A new state-backed early stage capital fund hopes to cut its first deal by early summer, executives say.
The $6.8 million Michigan Pre-Seed Fund 2.0 hopes to do as many as 50 deals over the next two years. It will provide early-stage, high-tech companies with the capital they need to move further toward commercializing an innovation, said Charlie Moret, president and CEO of the nonprofit Invest Michigan that manages the fund.
“It’s an aggressive target, but one where we think the demand is there,” said Moret, who previously ran a pre-seed capital fund in Connecticut.
The fund will seek out investment prospects by partnering with the 15 SmartZone business incubators and accelerators across the state as well as university research labs. Of the $6.8 million allocated for the fund, $5.8 million will go to make direct investments in companies and $1 million is set aside for the University Commercialization Fund that helps universities transfer technology innovations to the marketplace.
“We’re looking to create good companies in the state of Michigan that will be economically viable and, in the long term, make Michigan the sort of place to start your high-tech business,” Moret said.
Michigan Pre-Seed Fund 2.0 primarily targets early-stage technology companies that are in advanced automotive, manufacturing and materials, agriculture, alternative energy, homeland security and defense, information technology, and life sciences.
The fund’s formation by the Michigan Strategic Fund comes as Michigan ranks well nationally in generating intellectual property, especially at its top research universities, and as venture capital and angel investing in the state is on the upswing. By offering pre-seed capital, Michigan Pre-Seed Fund 2.0 aims to fill a gap in the capital continuum and provide the funding a company may need to demonstrate an innovation’s validity or commercial viability, and to position itself for pursuing additional capital, he said.
“It’s clear a tipping point has already turned (in Michigan). The flow (of capital) is increasing,” Moret said. “There’s a lot of momentum and activity here, potentially.”
Michigan Pre-Seed Fund 2.0 will deploy capital through direct equity investments in companies, loans or convertible loans. Investments in individual companies will start small – up to $50,000 in the first stage – and recipients can receive further funding in phases as they achieve certain thresholds, Moret said. Companies must match the funding dollar-for-dollar with private capital they raise, he said.
As loans are repaid, Invest Michigan will then use the money for new investments.
The Michigan Economic Development Corp. hopes to leverage every $1 invested by the Michigan Pre-Seed Fund 2.0 with $8 in private investments. The fund will seek to partner with venture firms and angel investment groups in the state that can provide the capital a company needs once it moves beyond the pre-seed stage, he said.
“These pre-seed funds are intended to help innovative companies take those last steps to become commercially viable and more attractive to private investors,” said Paul Sorrell, the MEDC’s vice president of entrepreneurship and innovation. “With the wealth of entrepreneurial talent we have in Michigan, we want to make sure good ideas turn into businesses that help expand and strengthen the state economy.”
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