area where venture capital funds and angel investors generally no longer invest, he said.

“After 2008 and 2009, a lot of the VCs went farther upstream with less risk and that gap opened up,” Molnar said. “If we don’t do another pre-seed fund, as far as I’m concerned, we’ll get companies to a certain level where they’re not far enough along for a VC or an angel to really seriously consider them.”

The pre-seed funds also offer “a much-needed pipeline of investment opportunities for the state’s angel capital and venture capital investors” after they progress, according to a memo from MEDC staff to the Strategic Fund Board.

The MEDC’s first pre-seed fund of $10.2 million, formed in 2011 and administered by Ann Arbor SPARK, made 86 microloans and investments in 74 companies over five years. Those companies went on to attract $283.2 million in follow-on investments, created or retained 509 jobs, secured 109 patents and generated annual sales of $25.1 million.

The $10.3 million Pre-Seed Fund II, run by Invest Michigan, made 108 investments in 51 tech startups that later attracted $274.5 million in private capital, created or retained 2,248 jobs, were issued 95 patents, and collectively generated new sales of $130.2 million, according to the MEDC.

The MEDC will start Pre-Seed Fund III with $3 million “just because of the budget limitations” and could seek approval in later years for additional allocations, Molnar said.

“Over the five years, we anticipate it’ll be in the same range” as the first two pre-seed funds, he said.

The three funds together represent the “nuts and bolts” of day-to-day economic development for the state, Molnar said. Funding amounts awarded to individual companies “is not a whole lot of money, but it makes a significant difference in the progression of a company,” he said.

“To me, it’s fundamental to the success of the ecosystem,” Molnar said.

Other programs the Strategic Fund Board renewed last month were:

  • $500,000 for a one-year extension of the statewide Technology Transfer Talent Network between Michigan’s 15 public universities to commercialize technologies, license innovations to industry and create new startups. The network provides supporting mentors, postdocs and fellows for early-stage university projects. As of September 30 last year, the program supported 29 professionals who advised on more than 450 projects that resulted in 223 issued patents, 230 licensing agreements and $21.7 million in follow-on-funding, according to the MEDC.
  • $2.4 million for the Michigan Translational Research and Commercialization Statewide Program that supports technology transfer and innovation hubs at public universities, research centers and health systems. MTRAC focuses on agriculture-biology, advanced computing, advanced transportation, life sciences and advanced materials. Of the $2.4 million allocated for 2020, $500,000 went to the Advanced Transportation Innovation Hub at the University of Michigan.
  • $480,000 for BBC Entrepreneurial Training and Consulting’s SBIR and STTR programs. BBC provides consulting to companies seeking federal grant funding.


EDITOR’S NOTE: This story has been updated to correct a typo.