At the heart of the startup initiative proposed by the Whitmer administration is a $ 140 million proposal for equity investments whereby the state would become a sponsor in various venture capital and investor funds. providential.
“The key goal is to continue to diversify Michigan’s economy through high-growth, innovative local startups while maintaining momentum as the pandemic emerges,” according to the LEO memo.
The state has already taken stakes in a handful of other venture capital funds, most recently in 2011 and 2013, according to MEDC.
State officials say that when looking to make these investments, it’s important to view them as a business transaction, rather than just handing over dollars with little assurance of return.
“The best way to be successful isn’t just to write a check and hand it over,” Jonathan Smith, chief of staff at LEO, said in a presentation to investors earlier this month. “For those of you who come from the business community, you understand. It’s not just the money you provide, it’s the expertise and mentorship. And likewise, if we’re going to put it back. money as a state, we have to have an owner and investor mindset. ”
Of the $ 140 million proposed for equity investments, the initiative aims to allocate $ 30 million for pre-seed funding, $ 70 million for early stage companies and $ 40 million for seed funding. capital of the growth phase, according to the state note.
In addition, the initiative would allocate $ 50 million in grants, including dollars to expand the State Business Acceleration Fund, the Emerging Technologies Fund and the MWF Micro-Loan Resilience Fund, all by creating a handful of new funds and programs. $ 10 million would also be made available for technical assistance to start-ups.
Fred Molnar, vice president of entrepreneurship and innovation at MEDC, said the proposed investments aim to fill the gaps faced by companies seeking funding. Namely, there is simply not enough capital to meet the demand.
“There are more great ideas than dollars in Michigan,” Molnar told Crain’s.
Molnar added that the available growth capital, or dollars for already established companies, remains perhaps the most elusive. Indeed, only 17% of Michigan venture capital invested in local businesses last year was for a growth phase, while 65% for start-ups, according to figures from Michigan Venture Capital’s 2021 report. Association.
Taken as a whole, the initiative, if it comes to fruition, could help further diversify the state’s economy into a sector that offers better-paying jobs, according to Molnar, who called it a “development story. classic economy “.
Gordon, the UM professor who questioned whether the proposed amount was enough to create a radical change in the state’s startup and venture capital landscape, said the “game changer” would be d ‘approximately $ 500 million. This amount, he said, would help foster larger investment funds or grow existing ones.
“We can do it here,” Gordon said. “There’s nothing hovering in the air in Michigan. It’s a wonderful place to live and with more capital, we can attract talent (and retain) our own talent. Just think of the people coming out of. our universities. “