Michigan Innovation Fund - $105M

Summary

Materials from the Michigan Innovation Fund Coalition supporting the Michigan Innovation Fund, a proposed $105M fund for early-stage startups (HBs 5651, 5652, and 5653). A fact sheet states that the fund would draw on returns of the Venture Michigan Fund and recommends that 85% go to the state's existing evergreen-focused funds and 15% to venture, founder-focused and support organizations. It contrasts the $221M Ohio awarded to six regional venture development organizations with about $24M Michigan invested in early-stage, pre-seed capital. Letters dated May 13, 2024 to Senate Majority Leader Winnie Brinks and Speaker of the House Joe Tate, from the coalition and from founders of Michigan startups, ask for support and cite targets of at least 500 startups and 5,000 new, high-paying, full-time jobs.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

Text recognized from a scanned document; may contain errors. Page 5 of 10 is not shown because the text could not be recognized reliably.

Michigan Innovation Fund - $105M

A fund to grow Michigan’s entrepreneurial and innovation ecosystem, to grow and diversify
the economy and create jobs, and to build a strong network to support startup companies

Goai: Create a strong and sustainable ecosystem that supports early-stage startups and innovation, leading to broader
economic growth and a diverse economy for Michigan. By providing both immediate and long-term investment into
startups, as weil as ensuring an ongoing cycle of reinvestment, Michigan can create a robust and dynamic environment
for entrepreneurship.

The Michigan Innovation Fund supports this goal by helping to ensure Michigan has at feast 5 self-sustainable evergreen
funds that provide early-stage venture funding now and in the future as well as providing increased funding to key
partners in the ecosystem that support startup companies, founders, and funds.

The Challenge
* Michigan is losing significant jobs, talent, and investment opportunities due to the lack of early-stage investment
capital to support startups
* {n Michigan, new early-stage venture capital has decreased significantly over the past several years
* €arly-stage funding rounds remain extremely challenging for high-potential Michigan startups
* Most investment institutions in the state da not have the capacity or sustainability modeis to develop high-
growth potential companies from pre-seed through Series A — the most challenging stage of growth.

How does Michigan compare?

e Startups in the Great Lakes Region take an average of 2 years longer to raise their first SSOOK than startups on
the coasts.

e For every $149 of academic research expenditures in Michigan, there is $1 of VC investment. In California, the
ratio is $7 of academic research expenditures to $1 of VC. This represents a significant under-investment in
intellectual property generated in Michigan.

e From 2020-2022, UM startups raised $2B in total investment, however almost 1/2 of startups left MI, and raised
almost 4x as much. Of those who stayed in MI — 80% of their funding came from out-of-state investors. Only 4%
($82M)} of all U-M companies that raised venture capital originated from MI investment dollars.

e Out of a sample of 231 high-tech startups originally founded in Michigan, nearly half (50%) left the state.

© Those companies created over 4,300 jobs and had venture capital and fiquidity events totaling $3.6B.
© Incomparison, the sample of companies that stayed in Michigan created 2,300 jobs and had venture
capital and liquidity events totaling $1.48.

What are other Midwest states doing?
« Ohio has 11 early-stage, pre-seed funds of which 6 are fully-funded evergreen funds
¢ Ohio continues to fund its early-stage ecosystem at about $75M annually
® From 2016 and 2020, Ohio awarded $221M to the six regional venture development organizations to help
support early-stage investment and their evergreen funds
¢ During the same period, Michigan has invested about $24M in early-stage, pre-seed capital

What is early-stage, pre-seed venture capital?

Early-stage funding, also known as pre-seed funding, typically represents the first significant investment in a startup and
is both the hardest to secure and the most risky. Despite these challenges, it is crucial for a startups initial development
and future success. As we look around the country, this funding often comes from public funding, private foundations,
or sometimes corporate foundations.

What is a venture evergreen fund?

Considering venture capital, one might envision traditional funds where returns are distributed to investors following
successful company performances. In contrast, evergreen funds represent a unique model. These funds, frequently
overseen by non-profit organizations or universities, reinvest profits into emerging early-stage startups rather than
distributing them back to investors. This approach fosters a cycle of continuous investment within the ecosystem. Early-
.

stage evergreen funds usually need to deploy at least $60M in investments to become self-sustaining. Michigan is
currently home to 5 existing funds with proven teams and track records with strong potential to become evergreen.

What is the MI Innovation Fund?
The MI Innovation Fund is a $105M fund to provide funding and programming that:

Creates a fund to award grants to existing nonprofit/ university-backed, early-stage venture funds that are
building their funds te an evergreen status. This means the exit returns are continuously reinvested into
Michigan startups for perpetuity and that the fund is operationally self-sustaining.

Provide funding to strengthen Michigan's entrepreneurial ecosystem by supporting organizations that provide
programming, technical assistance, or other support to promote the growth and development of startup
companies, founders, and funds to support an innovation ecosystem in this state.

How will we fund the MI Innovation Fund?

The Venture Michigan Fund | and Il (VMF) were created via Public Act 296 of 2003 to “promote Michigan's economic
health by assisting in the creation of new jobs, new businesses and new industries in Michigan” and to “invest in venture
capital managers with a focus on Michigan-based early-stage companies.” The Fund has seen recent returns resulting in
over $105M cash available today. We are recommending that the current available and future returns be reinvested in
the MI Innovation Fund to continue supporting Michigan’s startup community. The goals of the MI innovation Fund align
with the original goals of the VMF to support MI early-stage companies.

How will the funds be used in 2024?
We recommend the current $105M of funding create the MI Innovation Fund and be disbursed in 2024 as follows:

85% to support the state’s existing evergreen-focused funds to support long-term sustainability goats. The funds
will be required to allocate at least 80% for financial investments in startup companies but can use up to 20% for
admin/operations and programming, including technical assistance, coaching, and mentoring.

15% to support venture, founder-focused, and support organizations in the ecosystem.

What will future funding look like?

The VMF is expected to have additional returns available in the future and the funding will continue to support the MI
Innovation Fund goals and ecosystem programming, as well as additional startup investments. The funding split
includes:

40% to the state’s evergreen funds for early-stage investing,
40% to other investment fund programs to support existing and emerging funds
20% to entrepreneur and innovation ecosystem programming.

Historical Impact of Michigan's S Active Evergreen Funds

Total Amount Invested: $107M
Total # of Companies Invested: 660
Leveraged Amount: $4.28

Total Gross Returns: $37.8M

Total Jobs Created: 5,409

Potential Future Impact for Active Evergreen Funds with MI Innovation Fund Support (Summary)
If the same funds receive this initial round of evergreen funding, the following impact is possible:

Five self-sustaining evergreen funds

Investments in at least 500 additional Michigan-based startups/companies
Creation of 5,000 new, high-paying, full-time jobs

Leverage of at least $5B in additional investment

Growth of state and local tax revenue

A stronger sustainable startup community for Michigan

For more information, contact: Jennifer Hayes, invest Detroit; Jennifer Hayes@investDetroit.com; 989-205-2083
Michigan Innovation Fund Coalition

May 13, 2024

The Honorable Winnie Brinks The Honorable Joe Tate

Senate Majority Leader Speaker of the House

Michigan State Senate Michigan House of Representatives
P.O. Box 30036 P.O. Box 30014

Lansing, MI 48909 Lansing, Ml 48909

Dear Majority Leader Brinks & Speaker Tate,

Thank you for your leadership in making Michigan a place where businesses of all sizes can
start, grow, and thrive, and for understanding the importance of a comprehensive approach
to community and economic development policy for Michigan. With that in mind, we are
writing to ask for your support for the creation and funding of the Michigan Innovation
Fund.

The Michigan Innovation Fund (MIF) (HBs 5651, 5652, and 5653) proposes a strategic
investment of $105 million that will anchor Michigan's status as a hub for innovation and
entrepreneurship. This is not just another funding mechanism, but a sustainable, evergreen
solution tailored to elevate our early-stage startups, ensuring longevity and continuous
growth.

Specifically, the Fund would make investments in three core areas:

e Creates a fund to award grants to existing nonprofit/ university-backed, early-stage
venture funds that are building their funds to an evergreen status. This means the
exit returns are continuously reinvested into Michigan startups for perpetuity and
that the fund is operationally self-sustaining.

e Provide funding to strengthen Michigan's entrepreneurial ecosystem by supporting
organizations that provide programming, technical assistance, or other support to
promote the growth and development of startup companies, founders, and funds to
support an innovation ecosystem in this state.

¢ Provide funding to support a stronger pipeline of Michigan startups as investment
opportunities well as dedicate funding to make investments in or alongside venture
capital funds. This helps to grow the Michigan venture capital industry and sustain
Michigan startup companies with a continuum of capital throughout their growth stages.

A strong startup ecosystem has an outsized impact on economic growth and attracts and
retains young talent drawn to innovative thinking and high-growth opportunities. We have
seen neighboring states make higher investments in their startup ecosystems, and the result
is exponential growth in sectors including and beyond technology.

MIF makes a critical investment to support and grow the earliest-stage startups without
making a sizable impact on the budget by repurposing funding available from prior
investment programming whose original intent was to use returns to continuously support
the Michigan startup community and ecosystem’. This investment impacts startups that
need it the most by growing our ecosystem infrastructure and programming while making
substantial progress toward helping Michigan venture funds become self-sustaining and a
funding resource for years to come.

Although Michigan has worked hard to build a strong startup community, our neighboring
states continue to invest at a much higher rate and are attracting additional capital to their
state. For example, between 2016 and 2020, Chio awarded $221M to the six regional
venture development organizations to help support early-stage investment and their
evergreen funds. During the same period, Michigan invested about $24M in early-stage, pre-
seed capital with a majority of the funding being repayable grants that allow a fund to
operate, but not to grow and become evergreen.2

We fear that if Michigan does not adequately fund our early-stage companies, they will leave
Michigan and go te other states. We want companies starting, staying, and growing in our
state. Based on the success of the existing evergreen venture funds in Michigan, we will
achieve important economic development targets:

e Invest in at least 500 Ml-based startups/companies

e Create 5,000 new, high-paying, full-time jobs

e Leverage at least $5B in additional investment

« Grow state and local tax revenue

« Forge a self-sustaining startup community that stands as a model for economic

development.

Although Michigan’s ecosystem needs even more funding and programming to be
competitive regionally and nationally, we believe the Michigan Innovation Fund proposal is a
significant first step toward achieving our long-term goals for the ecosystem. This level of
investment shows founders and startups that the State is committed to starting and growing
companies here in Michigan.

We look forward to working with you and your caucus on this important and impactful
initiative to help make Michigan's startup ecosystem more competitive. Thank you for your
consideration. If you have any questions about the Michigan Innovation Fund, please reach
out to Jennifer Hayes at Invest Detroit at Jennifer. hayes@investdetroit.com.

Thank you,
om techstars_
\RPM RENAISSANCE taba
VENTURES VEMTURE CAPITAL LP Maryan
=,

CC:

Senator Sarah Anthony, Chair, Senate Appropriations Committee

Representative Angela Witwer, Chair, House Appropriations Committee

Senator Mary Cavanagh, Chair, Senate Appropriations Subcommittee on Labor and Economic Opportunity
Representative Will Snyder, Chair, House Appropriations Subcommittee on Labor and Economic Opportunity
House Economic Development and Small Business Committee

Senate Economic and Community Development Committee

1. Michigan Early Stage Venture investment Act, PA 296 of 2023
2. Public Policy Associates: “Michigan Startup Evergreen Fund: Landscape Scan”, May 2023, Click here to view the report.
May 13, 2024

The Honorable Winnie Brinks The Honorable Joe Tate

Senate Majority Leader Speaker of the House

Michigan State Senate Michigan House of Representatives
P.O. Box 30036 P.O. Box 30014

Lansing, Ml 48909 Lansing, Mi 48909

Dear Majority Leader Brinks & Speaker Tate,

We are writing to ask for your support of the Michigan Innovation Fund. As founders of
Michigan startups, we know all too well the importance of increasing access to pre-seed
and early-stage capital for new companies throughout our state. The lack of current
funding puts a strain on a start-ups ability to execute quickly and compete nationally.

The Michigan Innovation Fund (MIF) (HBs 5651, 5652, and 5653) proposes a strategic
investment of $105 million that will anchor Michigan's status as a hub for innovation and
entrepreneurship. Establishing a sustainable, evergreen system of funds will ensure
entrepreneurs have a strong network of support. The investments made to our companies
will recycle to new companies long-term - enabling Michigan founders to contribute to
supporting the next generations of founders.

Specifically, the Fund would make investments in three core areas that are of importance
to founders:

e Creates a fund to award grants to existing nonprofit/ university-backed, early-stage
venture funds that are building their funds to an evergreen status and that have been
strong partners to the community.

e Provides funding to strengthen Michigan's entrepreneurial ecosystem by supporting
organizations that provide programming, technical assistance, or other support to
promote the growth and development of our startup companies, founders, and
funds to support an innovation ecosystem in this state.

e Provide funding to support a stronger pipeline of Michigan startups as investment
opportunities well as dedicate funding to make investments in venture capital funds.
This helps to grow the Michigan venture capital industry and sustain Michigan startup
companies with a continuum of capital throughout their growth stages.

This proposal repurposes previously allocated investment funds to maximize their impact
without further burdening the state’s budget. It is a strategic move to nurture the
ecosystem's infrastructure and programming, significantly aiding in our quest to make
Michigan a great place to start a venture-backed business.
While Michigan's entrepreneurial environment requires more support to compete ona
regional and national level, the MIF represents a monumental step forward. It signals to
entrepreneurs and startups that Michigan is committed to their success, fostering an
environment where innovation can flourish.

We believe in the transformative power of the Michigan Innovation Fund and hope you will
too. Your backing of this legislation will be a pivotal investment in the future of Michigan's
entrepreneurial landscape.

Thank you for considering this crucial initiative.

Sincerely,
Founders of Michigan Startups

3600ftme Cantilever Business Partners

86 Repairs

AbleVu

Accelerated Filtration, Inc
Airspace Link

Alerje

Alisio

Arborsense Inc.

Ash & Erie

Atterx Biotherapeutics
Auralab Technologies Inc
Bamboo

Bedestrian

Berry Clean Brands, Inc.
BioMEMS Diagnostics, Inc.
Bioscience Navigators
Block Harbor Cybersecurity
BlueConduit

BlueConduit

Breadless

Cantilever Investors
Catapult

Chiyo

CircNova

Claira Technologies, Inc.
Clixie Al

Crank Bio, Inc
CubeWorks

Curio Genomics

Diet ID

Earnstride

Electric Outdoors Inc
Envision Health, LLC
Epsilon Imaging Inc
Espervita Therapeutics
EVOQ Therapeutics
EVOQ Therapeutics
Firstlgnite

Flightpath Biosciences, Inc
~

GEKOT Robotics
Genomenon, Inc.

Give and Take Inc.
GreenMark Biomedical Inc.
Huck Finch

Hum

Hush

i5 BioPartners

IROA Technologies LLC
Judy Security

LABR

Lingco Language Labs
Livaq

Livegistics

M3D

Michigan Biomedical Venture Fund

Michigan Biosciences Industry Association
(MichBio)

Minchyn, Inc.

Mountain Pass Solutions Inc

Mudita Venture Partners

My Beauty Kit

MySwimPro

NX Fuels, Inc (dba Carbon Fuels, inc}
OneSix Energy Inc.

Opnr

OptimizeEV

Orbion Space Technology

Passage Inc.

PassiveBolt

Peptinovo Biopharma Inc
Pocketnest

Quikly

Reaction Technologies , LLC
Ripple Science

Rydberg Technologies
SecuritySnares

SensCy

Serendip LLC
Shoptelligence

Signal Bioscience
SkySpecs

SpellBound

SU2 Systems Inc. d/b/a Orion Trading
Systems

Sustainable Consulting Group, LLC
Swish Brand Experiences
Tackboard

Tandem

The Latina Success

Traxen Inc

Ulendo Technologies, Inc.
Virtual Round Ballers
Waymark

We Heart Local

Western Michigan University

Zapenda
CC:

Senator Sarah Anthony, Chair, Senate Appropriations Committee

Representative Angela Witwer, Chair, House Appropriations Committee

Senator Mary Cavanagh, Chair, Senate Appropriations Subcommittee on Labor and Economic Opportunity
Representative Will Snyder, Chair, House Appropriations Subcommittee on Labor and Economic Opportunity
House Economic Development and Small Business Committee

Senate Economic and Community Development Committee


File and source

File

2024-05-14_testimony_hecon-2023-michigan-innovative-fund-coalition_39346.pdf

Size

283,106 bytes

SHA-256

7e29a09f492810a375928c61f899f19005f9d93e1f02323107df244589d314fb

Our copy

2024-05-14_testimony_hecon-2023-michigan-innovative-fund-coalition_39346.pdf

Original

No public link identified.