Accessing Capital for
Advanced Energy
Businesses in Arkansas
A survery of public and private options in
Arkansas and other states
Produced by the Arkansas Advanced Energy Foundation
and the Advanced Energy Economy Institute
February 2013
The following guide was commissioned to Elizabeth Redman, Cross Sector Strategies as a result of
discussions with Steve Patterson and Ken Smith of Arkansas Advanced Energy Foundation (AAEF) and
Laura Bartsch of Advanced Energy Economy Institute (AEEI).
In the course of an ongoing dialogue pertaining to the development of working groups for AAEF and its
counterpart organization, Arkansas Advanced Energy Association, a request was made to develop an
“index of experts and financial resources” to address a perceived “collective need” for such information
– potentially across all of the chapters partnering with Advanced Energy Economy.
This study and the resulting guide represent a first step in forming a key resource, and also in framing a
further dialogue within the Clean Tech Market Development working group in Arkansas.
The Access to Capital Resource Guide was researched and written by Elizabeth Redman incorporating
input, guidance, framing and editing from the previously mentioned team who wish to express thanks
and recognition to all those who were interviewed in the course of its development.
2
Contents
Introduction .................................................................................................................................................. 5
AR Investment Resources ............................................................................................................................. 6
Best Practices: State Investment Tools That Increase Local Company Access to Capital........................... 11
Utah......................................................................................................................................................... 12
Ohio ......................................................................................................................................................... 14
Oklahoma ................................................................................................................................................ 17
Pennsylvania ........................................................................................................................................... 19
Maryland ................................................................................................................................................. 20
Examples from the Southeast U.S. and Arkansas’ Neighbor States ........................................................... 21
Georgia .................................................................................................................................................... 21
North Carolina ......................................................................................................................................... 23
Tennessee ............................................................................................................................................... 24
South Carolina ......................................................................................................................................... 26
Indiana .................................................................................................................................................... 27
Missouri .................................................................................................................................................. 28
Virginia .................................................................................................................................................... 29
Other Examples of State Approaches to Increase Access to Capital .......................................................... 30
Washington ............................................................................................................................................. 30
Oregon .................................................................................................................................................... 30
Colorado .................................................................................................................................................. 32
New Mexico ............................................................................................................................................ 32
State Investment Programs Uniquely Focused on Clean Tech ................................................................... 33
3
Connecticut Green Bank ......................................................................................................................... 33
Iowa Power Fund .................................................................................................................................... 34
Mass CEC Investments in Clean Technology Division ............................................................................. 34
California Green Wave Initiative ............................................................................................................. 35
Oregon Business Energy Tax Credit ........................................................................................................ 35
Colorado Clean Technology Discovery Evaluation Grant Program ......................................................... 36
Washington Energy Innovation Fund...................................................................................................... 37
Private Sources of Venture Funding for Clean Tech in the SE .................................................................... 37
SJF Ventures ............................................................................................................................................ 37
Intersouth Partners ................................................................................................................................. 38
Abundant Power Capital ......................................................................................................................... 38
NEST-TN .................................................................................................................................................. 39
Innova Fund II, LP .................................................................................................................................... 39
Wunderlich Securities ............................................................................................................................. 39
Additional Funds ..................................................................................................................................... 39
Conclusion ................................................................................................................................................... 40
4
Introduction
In order to better serve advanced energy entrepreneurs statewide, the Arkansas Advanced
Energy Foundation (AAEF) asked its members about the biggest challenges to growing their
businesses in the state. One of the most frequent answers was “limited access to capital.” This
report is intended to highlight the in-state sources of funding that AR advanced energy
entrepreneurs have today and the ways that other states have addressed the similar challenge
of attracting investment capital. While increasing the amount of available capital alone will not
promote clean tech market development in Arkansas, this Resource Guide should provide the
members of AAEA, their statewide partners, and any interested parties with information that
will help them build an advanced energy cluster to benefit the statewide economy.
AR Investment Landscape in Context
While entrepreneurs in most states
outside CA and MA complain about
the scarcity of investment capital,
Arkansas’ performance in this area
actually corresponds with the
business owners’ frustrations. In
2010, Arkansas ranked 48th out of 50
states in the overall State New
Economy Index put together by ITIF
and the Kauffman Foundation,
which includes a number of relevant
factors, from economic dynamism to
innovation capacity. More
specifically, the state ranked 48th for
venture capital invested as a share
of worker earnings, 46th for Industry
Source: SSTI State Venture Capital Dashboard from the
Investment in R&D, 33rd for Foreign
PricewaterhouseCoopers/National Venture Capital
Direct Investment, and 32nd for the
Association MoneyTree™ Report with data from Thomson
number and value of initial public
Financial.
stock offerings of companies as a
share of total worker earnings. While its performance was better for entrepreneurial activity
overall (it was in the middle of the pack, ranking 18th), it has also not kept up with bordering
states such as Texas, Tennessee, or Oklahoma in this regard.
While AR shouldn’t expect to create a venture capital market that mirrors the top performing
states of California and Massachusetts, it can investigate the approaches that other states have
used to increase the investment capital available for local early stage or growth companies.
Washington state, Colorado, Maryland, Washington, D.C., North Carolina and Utah are among
the top when venture capital data is analyzed on a per capita basis, broken down by stage, and
5
provide a place to look for examples.1 Further, other SE states, such as Georgia and Virginia, are
among the top in per capita early-stage investment.
AR Investment Resources
Though AR lags the coasts in its performance attracting venture capital and launching start-ups,
Jerry Adams, the Founder of the Arkansas Research Alliance explains, there has been “much
progress on these topics in Arkansas. We are evolving from a low base of operation, but there
is angel money, early stage money and some venture capital money in the state. Just not nearly
enough. But success breeds more liquidity and we are making good progress on a number of
fronts. I am optimistic that soon Arkansas will be breaking through to the point that more early
stage money will become available.”2
Accelerate Arkansas
Created in 2003, Accelerate Arkansas is a volunteer umbrella organization for more than 70
organizations that support AR’s knowledge-based economy. Gaining traction with key
legislation passed in 2005 and 2007, Accelerate Arkansas’ focus areas include: developing risk
capital that is available for all stages of the business cycle, especially the funding gap;
encouraging entrepreneurship and accelerated new enterprise development; and sustaining
existing industry through advancing technology and competitiveness. 3
Arkansas Research Alliance
Mr. Adams retired from a technology firm in 2007 and, through his participation in Accelerate
Arkansas, was asked to consider starting the Arkansas Research Alliance (ARA), using the
Georgia Research Alliance as a model. He accepted and was given initial funding from the
Governor’s Office. Complementing this with funding from individual board members (who
contribute $20,000 per year), the Arkansas Research Alliance was launched as a non-profit in a
true public-private partnership. Today, ARA receives $1 million from the Arkansas Science
Technology Authority (ASTA) and its Board is comprised of the chancellors of the major
Arkansas universities and 20 CEOS of AR companies.4 Its mission is to maximize Arkansas’ ability
to participate in the 21st‐century economy by recruiting university scholars with a track record
of incubating and commercializing businesses – increasing the number of competitive
knowledge‐based jobs for Arkansans. With a focus on the “upstream” part of the innovation
ecosystem, ARA recently worked with Battelle to do an analysis of Arkansas’ research and
1
“Which States Are Seeing the Amount of Capital Available to New Companies Increase?” SSTI State Venture
Capital Dashboard. http://www.ssti.org/vc/archive/archive.php#early_percap
2
Interview with Jerry Adams, President & CEO, Arkansas Research Alliance. June 21, 2012.
3
http://www.acceleratearkansas.com/index.php?option=com_content&view=article&id=61&Itemid=81
4
http://www.aralliance.org/leadership
6
industry strengths5 and mainly works today on fostering collaboration across the universities,
creating talent, and forging an intersection between Arkansas’s brain trust and existing local
companies.
Innovate Arkansas
For Arkansas entrepreneurs looking for additional business planning assistance or access to
capital, Innovate Arkansas is the main resource funded by the state. Modeled after i2e, Inc. in
Oklahoma, Innovate Arkansas is run by Tom Dalton of Winrock International, a subcontractor to
the Arkansas Economic Development Commission (AEDC). The primary goals of Innovate
Arkansas are to encourage technology‐based innovations and to create jobs in Arkansas. They
do this by recruiting and assisting technology entrepreneurs, working with university research
centers to assist them in commercializing technologies already identified by universities, and by
identifying existing technology employers who have unused or "on‐the‐shelf" intellectual
property in order to help negotiate control of the IP, match the IP with serial entrepreneurs,
and to develop the IP.6 Ted Dickey, an Advisor to Innovate Arkansas explains, “We support
entrepreneurs with early stage concept thinking, research, mentoring, and consulting to make
sure there is a market for the product. Inevitably entrepreneurs need to get linked to funding
and we make introductions to potential funders and do due diligence for investor
organizations.”7 Innovate Arkansas is best able to assist technology companies that already
have a management team in place and are in one of the nine sectors identified by Battelle as
Arkansas’s research strengths.8 Innovate Arkansas works closely with angel investors, ASTA, and
the Arkansas Department of Finance Administration, each of which can help companies
complete a $3-500,000 round of fundraising.
The University of Arkansas Technology Development Foundation also operates the Arkansas
Research and Technology Park (ARTP) as an incubator and provides some start-up funding. The
ARTP is strategically aligned with Innovate Arkansas, as is the ARK, a new mentorship-driven
business accelerator program for technology start-ups serving the retail, transportation and
logistics, and food processing industries.9
5
www.aralliance.org/research/battelle-study
http://innovation.arkansasbusiness.com/about-innovate-arkansas/ia-staff
7
Ted Dickey. Advisor, Innovate Arkansas. July 2, 2012.
8
The nine potential strategic focus areas recognized by the study include: Enterprise Systems Computing,
Distributed Energy Network Systems, Optics and Photonics, Nano-Related Materials and Applications, Sustainable
Agriculture and Bioenergy Management, Food Processing and Safety, Personalized Health Research Sciences,
Behavioral Research for Chronic Disease Management, Obesity and Nutrition.
6
9
http://arkchallenge.org/
7
Arkansas Science & Technology Authority For entrepreneurs in the early stage of business development, the Arkansas Science & Technology Authority offers grants that support patent work and proof of concept research through the Technology Transfer Assistance Grant Program (TTAG). This program will fund an Arkansas business for “up to $3,750 of costs associated with transferring new or existing technology from a qualified applicant ‐‐ such as a public or private enterprise, laboratory, college or university.” 10 ASTA will consider funding up to $5,000 of total project costs, fully funding the first $2,500 and requiring that the business share the cost (50:50) with ASTA for the remaining $2,500. Each enterprise is eligible to receive assistance for two technology transfer projects per year. In addition, ASTA has a Seed Capital Investment Program (SCIP) that “can provide working capital to help support the initial capitalization or expansion of technology‐based companies located in Arkansas.”11 The program can provide working capital up to $500,000, generally allocated through royalty‐based agreements. These funds are geared toward technology or science companies with a fully developed business plan and have a preference for companies affiliated with an Arkansas educational institution. Arkansas Development Finance Authority (ADFA) The Arkansas Development Finance Authority manages the Arkansas Risk Capital Matching Fund (ARCMF) which works to strengthen and advance the financial infrastructure that supports and accelerates the growth of technology‐based enterprises in Arkansas. 12 The ARCMF will target fund investments up to $100,000 in technology‐based enterprises that are in the early stages of development and not yet able to attract adequate private sources of traditional financing or venture or investor‐backed capital. A portion of this fund must be used to validate early stage technology before other investments can be made. It includes clean tech companies to the extent that they are classified as “bio‐based products; advanced materials and manufacturing systems; agriculture, food and environmental services; transportation logistics; or information technology.” According to the website: 1) Investments from the Technology Validation Account are limited as follows: (a) Investment in the technology validation process will be in the form of one‐to‐nine (1:9) matching funds. Funds will provide for up to 90% of the cost of the validation process to be matched with at least 10% of the cost provided by the company. (b) Any 10 http://www.asta.arkansas.gov/programsProjects/buisness/Pages/technologyTransferAssistanceGrant.aspx http://www.asta.arkansas.gov/programsProjects/buisness/Pages/seedCapitalInvestment.aspx 12 http://www.arkansasriskcapitalmatchingfund.com/ 11 8
enterprise receiving an investment from the Technology Validation Account shall currently have a business valuation of less than two million dollars ($2,000,000) prior to investment. 2) ARCMF currently makes available matching funds of up to $750,000 from the Enterprise Development Account to augment investments proposed or made by angel or other institutional investors. Investments from the Enterprise Development Account are limited as follows: (a) Investment in the enterprise development process will be in the form of four‐to‐one (4:1) matching funds. Funds will provide for investments up to 20% in the early stage development process to be matched or augmented with at least 80% provided by angel, institutional or other investors. (b) Any enterprise receiving an investment from the Enterprise Development Account shall have a business valuation of less than twenty‐five million dollars ($25,000,000) prior to investment. Arkansas Institutional Fund (AIF) The Arkansas Institutional Fund, based in Little Rock, is a fund of funds that invests in professionally managed private equity and venture capital funds with the requirement that they look for investments in Arkansas. Over time, AIF will commit approximately $70 million to private equity and venture capital funds that provide early stage capital, traditional venture capital, later stage and expansion capital, and special situations capital. The AIF is a program of the ADFA and managed by Cimarron Capital Partners. The equity interest in AIF is held by the Arkansas Venture Capital Investment Trust.13 The Arkansas State Energy Office is also a good resource for advanced energy start‐ups to learn more about the state’s resources and investments in renewable energy and energy efficiency. Arkansas Equity Investment Incentive Act of 2007 To encourage local investors to invest in in‐state companies, many states, including Arkansas, offer Investor Tax Credits that can be applied to individual investments and investments in funds. Modeled after a tax credit offered by Rhode Island, Arkansas’s Equity Investment Incentive Program is a discretionary incentive and is targeted toward new, technology‐based businesses that pay wages in excess of the state or county average wage. When offered, this program allows an approved business to offer an income tax credit to investors purchasing an equity investment in the business.14 The income tax credits issued under this program are equal to one third of the amount invested by an investor in an eligible business. 13 14 http://www.arkansasinstitutionalfund.com/aif/web.nsf/pages/about.html http://www.arkansasedc.com/incentives/equity‐investment‐tax‐credit.aspx 9
Arkansas Private Investment Funds
In addition to the resources provided by the public sector, there are a handful of private
investment firms in the state with their own funds that can support AR companies. Funds for
Arkansas Future, with the majority of investors in central Arkansas, is an “angel investor fund
formed for the purpose of capitalizing early-stage, Arkansas-based companies”15 and currently
has between $7-800,000 remaining in its first fund, which offered $6.6 million in investment
from 57 individual investors. While primarily geared toward technology or biotechnology
companies, the Executive Director, Jeff Stinson, explains that the fund’s seven-person
investment committee is willing to support clean energy companies, as long as the business
owner can articulate a “clear business plan, source of competitive advantage, and plan for
generating real value.”16 Another source of angel funding is Gravity Ventures Arkansas I, a
member-managed angel fund focused on early-stage investments in knowledge-based Arkansas
enterprises.17 Run by Jeff Amerine, the fund offers $50-125k investments with the majority of
its investments in NW Arkansas. For growth companies beyond the seed stage, Little Rock’s
Diamond State Ventures is the state’s only venture capital fund and has $125 million under
management in two funds (Diamond State Ventures I & II). While not working with seed stage
companies, Diamond State Ventures invests from $1 to $5 million into each portfolio company
and has a specific interest in “small and lower middle market companies located in Arkansas.”18
Meanwhile, BioVentures, the Technology Licensing Office and the Life Science Business
Incubator for the University of Arkansas for Medical Sciences offers “funding support services
via grants, VC’s, private equity, and banks”19 and is considering developing their own seed fund
for biotech and medical device companies.20 Finally, Stephens, Inc., a privately-held,
independent financial services firm managed by Warren Stephens21, is headquartered in Little
Rock and offers larger sums of investment to companies beyond the venture stage.
Overall, despite the common perception that there is limited capital in Arkansas, the problem
may have other roots: 1) the pocketed money held by the network of people with deep pockets
and old oil money is hard to access, and 2) deal flow is limited. Jeff Stinson of Funds for
Arkansas Future laments that, “Of the 30 investments made in 15 companies by the FAF, we’ve
only lost one. That one was a biofuels company. We’re unfortunately not a leading state for
clean energy.”22 Regarding the issue of whether the capital is limited because there are few AR
companies ready for investment, or that there are few AR start-up companies because capital is
scarce, ARA’s Adams explains, “It’s not ‘either or,’ it’s an ecosystem issue. Getting ideas into the
15
http://www.arkansasfund.com/view/22
Jeff Stinson. Executive Director, Funds for Arkansas Future. June 29, 2012.
17
http://www.gravityventures.com/about-us.html
18
http://www.diamondstateventures.com/resources/pdfs/DSV-brochure.pdf
19
http://bioventures.uams.edu/business-incubator/
20
According to Jerry Adams, the Director of the Arkansas Research Alliance.
21
http://www.stephens.com/
22
Jeff Stinson. Executive Director, Funds for Arkansas Future. June 29, 2012.
16
10
mainstream is a very uneven process. We’ve been working on building continuity from
encouraging STEM education to creating 21st century jobs. We want to keep smart people
here.” Thus, Arkansas’s path to growing a clean energy future will likely require a combination
of new capital and additional support for clean energy entrepreneurs. The following pages
provide examples of how this has been done in other states.
Best Practices: State Investment Tools That Increase Local Company
Access to Capital
Given that venture-backed companies make up about 0.2% of U.S. gross domestic product each
year, but employ 11% of the total U.S. private sector workforce and generate revenue equal to
21% percent of U.S. GDP, venture capital is viewed by some as an efficient way to create
companies and jobs.23 Additionally, for every dollar of venture capital invested from 1970 to
2010, $6.27 of revenue was generated in 2010.24
The best approach to increasing a region’s available investment capital depends on a variety of
factors, from the business growth stage, to the timeline to profitability (which varies
significantly by industry), to the ultimate goals of the program. While this report cannot
possibly capture all the successful programs, public and private, that have increased a region’s
23
24
http://mojominnesota.com/10000-jobs-project/
“Venture Impact”, National Venture Capital Association, Edition 6.0, 2011
11
available investment capital, this section does highlight a handful of best practice examples of
states that have developed strategies to offer start-up capital to local companies. Brief
summaries of each are provided in this section.
Utah
Utah Fund of Funds
Passed initially in early 2003 by the Utah Venture Capital Enhancement Act, the Utah Fund of
Funds (UFOF) legislation provides $300 million in financing for a Utah-focused fund of funds
program to be managed with the criteria that the funds both provide industry returns and show
a commitment to Utah. Officially launched in January 2006 after a series of legislative tweaks
and program validation, the UFOF has $300 million in Utah contingent refundable transferable
dollar-for-dollar tax credit and receives its
funds from private investors or financiers
with a backstop provided by the State.
A unique aspect of the Utah model is that it
invests in a Utah non-profit quasi
governmental entity (the Utah Capital
Investment Corporation) that works directly
with UT companies, venture capital, and
private equity funds, instead of placing
investment directly into an outside fund
management firm (as other states do). 25
Jeremy Neilson, now with Assure Equity
Partners, helped establish the Utah Fund of
Funds and was the Fund’s first manager for
the first 6 ½ years of its existence. Neilson
explains that, in this role, he “made introductions between any and all Utah based
entrepreneurs and businesses and UFOF fund managers and non-UFOF fund managers. Further,
though not required to invest in Utah, all potential recipients of UT investment funds were
invited to visit the state and meet with Utah based businesses.”26 In addition to Mr. Neilson’s
efforts to match Utah companies with funding sources throughout the United States and
internationally, Mr. Neilson also sought additional benefit to the program through a variety of
approaches, from workshops and training, to applying for federal earmarks and grants, to
working with local non-profits, universities and government, to Neilson or his team
25
Jeremy Neilson, Assure Equity Partner. Prior to launching Assure Equity Partners, Mr. Neilson spent 7 years as
the Managing Director of the State of Utah's private equity program, the Utah Fund of Funds (UFOF). Mr.Neilson
was responsible for every aspect of the program, ultimately building a nationally recognized program.
26
Jeremy Neilson. Presentation at Oregon Industry Cluster Network meeting on “Access to Capital—Investing in
Oregon.” May 24, 2011.
12
participating or sitting on panels at local conferences.27 During Neilson’s time running the UFOF,
it committed $122 million into 28 fund commitments and made over 1000 introductions for
Utah based companies.
As of July 2012, the UFOF reported that 52 Utah companies had received investment from one
or more of the 28 funds that received Utah Fund of Funds investment. These companies have
generated over 4,800 jobs and a total of $198 million in state tax revenue. Of the funds that the
UFOF supports, 8 have offices in Utah and over one third of those outside the state have
invested in Utah companies.
Neilson explains that a big part of the results are due to the fact that “Utah Fund of Fund team
members spent every day thinking about Utah and how to benefit its entrepreneurs and
companies,” that the legislation allowed the Utah investment to be distributed in $3-5 million
commitments into multiple funds (thereby building connections with various VCs who were
interested in the funds that UT had to offer), that thousands of introductions were made (and
tracked) between UT entrepreneurs and venture capital firms (VCs), and that someone who
was trusted by the VCs to validate the in-state companies cared about both economic
development and financial returns.28 Neilson also explains the importance of having a resident
manager who knew the network in state (and had personal relationships with the VCs), as well
as someone who could speak economic development language, work with the legislature, and
control the investment money. According to Neilson, the Utah Fund of Funds theory relied on
the following strategy:
“Building it only gets you in the game.”
Potential and actual investing from the fund of funds should be used to drive as much
value to Utah as possible
Take any and all fund meetings – proactive and reactive
Capture as many relationships for the state as possible
Constantly pitch Utah and its entrepreneurs
Push hard on each portfolio fund to spend time in Utah and take Utah entrepreneur and
company meetings29
As of January 1, 2012, $304 million have landed into Utah companies from its portfolio funds,
but it is unclear how much this fund has done to specifically support the growth of the clean
tech sector. Neilson explains, “Utah is not a strong state for clean tech and renewables. There
definitely are renewable energy and clean technology companies but not many of them are
27
Ibid.
Ibid.
29
Ibid
28
13
large and successful such that the UFOF would see its dollars end up in these companies cap
tables.”30
Utah Science, Technology and Research (USTAR) Economic Development Initiative
In addition to the UFOF which draws venture capital to the state, in 2006, the Utah Legislature
created the Utah Science Technology and Research (USTAR) initiative to “invest in world-class
innovation teams and research facilities at the University of Utah and Utah State University”
and to “create novel technologies that are subsequently commercialized through new business
ventures.” 31 The passage of Senate Bill 75 allocated $179 million to USTAR, $15 million in
annual research funding, $4 million to support economic outreach programs, and $160 million
toward the construction of new research facilities.32 In the four years that followed, USTAR
researchers created 6 new companies, filed 87 invention disclosures, and brought more than
$44 million of new out-of-state research funding to Utah. While not directly linked to the Utah
Fund of Funds, the USTAR initiative provides a source of seed funding to early stage Utah
companies.
Ohio
The Ohio Capital Fund
Established by the State of Ohio through legislative mandate, the Ohio Capital Fund was
intended to help increase private investment in Ohio companies in the seed or early stage of
business development. The Ohio Capital Fund, a fund of funds, commits to invest in funds
which will commit to invest at least one-half of the commitment into Ohio-based early stage
businesses and special consideration is given to funds which are considered Ohio-based venture
capital funds. The Fund receives oversight from the Ohio Venture Capital Authority (OVCA),
which selected Buckeye Venture Partners, LLC (BVP), an Ohio limited liability company, to serve
as the program administrator. BVP is a joint venture between Cincinnati-based registered
investment advisor Fort Washington Investment Advisors, Inc. and Peppertree Partners, LLC, a
registered investment advisor based in Cleveland. The OVCA is comprised of nine members,
including seven members appointed by the Governor from the general public, as well as the
Ohio Tax Commissioner and the Director of the Ohio Department of Development (ODOD).
The Ohio Capital Fund is structured as a $150 million fund, funded by publicly traded bonds,
rated by S&P. The bonds are backed by $380 million of contingent tax credits from the State of
Ohio and no more than $20 million in tax credits can be issued in any given year. Fort
Washington Investment Advisors’ goal is for the venture capital fund investments to generate
30
Jeremy Neilson email exchange. June 20, 2012.
http://www.innovationutah.com/aboutustar.html
32
http://www.ustar.utah.edu/
31
14
the cash flow to repay the bonds without ever issuing any tax credits.33 Venture capital funds
draw down capital over a multi-year period as needed for investment into their portfolio
companies.
The Ohio Capital Fund has invested in 24 funds and which have invested $420 million into 60
Ohio companies, creating over 2000 jobs, an annual payroll exceeding $120 million, and payroll
taxes to the state of over $300 million.34 Finally, 10 of the venture funds that received funding
from the Ohio Capital Fund were new to Ohio and subsequently opened up an office and hired
someone in Ohio to pursue investment opportunities.
However, it is not this fund alone that has supported Ohio’s innovation ecosystem. Rather, Paul
Cohn, of Fort Washington Capital Partners who oversees the Ohio Capital Fund explains, “Ohio
has put in place an entrepreneurial ecosystem with State support that funds research, seed
funding and angel investment. There are various programs supporting these elements of idea
and company formation and funding but these have been critical in creating the pipeline of
opportunity for our VC funds. Without this investment at the very early stages of company
formation, there would not be enough interesting opportunity for our funds to have an interest
in investing in Ohio. The Ohio Capital Fund would not be successful without the State
supporting the early stage ecosystem. Most of the 50 companies that have received
investment from our VC funds received previous investment from other state supported
programs/funds.”
Ohio Third Frontier
A major component of the Office of Technology Investments within the Ohio Department of
Development, Ohio Third Frontier is statewide technology-based economic development
initiative. Created in 2002 and extended through 2015 in May 2010, the Ohio Third Frontier has
committed more than $2 billion to creating new technology-based products, companies,
industries and jobs with initiatives all along the continuum from research to venture funding for
start-ups. The Ohio Third Frontier program focuses its investments on the key technology
industry sectors identified within the Ohio Department of Development Strategic Plan.
“Advanced/ Alternative Energy” is one of these five sectors.
The Ohio Third Frontier Program includes support for the following:
Ohio's New Entrepreneurs Fund (ONE Fund) to retain and attract the “best and the
brightest talent to Ohio.” 35 This program, in collaboration with The Ohio State
33
Email from Paul Cohn, Managing Director, Fort Washington Capital Partners April 28, 2011.
http://www.ohiocapitalfund.com/pdf/Ohio-VC-Continues-Expansion.pdf ;
http://www.ohiocapitalfund.com/pdf/OCF_Summit11-Speakers.pdf ; and April 28, 2011 email from Paul Cohn,
Managing Director of Fort Washington Capital Partners .
35
http://thirdfrontier.com/ONEFund.htm
34
15
University's Center for Entrepreneurship at Fisher College of Business, focuses on the
professional development of young entrepreneurs with an interest in commercializing
new technologies.
The Commercial Acceleration Fund (CAF) to accelerate the development and growth of
key technology industries in Ohio by supporting the movement of products and services
into meaningful market entry through efforts including commercial scale
demonstrations in market-use conditions; manufacturing scale-up beyond pilot plant
operations; final customer validation, product certification, and/or regulatory
certification; acquisition of exclusive intellectual property rights; launch of the nextgeneration of existing products, services or processes; and engineering or packaging
design.36
The Entrepreneurial Signature Program (ESP) Continuity Initiative designed to provide
entrepreneurial services in six regional networks, managed locally. “The program
creates an entrepreneurial assistance climate that supports the creation, retention, and
attraction of investable technology companies in Ohio; attracts the resources of venture
capital firms both within and outside of Ohio; and builds a network of universal support
and access to all forms of capital for technology companies within their geographic
region.”37
The Pre-Seed Fund Capitalization Program “designed to increase the number of
professionally managed Pre-Seed Funds investing throughout Ohio that, in turn,
increase the amount of early-stage capital being invested in Ohio technology-based
start-up companies in various phases of commercialization.”38 The funds offered give
applicants from regional seed funds a grant in the range of $500,000 -$2 million and
require them to invest in existing Ohio companies or in companies that will relocate to
Ohio.39
Matching Funds for organized angel investors who form angel funds. Ohio has 4 of
these organized angel funds and the state’s investment is structured to provide a
preferred return to the angels to get them to invest into these funds. The State also
offers a 25% tax credit for angels who invest in approved emerging companies. This has
led to a dramatic increase in angel funding into early stage Ohio companies, typically
after they’ve received seed funds and before getting VC funding.40
The Innovation Ohio Loan Fund (IOLF) which assists existing Ohio companies, especially
in the manufacturing sector to “develop next-generation products and services within
certain Targeted Industry Sectors by financing the acquisition, construction, and related
costs of technology, facilities, and equipment.”41 Addressing an identified need in the
36
http://thirdfrontier.com/Commercialaccelerationfund.htm
http://www.development.ohio.gov/newsroom/2011PR/January/7.htm
38 http://thirdfrontier.com/PreSeedFundInitiative.htm
39 “Pre Seed Fund Capitalization Program FY 2011.” Proposal Evaluation Report, January 2011.
http://thirdfrontier.com/Documents/FY2011OTFPFCP-InvantageGroupFinalReport.pdf
40 Email from Paul Cohn, Managing Director, Fort Washington Capital Partners April 28, 2011.
41 http://thirdfrontier.com/InnovationOhioLoanFund.htm
37
16
capital-funding continuum, the IOLF is intended to supply capital to Ohio companies
having difficulty securing funds from conventional sources due to technical and
commercial risk factors associated with the development of a new product or service.
The IOLF can finance up to 75 percent of a project's allowable costs to a maximum of $2
million and a minimum of $500,000.
In addition, the state has many other nationally recognized programs that encourage
innovation and entrepreneurship at the regional level or for a specific industry. Two of those
that have been recognized as exemplary models by SSTI are jumpstart42 and bioEnterprise in
Cleveland. 43
Oklahoma
Innovation to Enterprise, Inc. (i2E, Inc.)
Winning the 2010 SSTI award for “Increasing Access to Capital,” i2E, Inc. in Oklahoma is widely
recognized for its “strong proof of concept and seed funding combined with intensive
entrepreneurial services and network development.”44 i2E, Inc., founded in 1997, is a “private
not-for-profit corporation focused on growing high-growth companies in Oklahoma and making
a positive impact on the state’s economy.”45 Since it began operations in 1998, i2E has offered
both venture advisory services and capital to assist hundreds of entrepreneurs, companies,
inventors and researchers to turn their technological innovations into high growth business
opportunities for Oklahoma. i2E’s Venture Advisory Services support companies at all stages
from concept to early growth stage, working with them to understand their market, develop
their business model, make presentations to investors, and conduct due diligence.46 In addition,
the non-profit administers a number of funds, all return-based, which offer support for
companies at the concept stage through to early growth. Investment levels range from as little
as $50,000 to $1 million, with funding reserved for companies to attain subsequent rounds.
I2E, Inc. managed funds include the:
Technology Business Finance Program, a concept fund which uses public funding from
the State’s Oklahoma Center for the Advancement of Science & Technology (OCAST) to
help entrepreneurs “identify the optimal path for commercialization.”47
42
http://www.jumpstartinc.org/
http://www.bioenterprise.com/
44
Scruggs, Patricia. Presentation at Oregon Industry Cluster Network meeting on Access to Capital—Investing in
Oregon. May 24, 2011.
45
http://www.i2e.org/about/
46
Embree, Wayne. VP of Entrepreneur Services, i2E, Inc. Interview June 29, 2012.
47
http://www.i2e.org/access-to-capital/technology-business-finance-program/
43
17
Oklahoma Seed Capital Fund, which uses state‐appropriated investment funds to provide OK businesses with concept, seed and start‐up equity investments (ranging from $50,000 to $500,000).48 Accelerate Oklahoma! Fund, which uses $13.2 million from the federal government’s State Small Business Credit Enhancement Program (SSBCI) allocated to the Oklahoma Commerce Department for three different funds: 1) the Start OK Accelerator Fund, which is a concept fund that provides up to $250‐300k from a $3 million fund for prototyping and initial market introduction, 2) Grow OK Fund‐ which has $5 million for companies beyond the seed stage that need growth capital, and 3) an OK Angel Sidecar Fund which has $5 million to co‐invest with angel investors and is meant to catalyze angel investment in the state.49 Wayne Embree, i2E’s VP of Entrepreneur Services, explains that at i2E, they follow two overriding principles: “One – Don’t require an act of congress to be in business” and “Two – Don’t require a subsidy to achieve economic sustainability. You need the business to be able to succeed with or without subsidies. Too many strings can tie the businesses hand.”50 He reckons that when states follow these principles, state investment funds won’t need to choose between job creation and economic returns. While Embree’s investment advice isn’t used to guide the State of Oklahoma’s own investment strategy, the state does also have one of the country’s oldest Fund of Funds that also increases the capital invested in the state. Oklahoma Capital Investment Board Established in 1993 by the state of Oklahoma, the Oklahoma Capital Investment Board (OCIB) has worked to support Oklahoma’s best and brightest entrepreneurs by helping create and attract new sources of equity capital to Oklahoma. Its goal is to “launch Oklahomans as venture capitalists and draw outside venture firms to the state.” 51 Much of the Board’s work has been delivered through its venture investment program (VIP) and Oklahoma Capital Access Program (OCAP). The VIP supports investments in private, professionally managed venture capital firms that have a history of producing solid returns for investors and that have a sound strategy for finding investment opportunities in Oklahoma. The OCAP, currently inactive, was a credit enhancement tool available for banks and other lending institutions to help them stretch to make loans to Oklahoma businesses. 48 http://www.i2e.org/access‐to‐capital/seed‐capital/ http://www.i2e.org/access‐to‐capital/accelerate‐oklahoma/ 50 Embree Interview. June 29, 2012. 51 http://ocib.org/ 49 18
Over its history, OCIB has operated under the principal that merit based investing which focuses upon Oklahoma’s best and brightest entrepreneurs will generate the largest impact at the lowest cost for the state. A 2013 independent impact study determined that OCIB’s programs have had more than a $1.6 billion impact on the state’s economy with very little out of pocket expense to the state ($52 in benefit for every $1 of cost). 52 Pennsylvania
Ben Franklin Technology Partners Started in 1983, Ben Franklin Technology Partners (BFTP) is another well‐known organization that provides entrepreneurs with core services related to capital, knowledge, and networks, and facilitates industry/university collaborations. 53 The organization, which is administered by a network of four regional partners, prides itself on playing “a critical role by providing sound business advice, access to a wide‐reaching network of experts, and a financial bridge between the personal assets of the entrepreneur and funding from outside investors.”54 Each year the PA state legislature approves a line item to the BFTP Authority and each of the four BFTP programs receives an equal amount. Pennsylvania’s Challenge Grant program requires that public awards distributed by the Ben Franklin Technology Partners are matched by funds from other sources, including foundations, federal grants, and corporations.55 The BFTP program provides both funding and strategic business support services to PA businesses, ranging from pre‐company formation assistance to help and funding for established companies. Though their “sweet spot is working with companies through the ‘valley of death’ with pre‐seed and seed stage investments,” their investments range from grants of $3,000 for translational research at universities and labs to several hundred thousand dollar direct investments in PA companies.56 Innovation Works For example, Innovation Works (IW) is the BFTP of Southwestern PA. As one of the nation's most active investors in seed‐stage technology companies across a range of technology sectors, Innovation Works provides regional startups in all technology sectors with risk capital and business mentoring. 57 IW participates in about 25 transactions, both new and follow‐on, totaling about $4 million each year from its Innovation Investment Fund (IIF) and invests in convertible notes and 52
http://ocib.org/ocib/web.nsf/e4808dc152107efc86256f1d00792f6f/4be0725eb8c375f7882578fb00669332/$FILE /OCIB%20summary%20impact%208‐24‐2011.pdf 53 http://benfranklin.org/ 54 http://benfranklin.org/what‐is‐bftp/who‐we‐work‐with/entrepreneurs 55 http://cnp.benfranklin.org/wp‐content/uploads/BFGuidelines.pdf 56 Bob Starzynski, Innovation Works. Interview on June 29, 2012 57 www.innovationworks.org 19
Investments, often in the range of $100,000 to $150,000. The IW seed fund was launched in
1999 and has since invested more than $52.3 million in seed funding to more than 152 startups.
One of Innovation Works focal areas is energy, including support for the Energy Alliance of
Greater Pittsburgh, which hosts events that bring together local entrepreneurs, researchers and
funders to connect, develop new products, form R&D teams, collaborate on grant opportunities
and seek investment capital. In addition, Innovation Works was awarded $10 million to grow
regional energy-related startups as part of the Commonwealth's Energy Independence Strategy
over a five year period, with state funding for this effort set to end in 2014. Under IW’s Energy
Portfolio, they make investments in the following categories: coal and clean coal, natural gas,
wind, solar, smart grid and energy transmission, nuclear, building efficiency and smart building.
To date, their energy portfolio includes 38 investments in 31 companies and over 100
companies “engaged.”58
Overall, the Ben Franklin Technology Partners network has a suite of energy programs to
support “new energy” development, including the Alternative and Clean Energy Technology
Development and Commercialization Initiative (ACED), Greenworks Pilot Energy Technology
Program (G-PET), the Competitive Energy Consortia (CEC) program which encourages small
company / large company collaboration in the areas of alternative and cleantech energy,59 and
a 2012 RFI for Alternative and Clean Energy Companies seeking funds to develop and bring to
market new alternative and clean energy technologies. Through this March 2012 RFI by the
BFTP partner in SE PA, clean energy companies can receive investments of $10,000 to $50,000
through the Technology Commercialization Fund (TCF) or up to $750,000 through its Innovation
and Emerging Funds.60
Maryland
Maryland Technology Development Corporation
The Maryland Technology Development Corporation (TEDCO), an independent entity, was
established by the Maryland General Assembly in 1998 to facilitate the transfer and
commercialization of technology from Maryland’s research universities and federal labs into the
marketplace and to assist in the creation and growth of technology-based businesses in all
regions of the State.61
58
Bob Starzynski, Innovation Works. Interview on June 29, 2012
http://www.sep.benfranklin.org/programs-services/industries-sectors/energy/core-ben-franklin-products-andservices/
60
http://www.sep.benfranklin.org/news-announcements/ben-franklin-issues-alternative-and-clean-energy-rfi-forcompany-funding-in-multiple-funding-programs/
61
http://www.marylandtedco.org/abouttedco/index.cfm
59
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In 2008, for the fifth consecutive year, Entrepreneur magazine ranked TEDCO #1 as the most
active investor in seed/early-stage companies in the nation (the magazine has not produced a
report since 2008).
Among its many programs and funds are the following:
The University Technology Development Fund (UTDF) provides resources to Maryland
universities to support pre-commercial research on university intellectual property to
increase the likelihood of commercializing that intellectual property.
The TechStart Program funds university-based or federal lab-based teams to determine
whether specific technologies have the potential to be commercialized through a
startup company. A university or entrepreneur submits a proposal to TEDCO for
evaluating the opportunity and winning proposals receive no more than $15,000 per
technology.
The Propel Baltimore Fund has capital commitments of $3.3 million and provides up to
$220,000 as an angel investment in early stage, technology companies located in
Baltimore City.
The Maryland Technology Transfer and Commercialization Fund (MTTCF) provides
funding for Maryland companies who wish to develop technology-based products
and/or services in collaboration with Maryland universities and/or federal laboratories.
Johnson & Johnson provided $250,000 for seed stage investments, a component of the
MTTCF. The program may be used to perform early stage feasibility testing on
technology-based products/services to assist in obtaining financing for further
development. Funds up to $75,000 are available to defray a company’s direct cost of
developing early stage technology and MTTCF investments are made in the form of a
five-year, convertible note bearing 8% interest. The Technology Transfer Fund won an
SSTI for Commercializing Research in 2008.
Examples from the Southeast U.S. and Arkansas’ Neighbor States
Georgia
Among the southeastern U.S. states, GA has one of the most robust networks for supporting
early stage companies and ranked first for entrepreneurial activity in SSTI’s 2010 New Economy
Index.
Georgia Research Alliance
Used as a model by the Arkansas Research Alliance, the Georgia Research Alliance recruits
Eminent Scholars, offers commercialization planning grants, and has created 24 nationally
21
recognized centers of excellence. The program has been able to leverage $2.6 billion in federal
and private investment, launch over 200 companies, and create more than 5,500 jobs.62
Other GA programs that encourage entrepreneurship in the state include:
Advanced Technology Development Center Seed Fund63 – The Advanced Technology
Development Center (ATDC) is a startup accelerator that helps Georgia’s technology
entrepreneurs with incubation and acceleration services.64 The ATDC Seed Capital Fund invests
in Georgia-based entrepreneurial businesses pursuing innovation in bioscience and advanced
technology. The fund collaborates with both local and national investors, investing $1 of its own
capital for every $3 of private investment. The fund can invest up to $1 million in any one
company.
Georgia Tech’s VentureLab65 – Launched in 2002, VentureLab is Georgia Tech's comprehensive
center for technology commercialization, open to all faculty, research staff, and students who
want to form startup companies based upon their research.66 It collaborates closely with ATDC
and won SSTI’s Excellence in Technology Based Economic Development (TBED) Award in 2007.
Georgia Small Business Innovation Research (SBIR) Assistance Program67– ATDC’s SBIR
assistance program educates Georgia companies and future entrepreneurs on SBIR and STTR68
grant opportunities, provides tips and guidance to these companies on SBIR/STTR proposal
development and submission, and facilitates the development of partnerships between SBIR
and STTR Award recipients and research collaborators, integrators, and potential customers.
Companies that receive guidance from the Georgia SBIR Assistance Program are two and a half
times more likely to be selected for funding than the average applicant.
GA Centers of Innovation69 –The Georgia Centers of Innovation offer support to existing
businesses and entrepreneurs in the areas of aerospace, agribusiness, energy, life sciences,
logistics and advanced manufacturing. Each Center of Innovation offers Georgia businesses:
Access to university-level research and development
Expedited product commercialization
62
http://www.gra.org/ProgramsInitiatives.aspx
http://atdc.org/about/funds
64
http://atdc.org/about
65
http://www.gra.org/stories/storydetail/tabid/622/xmid/1074/default.aspx
66
http://venturelab.gatech.edu/
67
http://atdc.org/2008/07/sbir-assistance.html
68
SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) Programs are federal
R&D funding programs where small, high-tech firms (under 500 employees) can take an innovative idea and
potentially turn it into a commercial product. Qualified companies can receive up to $850,000 to launch their idea.
69
http://www.georgiainnovation.org/
63
22
Industry-specific business intelligence
Matching research grants for qualified companies
Significant industry networking opportunities
Connection to potential investor networks
North Carolina
North Carolina’s many research universities (e.g. Duke, UNC Chapel Hill, NC State) offer a
support ecosystem to NC’s entrepreneurs. For example, the state’s Small Business and
Technology Development Center (SBTDC) is a program of The University of North Carolina
system and was the first Small Business Development Center in the nation to be officially
recognized as providing specialized services to businesses looking to advance, protect, and
commercialize their research, innovations, and new technology.70 In addition, the Council for
Entrepreneurial Development, a non-profit support network for investors and entrepreneurs
was founded in 1984 and is the southeast’s largest entrepreneurial support organization. 71 In
addition to hosting the CED Tech Venture Conference72, a networking event for investors and
entrepreneurs, CED offers its members mentoring programs, a business planning program, and
the CleanLinks Forum, in which cleantech entrepreneurs get further education and practical
business advice.73
Despite the fact that the state ranked 13th in 2010 for venture capital invested as a share of
worker earnings,74 the state is not nationally recognized for public programs that provide
entrepreneurs with access to capital. However, between 2007 and 2009, the state did offer a
North Carolina Green Business Fund, that provided “competitive grants to help NC small
businesses develop commercial innovations and applications in the biofuels industry and the
green building industry, as well as attract and leverage private sector investments and
entrepreneurial growth in environmentally conscious technologies and renewable energy
products and businesses.”75 Using ARRA funds, this fund provided $20,000-$100,000 to 10-12
“green” companies and non-profits every year during the program’s duration.76
In addition, NC IDEA provides small grants (up to $50,000) to high-tech startup companies to
“support business activities that validate potential markets, reduce risk of early failure, and
advance projects” before they are suitable for private equity investment. 77 Operating as a
501(c)(3) not-for-profit organization, NC IDEA awards grants twice a year to “fast growing
70
http://www.sbtdc.org/programs/tech/
www.cednc.org
72
http://www.cednc.org/content/ced+tech+venture+conference/10968
73
http://www.cednc.org/content/cleanlinks+forum/13664
74
2010 SSTI New Economy Index
75
http://www.ncscitech.com/grant-programs/green-business-fund
76
Cody Nystrom. Principal, SJF Ventures. Interview June 20, 2012.
77
http://www.ncidea.org/
71
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startups” with a significant market size that “need help crossing the chasm between initial
product development and venture capital funding.”78 NC IDEA has awarded over $2.5 million in
grants to 67 startup companies in NC since the program's inception in 2006 and considers
“green technology” one of their focus areas. The non-profit also works in partnership with a
seed and early stage venture capital fund, IDEA Fund Partners, which looks to NC IDEA’s
grantees for further investment opportunities.
Finally, the Charlotte Venture Challenge79 offers a $50,000 grand prize, $10,000 to each of the
selected runners up, and entrepreneur education for competition participants. The competition
includes a specific category for “New Energy and High Tech” companies.
Tennessee
TNInvestco
There are several resources in Tennessee that help increase TN entrepreneurs access to
capital. Tennessee has two state-sponsored venture investment programs. The
first, TNInvestco, was created in 2009 when the Tennessee General Assembly worked with
Tennessee Department of Economic and Community Development (ECD) Commissioner Matt
Kisber and Revenue Commissioner Reagan Farr to craft legislation designed to increase the flow
of capital to innovative new companies in Tennessee. Initially proposed as a template of CAPCO
legislation adopted by other states, policy makers in Tennessee decided to take a different
approach in seeding small businesses with the capital needed to bring a new idea to the
broader marketplace and create jobs in the process.80
The TNInvestco program allocated $200 million dollars in tax credits to a cross section of ten
venture capital funds with broad experience in developing new companies in Tennessee. Those
funds market the tax credits to insurance companies, which purchase the credits with capital
reserves. In turn, the venture funds use the capital to invest in Tennessee companies. Of the
venture funds that are part of the program, a few prioritize clean tech investments, including
Innova Fund II, LP (ag-bio) and NEST-TN, LLC (energy and environmental “clean” technologies).
The fund also includes the Tennessee Angel Fund and the Tennessee Community Venture Fund
LLC (TNCV), a venture capital investment firm that focuses on technology transfer, and seed
and early stage investment opportunities across industry sectors.
The goals of the program are to “develop the entrepreneurial infrastructure across the state, to
attract new capital to Tennessee and to diversify the state’s economy and create jobs through
the development of ‘innovation clusters’ which result in new companies being spun off.”
78
http://www.ncidea.org/
http://charlotteventurechallenge.com/
80
http://tn.gov/ecd/tninvestco/index.html
79
24
For Tennessee small and start-up businesses to qualify to receive investment funds from a
TNInvestco, a business must meet the following requirements:
A demonstration of a high-growth potential.
The business must employ no more than 100 employees.
The business must be independently owned and operated.
The business must be headquartered in Tennessee; its principal business operations
must be located in Tennessee, and at least 60% of its employees must be located in
Tennessee. However, a business from outside of Tennessee may be considered if they
commit to move their headquarters and operations within 12 months after receiving
funding from a TNInvestco.
The business must not be principally engaged in professional accounting, medical, or
legal services; banking or lending; real estate development; insurance; oil and gas
exploration; or direct gambling services.
Reporting requirements and independent audits of the TNInvestco firms were put in place by
the Legislature to provide oversight and accountability of the program. Additionally, an annual
review of the program is completed by ECD and an annual report is published and provided to
the Governor, Legislature, Comptroller and the public.
In addition, in 2011, Governor Bill Haslam’s administration launched a $50 million innovation
initiative called INCITE (Innovation, Commercialization, Investment, Technology and
Entrepreneurship), in which a central part was the creation of a new venture capital program
called the INCITE Co-Investment Fund.81 The INCITE Co-Investment Fund is a venture capital
program designed to stimulate the growth and development of innovative small businesses in
Tennessee, increase the number of knowledge-based jobs in the state, and increase access to
capital for small businesses at various stages of development. Backed entirely by a $29.7 million
award through the U.S. Department of Treasury’s State Small Business Credit Initiative, the
program is expected to spur additional private-sector investment of up to $300 million to
accelerate the expansion of Tennessee’s economy.
Designed by the Tennessee Department of Economic and Community Development (ECD), the
Fund is administered by the Tennessee Technology Development Corporation (TTDC), which
builds collaborative associations among universities, research organizations and private
enterprise to create a culture and environment that fosters high-growth, high-wage business
development in Tennessee.
Other efforts to increase TN entrepreneurship and clean energy company growth include a
2012 Innovation Conference hosted by Governor Haslam,82nine regional entrepreneurial
81
82
http://www.tntechnology.org/
http://www.tntechnology.org/conference
25
accelerators across the state created as part of the INCITE Initiative, the Pathway
Lending83 program that makes low cost energy efficiency and renewable energy loans, and
several ongoing activities sponsored by Oakridge National Lab84 and the University of
Tennessee.
South Carolina
Formed in 1983 with a founding grant of $500,000 and 1,400 undeveloped acres, SCRA is a nonstock, tax-exempt applied research corporation with headquarters in South Carolina. SCRA was
started by the SC Legislature under a public charter to help develop technology-based
industries in the state and has been self-sufficient for funding since its inception. Revenues are
generated primarily through competitively won applied research contracts awarded by the
federal government and about 200 corporations.85
Since 2006, SCRA has invested more than $59 million to support the growth and
commercialization of technology companies. This includes $12 million of SCRA's retained
earnings that were used to establish the SC Launch economic development program, $17
million of balance sheet assets which were used to design and build three Innovation Centers
for research and commercialization and an annual fund of $6 million in tax-incented private
donations each year. SC Launch won an SSTI award for building entrepreneurial capacity in
2008.
To help entrepreneurs access capital, SC Launch offers small grants, loans and equity
investments. SC Launch Zone Managers work with companies to develop their business cases
for investment and make pitches to secure follow-on funding from angel investors and venture
capital investors. The types of funding include:
Grant Funding - Grants may be awarded to help defray the cost of business services such
as legal, financial, marketing and intellectual property protection. Grants are also
intended to further the development efforts and better position the Client Company for
future growth and fundraising.
University Start-Up Assistance - The University Start-Up Assistance program encourages
the commercialization of university research and technology. This program supports
university based pre-company initiatives and early stage start-ups from Clemson
University, University of South Carolina (USC) or the Medical University of South
Carolina (MUSC) by providing grant funding for proof-of-concept studies, prototype
development, clinical trials, protection of intellectual property and other similar uses.
83
https://www.pathwaylending.org/
http://www.ornl.gov/adm/partnerships/events/bridging_gap2012/
85
http://www.scra.org/about_scra.html
84
26
These initiatives are recommended by the respective university research foundation
Executive Director or designee.
SBIR/STTR - The SC Launch SBIR/STTR Phase I Matching Grant Program is a program
designed to award matching funds to South Carolina-based companies that have been
granted a Federal SBIR Program or STTR Program Phase I award. Recipients must be “a
business registered and in good-standing with the South Carolina Secretary of State with
its principal place of business in South Carolina and no less than 51% of its payroll
located in South Carolina.”
Loan and Equity Investments - Loans and investments from SC Launch Inc. are intended
as seed capital to fill gaps in funding from individual investors, angel investment groups,
lenders, private equity firms, and other sources. Funding from SC Launch Inc. is
supplemental and not intended to replace funding from other sources. Returns from SC
Launch Inc. investments help fund continuing SC Launch programs and investments.
In addition to offering the above sources of capital, SC Launch supports networking, provides
access to resource partners, offers entrepreneur mentoring and support, awards innovation
prizes through the New Ideas for a New Carolina contest, and hosts landing parties with R&D
stage companies that relocate to SC and make a commitment to grow the Knowledge Economy.
Indiana
21st Century Fund
The Indiana General Assembly established the 21st Century Fund in 1999 to provide capital to
highly innovative Indiana based companies to assist them in the transition from research to
product development. Since the fund’s inception, the state has attracted approximately one
billion dollars in the development of its local high-technology sector. Over 11,000 jobs are tied
to this funding, which means one job has been created for every $14,000 of investment, and
the 21st Century Fund’s impact on the state’s real GDP has been $427 million. Managed by
Elevate Ventures since April 2011, the explicit goal of the Fund is to solve capital formation
issues and to create high-impact entrepreneurial companies. Thus, Elevate works with prerevenue or early revenue companies to solve product demonstration and market penetration
issues in order to accelerate company growth and job creation. The fund's maximum
investment size is $1 million and Elevate Ventures typically makes 21 Fund investments in life
sciences, high technology, and advanced manufacturing. Clean Technology is included as one of
the targeted industries.
In addition, Elevate supports the Elevate Ventures' Angel Network (EVAN), an organized
network of angel investors, angel groups, and other resources in the State of Indiana. EVAN
helps enable collaboration among angel groups and also fosters investment in Indiana-based
seed and early-stage ventures. They encourage this environment by connecting EVAN members
with potential companies that are pre-qualified through a due diligence process and provided
with co-investment capital opportunities. EVAN's members contribute to the growth of
27
Indiana's economy by supporting new entrepreneurial leaders with not only capital, but with
technical expertise and support. In the end, this support system fosters business growth and
employment opportunities in Indiana.
Missouri
Though Missouri’s growth in start-up activity grew significantly in 2011,86 Missouri’s
entrepreneurial performance and attraction of capital is typically below average. Past
performance aside, in 2011, Missouri found a way to promote the formation and growth of MO
businesses by using the state’s federally allocated State Small Business Credit Initiative (SSBCI)
funds in a way that other states have copied. (The SSBCI is an initiative created by the Small
Business Jobs Act of 2010 in which all states are offered the opportunity to apply for federal
funds for state-run programs that partner with private lenders to increase the amount of credit
available to small businesses.)87
Missouri’s allocation of $26.9 million in SSBCI funding dedicates $16.9 million of funding to
establish Missouri’s Innovation, Development and Entrepreneurial Advancement (IDEA) Seed
and Venture Capital Funds and $10 million to the Grow Missouri Loan Participation Fund. The
Missouri IDEA Funds, administered by the Missouri Technology Corporation “provide financing
to eligible businesses through four components that correspond to the four stages of venture
growth: (1) pre-seed capital stage financing; (2) seed capital stage financing; (3) venture capital
stage financing; and (4) expansion stage debt.”88 Combined, these four components provide
financing opportunities for MO businesses all along the growth continuum, from research and
development to commercialization.
The Grow Missouri Loan Participation Fund “supports the formation and growth of businesses
in the industrial, commercial, agricultural, and recreational sectors” by providing “loans of up to
$3 million to businesses with under 500 employees to help attract new enterprises and expand
existing companies.”89
In addition, the Missouri Venture Forum, a non-profit organization formed in 1985, serves as a
catalyst bringing together the people genuinely interested in helping entrepreneurs. 90 The
Forum supports entrepreneurial activity and access to capital through networking, education,
and an exchange of information among investors, entrepreneurs and business advisors.
86
http://capitalinnovators.com/updates/missouri-jumps-to-6th-place-in-entrepreneurial-activity/
http://civsourceonline.com/2011/03/22/missouri-connecticut-get-federal-funds-boost-to-support-smallbusinesses/
88
http://www.missouritechnology.com/news/2011/05/23/missouri-idea-funds
87
89
http://governor.mo.gov/newsroom/2011/Gov_Nixon_provides_details_of_27_million_investment_in_small_busin
ess_growth_job_creation
90
http://www.missouriventureforum.org/
28
Virginia
Virginia, which performs above average for its attraction of venture capital, is likely blessed by
its proximity to the major U.S. government headquarter offices and Washington, DC area
investors. While the Commonwealth’s activities to support entrepreneurs get access to capital
are not known as best practices, the state does have a few sources of capital that support VA
ventures. The Center for Innovative Technology (CIT) Gap funds offer seed-stage equity
investments in technology and life science companies headquartered in Virginia91 and the
Commonwealth Energy Fund (CEF) is a source of investment capital for energy-centric
entrepreneurs based in the state. 92 The aim of the CEF is to back high-growth, revenue-ready
energy ventures who demonstrate a high-level of commercial-readiness. The sectors targeted
by the CEF are:
Renewable energy such as solar, wind, geothermal, ocean and hydro
Transportation technologies such as vehicles and components, batteries and fuel cells
Bio fuels such as cellulosic ethanol, algae, biomass and biodiesel
Green building technologies such as software, control systems and sensors
Water treatment and purification
Green information technology such as power management and smart grid technologies.
Other sources of funding and entrepreneur support are available in the Richmond area,
including angel networks such as New Dominion Angels93 and the Richmond Venture Forum94,
and the i.e.* startup competition in which 15 competing startup finalists compete for the grand
prize ($10,000 from the accounting firm Cherry, Bekaert & Holland LLP and six months of free
office space in New Richmond Ventures' offices).95
Finally, the Virginia Tobacco Commission has funding for innovation in more rural parts of the
state.96 Though these investments are currently directed toward purchasing high tech
equipment for training programs, engineering faculty positions, and other partnerships with
higher education, the Tobacco Fund does provide a source of capital for research projects and
commercialization activities which could eventually become VA companies.
91
http://www.citgapfunds.org/
First announced on April 8, 2011.
93
http://www.newdominionangels.com/
94
http://www.richmondventureforum.com/
95
http://www.ie-rva.org/?page_id=1160
96
http://www.tic.virginia.gov/economicdevelopment.shtml
92
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Other Examples of State Approaches to Increase Access to Capital
A number of other states have also grappled with the same issues about how to increase
entrepreneurs’ access to capital and support locally grown businesses. Their approaches, which
differ from those described in the previous section, shed light on additional ways that AR might
cultivate local sources of capital for investment in AR start-ups.
Washington
The state of Washington performs behind only CA and MA in the amount of venture capital it
attracts as a share of worker earnings.97 While this cannot be attributed to state programs
alone, Innovate Washington does play a role in supporting individual companies acquire
funding packages that match their specific market-driven objectives. The funding sources
considered include angel and venture financing, grants and loans, bootstrap financing, and
Innovate Washington’s own funding sources, such as the Technology Growth Fund, Washington
Bridge Fund, Life Sciences Discovery Fund, and Energy Innovation Fund.98 The Technology
Growth Fund is a $3 million dollar revolving loan fund financed by a grant from the U.S.
Economic Development Administration and loan funds from the Business Development
Corporation of Eastern Washington. The Washington Bridge Fund99 aims to bridge the capital
gap that exists in seed and early-stage companies by helping emerging technology companies
during the transition stage of research commercialization when private-sector investment is
scarce. For promising technologies specifically in the life sciences, Washington has facilitated
investment and economic development through the Life Sciences Discovery Fund, which has
allocated $1 million in funding for commercialization grants in 2012.100 For more about
the Energy Innovation Fund, see the description in the following section of this report: State
Investment Programs Uniquely Focused on Clean Tech.
Oregon
While Oregon entrepreneurs still struggle with accessing needed capital, the Oregon
Entrepreneurs Network has become a national model for encouraging angel investment, and
OEN has received grants from EDA and USDA to support angel networks throughout the state.
Pat Scruggs explains why this is critical: “The biggest issue to attract early stage funding is to
have active angels; VC is much later and if there is not resident money that is early in the
investment cycle then it’s hard to attract outside investment from a fund perspective.”
97
SSTI 2010 New Economy Index.
http://www.innovatewashington.org/access-capital/energy-innovation-fund
99
http://www.innovatewashington.org/access-capital/investing-innovation-grants
100
http://www.lsdfa.org/
98
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The Oregon Entrepreneurs Network (OEN) is the largest entrepreneur assistance organization in
the state of Oregon and “fosters the flow of entrepreneurial ideas, services, and capital to
entrepreneurs.”101 With a mission is to “provide support activities and mentoring to the
entrepreneurial community to foster business growth and employment opportunities in
Oregon,” OEN helps connect emerging Northwest businesses to growth-stimulating expertise
and valuable resources. For example, it created the Oregon Angel Fund (OAF) in 2007 with the
aim of increasing the number of active angel investors and funded startups in Oregon. OEN now
gives investors in the Oregon Angel Fund a complimentary one year membership in its network
and hosts an annual angel conference in which entrepreneurs compete for launch-stage
investment, with additional prizes for concept stage companies.102 The OAF launches a new $3
million + fund each spring and typically invests $400,000-$600,000 per deal with individual OAF
members and venture capitalists investing both alongside and after OAF.103
Demonstrating public-private collaboration, one of the OAF’s regular investors is the Oregon
Growth Account (OGA), created in 1995 by the Oregon legislature to help provide more
investment capital to support Oregon start-ups.104 While the OGA does not invest directly in
Oregon companies, it has committed $10 million to the OAF since 2008.105
Other efforts throughout the state have also addressed entrepreneurs’ need for seed capital.
For example, the Portland Seed Fund was launched in 2010 in response to a request by the city
of Portland’s Portland Development Commission and is focused on Oregon-based, very early
stage companies. Modeled on Y-Combinator in Silicon Valley Based and TechStars (in Boulder,
Boston, NYC, and Seattle), the fund has raised money from the Oregon Growth Account,
Portland, Hillsboro, and Oregon Entrepreneurs Network. It issues convertible notes to support
the 6-8 entrepreneurial companies accepted into the program and puts them through a 90-day
intensive start-up boot camp, which offers extensive entrepreneur mentoring and coaching
(both in group and individually), hosts a “Demo Day” when graduating entrepreneurs pitch their
ideas to West coast angel and venture capital investors, and continues to work with companies
to support progress after the training cycle is complete.106
101
http://www.oen.org/about-oen/
http://www.oen.org/events/angel-oregon/
103
http://www.oregonangelfund.com/
104
http://www.ost.state.or.us/about/OGA/About.asp
105
“Oregon Growth Account steers $4.5 million to startups.” Portland Business Journal, September 16, 2011.
http://www.bizjournals.com/portland/print-edition/2011/09/16/oregon-growth-account-pledgesmillions.html?page=all
106
Jim Huston, Presentation at Oregon Industry Cluster Network meeting on Access to Capital—Investing in
Oregon. May 24, 2011. And http://portlandseedfund.com/blog-posts/seed-fund-graduates-9-new-companies-atdemo-day/
102
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Colorado
With encouragement from Colorado Cleantech Industry Association (CCIA) and other trade
organizations, the Colorado Public Employees Retirement Account (PERA) is creating a $25-50
million internal fund that will invest both in local venture funds and also those that have ties to
Colorado. CO PERA is hiring a manager who will begin in the summer of 2012. While this fund
is not intended to invest directly in early stage companies, it will increase the amount of capital
on the ground in Colorado.
New Mexico
New Mexico State Investment Council
One of the oldest examples of a state venture program, the New Mexico Private Equity
Investment Program (NM PEIP) was established in 1993 to make investments into private
equity funds which invest into NM-based companies. The fund is overseen by the New Mexico
State Investment Council (SIC), which has the authority to allocate a portion of the assets of the
Severance Tax Permanent Fund (STPF) to investments in private equity funds that invest in New
Mexico based companies and/or co-investments directly in New Mexico companies. The SIC
investment goals are to preserve the permanent endowment funds for future generations and
to provide future benefits by growing the funds at a rate at least equal to inflation. By law
(Section 7-27-5.15 NMSA 1978), the SIC can earmark up to 9 percent of the state’s Severance
Tax Permanent Fund for private equity investments, including contributions to venture capital
funds that invest in New Mexico-based companies, and direct commitments to local startups.
The New Mexico Program was intended by the Legislature to encourage development of a
private equity industry within the State. The three objectives of the New Mexico Program are to
1) produce significant capital gains to grow the corpus of the STPF; 2) provide additional
diversification for the STPF’s assets; 3) the creation, retention or expansion of employment
opportunities and economic growth in the State.
The State Investment Office reports semi-annually on the New Mexico private equity
investments made in the New Mexico Program and each report provides the amounts invested
in each New Mexico private equity fund or business, as well as information about the objectives
of the funds, the companies in which each fund is invested and how each investment enhances
the economic development objectives of the state. The SIC’s co-investments in New Mexico
businesses are currently managed by Sun Mountain Capital, a New Mexico private equity fund
based in Santa Fe. Sun Mountain is the SIC fund's general partner, and Sun Mountain also acts
as the SIC's advisor in vetting and recommending New Mexico venture or private equity funds
for investment. So far, 28 funds have received commitments and invested in 63 New Mexicobased companies. A capital multiplier of 6.6x has resulted in over $1.7 billion of capital invested
into NM companies.
32
While it is not uniquely focused on any one industry, a handful of the companies which have
received investment are in the cleantech or renewable energy industries. These include: Advent
Solar, Earthstone, Iosil Energy, Enerpulse, MesoFuel, Consolidated Energy, Growstone, Sundrop
Fuels, Inc., TRED Displays, MIOX Corporation, Altela, Inc., and Noribachi. While some of these
have been exited at a loss, others are still active in the SIC portfolio.
However, it should be noted that since 2004, when the council hired its first financial adviser for
the private equity program and eliminated a return differential for venture investments that
had previously been used to promote economic development, the council has placed more
emphasis on returns, rather than economic development considerations when reviewing
investments. Sun Mountain has managed the Program with “financial returns as the primary
focus” and “economic development benefits as a secondary consideration,” underscoring the
tradeoff that fund managers sometimes feel they are facing when trying to balance geographic
preference with their interest in seeking the highest returns. Some, such as SIC Vice Chair Doug
Brown, haven’t been impressed with the in-state investments, and have said “I’m not
necessarily inclined to do that anymore.” Further, the SIC has had other faulty private equity
forays, such $20 million on Eclipse Aviation (a company that went into bankruptcy liquidation),
a failed investment in Advent Solar, a company that ended up going belly-up, and controversial
investments into Growstone, a spin-off of the company Earthstone in which the promised jobs
never materialized.107
State Investment Programs Uniquely Focused on Clean Tech
Connecticut Green Bank
In July 2011, Connecticut created the Clean Energy Finance and Investment Authority (CEFIA) to
design the finance structure and recruit the financial institutions to provide capital for a Clean
Energy Fund that would leverage private sector investment in clean energy. The program’s goal
is to “transition the state’s clean energy programs away from grants, rebates and other
subsidies toward low-cost financing of energy efficiency and renewable energy.”108
To launch the Connecticut Green Bank, the Clean Energy Finance and Investment Authority
repurposed $8.25 million of federal economic stimulus funds. The CT Green Bank will receive at
least $30 million in funding a year from a variety of sources including:
One mil per kilowatt-hour surcharge paid for by electric ratepayers
Regional Greenhouse Gas Initiative (RGGI) auction allowance proceeds
Private capital in the form of contracts entered into with investors
107
http://www.capitolreportnewmexico.com/?p=9224; http://newmexico.watchdog.org/12796/brian-birksburning-bucks-another-sic-private-equity-investment/
108
http://ctcleanenergy.com/CEFIA_2_Page_Brochure.pdf
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Special obligation bonds or bond anticipation notes
Federal funds, charitable gifts and grants
Contributions and loans from individuals, corporations, university endowments, pension
funds and philanthropic foundations
Earnings and interest from financing activities backed by the authority
Among the programs supported by the Connecticut Green Bank are: the Connecticut Solar
Lease which provides upfront capital to finance solar photovoltaic systems, a financing program
for solar thermal installations, residential energy efficiency measures for homes that heat with
oil and propane (two fuels not covered through the state’s electric and natural gas utility
programs), and other commercial financing programs.109
CEFIA partners include the Connecticut Department of Energy and Environmental Protection,
Connecticut Light & Power, the Clean Energy Finance Center, and other organizations.
Iowa Power Fund
In 2008, Iowa adopted a four-year, $25 million per year, state general fund-sourced Power Fund
to accelerate clean energy business development. As of June 30, 2011, the fund had approved
more than $71.6 million for 50 projects primarily in the following categories: biofuels, wind,
solar, energy efficiency, biomass and transportation.110 The Iowa Power Fund Community Grant
Program also enabled cities, counties, and non-profit organizations to get involved with energy
efficiency or conservation efforts and environmental programs. Currently no power fund
applications are being accepted.
Mass CEC Investments in Clean Technology Division
The Massachusetts’ Green Communities Act establishes a systems benefit charge that provides
$20 to $25 million annually for clean energy research and commercialization 111 and the
Massachusetts Clean Energy Center (MassCEC) is the first state agency in the nation dedicated
solely to facilitating the development of the clean energy industry.112 MassCEC’s Investments in
Clean Technology team makes direct investments in “game-changing clean energy
technologies.”113 MassCEC makes venture capital equity investments in promising early-stage
Massachusetts clean energy companies that are developing and commercializing technologies
that contribute to the advancement of one or more clean energy or energy efficiency
categories. The MassCEC Investments in the Advancement of Technology program makes seed
109
http://www.cleanenergyfinancecenter.org/2012/04/connecticuts-green-bank-begins-to-develop/
http://www.energy.iowa.gov/Power_Fund/about_IPF.html
111
http://newenergycities.org/accelerating-clean-energy-economy-growth-1/view
112
http://www.masscec.com/
113
http://www.masscec.com/
110
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venture investments of up to $500,000. All investments are in the form of a suitable equity
instrument, depending on the applicant’s circumstance. It also makes growth capital
investments that support the expansion of a clean energy company’s operations in
Massachusetts and offers Catalyst Program Awards that are intended to support the
demonstration of the commercial viability of clean energy technologies.
California Green Wave Initiative
Launched in California in 2004 by California State Treasurer Phil Angelides, the Green Wave
Initiative calls on the California Public Employees’ Retirement System (CalPERS) and the
California State Teachers’ Retirement System (CalSTRS) to “implement a four-pronged
investment strategy to bolster their financial returns, create jobs, clean up the environment,
and combat global warming.”114 The policy “urges the pension funds to invest $1.5 billion in
cutting-edge technologies and environmentally responsible companies; to prod companies to
address the financial risks posed by environmental liabilities and global warming; and to reduce
energy consumption by their massive real estate holdings.”
California, like Massachusetts and Connecticut, uses a “public benefits charge” applied to all
electricity sales by regulated utilities in the state to fund clean energy research, pilot programs,
and new technology commercialization. In California, the funds raised through this charge
provide $62.5 million annually to be used for research, development, and demonstration.115
Oregon Business Energy Tax Credit
Oregon’s Business Energy Tax Credit program encourages clean energy deployment, offers
residential tax credits and provides annual research funding through the Oregon Energy
Trust.116 The tax credit is 50 percent of the eligible project costs for:
High Efficiency Combined Heat and Power
Renewable Energy Resource Generation
Renewable Energy Resource Equipment Manufacturing Facilities
The tax credit is generally taken over five years at 10 percent per year. Trade, business or rental
property owners who pay taxes for a business site in Oregon are eligible for the tax credit. A
project owner also can be an Oregon non-profit organization, tribe or public entity that
partners with an Oregon business or resident who has an Oregon tax liability. The tax credit can
cover all costs directly related to the project, including equipment cost, engineering and design
fees, materials, supplies and installation costs. Loan fees and permit costs also may be claimed.
114
http://www.treasurer.ca.gov/greenwave/update.pdf
http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=CA05R
116
http://www.oregon.gov/ENERGY/CONS/BUS/BETC.shtml
115
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HB 3672 (2011) ended the BETC program, in effect since 1979 on January 1, 2012. The RETC
program was extended by HB 3672 to January 1, 2018, except for the alternative fuel vehicle
credit (including electric vehicles) which retains its existing sunset of January 1, 2012.
Colorado Clean Technology Discovery Evaluation Grant Program
Authorized by the Colorado General Assembly in 2009, SB-47, the Colorado Science and
Technology Innovation Reinvestment Act was signed into law in May 2011 by Governor John
Hickenlooper. The legislation creates a funding stream for the Clean Technology Discovery
Evaluation Grant program, which will be administered by the Finance Division of the Colorado
Office of Economic Development and International Trade.117
SB 47 diverts 50 percent of the future growth of income tax withholding from the cleantech and
bioscience industries (defined using industry NAICS codes) and is expected to raise ~$500,000$1 million/year in cleantech commercialization funding for Colorado universities. Appropriately
titled the “Reinvestment Act,” SB 47 uses industry growth to support the industry’s further
development and is authorized for ten years, beginning in 2014.
The Clean Technology Discovery Evaluation Grant program (CT-DEGP) will allocate 25% to
university technology transfer offices for market assessment, IP protection and other businessrelated expenditures for technology research projects; 25% to companies commercializing
university technology or utilizing university labs, researchers or other facilities to bring a
product to market; and the remainder to create and maintain partnerships to build
infrastructure that supports the commercialization of clean technology products and services
between the clean technology industry and statewide research institutions.
All of this is helping Colorado universities move closer to their target of sustained
commercialization funding equivalent to 1% of each university’s cleantech research funding
(approximately $2 million/year). Other efforts to complement the available funding for
research commercialization have been driven by the Colorado Cleantech Industry Association,
which has worked in tandem with statewide university partners to solicit funding from local and
national foundations. One such effort is the Proof of Concept/Market Assessment Fund that
provides additional support for:
Early market assessments of technology potentials and paths to market,
Mentorship and guidance for researchers, faculty, and students interested in
commercialization
117
CO also has a similar program in place for the bioscience industry: the Colorado Bioscience Discovery Evaluation
Grant Program. http://www.colorado.gov/cs/Satellite/OEDIT/OEDIT/1167928017742
36
Proof of Concept funding to move research closer to commercialization and outside
funding, and
Seed funding to kick-off promising start-ups.
Washington Energy Innovation Fund
Made possible by an award from the Washington State Department of Commerce State Energy
Program under the American Recovery and Reinvestment Act, the Energy Innovation Fund
provides $1.5 million (comprised of $750,000 in grant funds and $750,000 in loan funds) to help
cleantech companies and qualified clean energy innovation projects throughout the state).118
Private Sources of Venture Funding for Clean Tech in the SE
While the southeastern U.S. does not have an abundance of venture capital investors, there are
a few firms with a general interest in science and technology. Those with a specific interest in
clean technology or sustainable technologies are described below.
SJF Ventures
SJF Ventures is a venture capital partnership with headquarter offices in Durham, NC and
additional offices in New York and San Francisco. Started in 1999, SJF Ventures is now on its 3rd
fund with $75 million, of which only half has closed so far.119 SJF is one of only a few venture
funds in the SE that is focused on cleantech, and their definition includes renewable energy,
sustainable food and agriculture, recycling and materials reuse, resource efficiency, and grid
and infrastructure technologies, with additional interest in early stage technologies like
batteries, biofuels, or thin film solar. In addition, SJF invests in other business and
web‐enhanced services, and premium consumer products sectors, including facilities
management and healthcare.120
Focused on the growth stage, not early stage, SJF Ventures helps companies with growth
capital, not commercialization. Through its investment funds, the firm provides equity financing
from $1 million to $10 million, solo or in syndicates, to companies seeking expansion capital.
SJF Ventures now has 35 portfolio companies and invests nationally in best of class companies,
with no portfolio companies in NC despite being located in Durham since inception.
While Cody Nystrom of SJF explains, “we can’t maximize returns if we limit geography,” they do
support local entrepreneurs and the NC community through the SJF Institute, their affiliated
118
http://www.innovatewashington.org/access-capital/energy-innovation-fund
First fund was $17 million; Second fund was $28.5 million.
120
Cody Nystrom. Principal, SJF Ventures. Interview June 20, 2012.
119
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non-profit focused on impact investing.121 The SJF Institute invests in companies that are
delivering social or environmental impacts through their acquisition of Investors Circle and its
angel investor network. In addition, they support SE-based entrepreneurs through networking
events such as their 2010 Summit on the New Green Economy, Clean Links (a network for
cleantech professionals), and by hosting a mentorship program that previously supported
entrepreneurs in the Southeast.122
Intersouth Partners
Founded in 1985 and based in Durham, North Carolina, Intersouth Partners has invested in
more than 100 early-stage life science and technology companies across the Southeast.123
Managing $780 million in seven venture capital limited partnerships, it is the largest venture
capital fund in North Carolina and one of the largest in the Southeast. The firm “invests in seed
and early-stage companies that have the potential to become market leaders by creating
breakthrough technologies in their respective sectors” and “is a regionally focused venture fund
that invests across the Southeast, primarily in the corridor from Baltimore through Florida,
including Washington, DC, the Research Triangle region and Atlanta.”124 Investments are
generally in the technology and life science sectors and the firm prefers to “participate in the
first institutional round of a company with an initial investment between $500,000 and $6
million.” Intersouth also takes “a leadership role in subsequent financings, planning for an
average total investment in any single company of $12 million through all rounds of financing.”
Abundant Power Capital
Another fund looking specifically at green tech is Abundant Power Capital is located in
Charlotte, NC. Abundant Power Capital (APC) provides management services to Abundant
Power's investment funds under the CleanSource name. The CleanSource Growth Equity Fund
makes $5-10 million investments in high growth manufacturing and distribution, and services
companies focused on energy performance: energy efficiency, energy management, and clean
energy. 125 CleanSource backs experienced management teams executing on proven business
models with market accepted products and services using commercialized technologies. The
fund invests in U.S. based companies with an enterprise value of $5 - $50 million, established
revenues and high growth rate, strong gross margins and profitable or near-term cash flow
breakeven.
121
Ibid.
SJF Institute defines the Southeast as: GA, SC, NC, KY,TN, VA, WV but will soon focus on more national impact
entrepreneurs and no longer have a SE focus.
123
http://www.intersouth.com/
124
http://www.intersouth.com/about-us/investment-strategy/
125
http://www.abundantpower.com/Capital.aspx
122
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NEST-TN
NEST-TN is a seed and early-stage venture capital firm started by Fran F. Marcum, Managing
Partner of Marcum Capital of Tullahoma, Tennessee. NEST-TN has a state-wide focus on
companies specializing in advanced manufacturing and materials, energy and environmental
“clean” technologies, and information and digital media technologies.126 The NEST-TN team
includes Fran F. Marcum, Cameron A. Newton, E. Brac Thoma, Richard A. Bendis, Matthew A.
Wiltshire, and Joseph P. Binkley III. NEST-TN is an acronym for Networking Entrepreneurs, Seed
capital, and Technology in Tennessee.
Innova Fund II, LP
Founded in 2007 by the Memphis Bioworks Foundation, Innova is a pre-seed, seed and earlystage investor focused on starting and funding high-growth companies in the Biosciences,
Technology and AgBio fields across the state of Tennessee.127 Innova links capital with great
ideas to create groundbreaking products and services.
Wunderlich Securities
Established in 1996 in Memphis, TN, Wunderlich Securities, a full-service brokerage firm, is
committed to providing a comprehensive range of professional products and services to meet
the needs of individual investors as well as corporations and institutions. The Firm offers
financial advisory, brokerage, equity research and investment banking services. 128 David Stastny
represents Wunderlich’s Equity Capital Markets Group as Managing Director working in the
Technology and Cleantech banking sectors and the firm has a strategic alliance with Centaur
Partners, LLC, a boutique M&A advisory and business development consulting firm based in
Palo Alto, CA.
Additional Funds
Given that the number of SE venture funds is very small, AR entrepreneurs with a good idea and
strong management team may be advised to travel to Silicon Valley or Boston to network
directly with venture firms in these VC hubs. 129 Firms such as Mohr Davidow Ventures (Menlo
Park, CA), Pangaea Ventures (Vancouver, BC & NJ), Braemar Energy Ventures (NYC & Boston,
MA), Draper Fisher Jurvetson (Menlo Park, CA, Shanghai, China, & Bangalore, India), Technology
Partners (Palo Alto, CA), RockPort Capital (Menlo Park, CA & Boston, MA), Nth Power (San
Francisco, CA), EnerTech Capital (Philadelphia, Toronto, and Calgary), Expansion Capital
126
http://www.nest-tn.com/
http://innovamemphis.com/
128
http://www.wunderlichsecurities.com/
129
See http://energypriorities.com/entries/2005/11/energy_venture.php for one list compiled in 2005 of Energy
Venture Capital and Angel Investors.
127
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Partners (NYC, CT, San Francisco, & MA), and Firelake Capital (Palo Alto, CA) provide a good
place to start.
Alternatively, CED’s Tech Venture Conference serves as place to network with other SE
Entrepreneurs and High Growth Company Executives (from Startups to Pre-IPO), National
Venture Capitalists and Private Equity Professionals, M&A facilitators and other leading
professionals serving the high growth technology community. Previous events have included
150 venture capital and private equity investment firms from across the U.S.130
Conclusion
As shown by the wide variety of approaches taken by the other states profiled in this report,
the Arkansas Advanced Energy Association and Arkansas Advanced Energy Foundation have
many options for developing programs to support the state’s advanced energy entrepreneurs.
These range from encouraging the State of Arkansas to pass legislation requiring a percentage
of the state’s investment to fund local companies, to working with Arkansas universities to
increase the ease with which technologies are patented and commercialized, to building
stronger connections with private venture capital firms and angel investors. Overall, Arkansas
can create the right atmosphere for growing successful advanced energy companies through a
combination of forward-thinking energy policy, support for innovation and entrepreneurship,
and cultivation of new capital resources. Building the Arkansas advanced energy cluster will
require increasing both elements of capital supply and demand: the supply will only be
increased when investors, both public and private, recognize the economic opportunity
associated with energy transformation and demand, which will need to be presented by
entrepreneurs with strong management teams and carefully crafted business plans.
A 2010 report on state angel investor tax credit programs shows that at least 21 states (AR
included) offer income and business tax credits to angel investors for investing in newlyformed, technology-related businesses.131 Clearly techniques like this alone will not be enough
to attract investors to the state – and Arkansas is not the only state with a shortage of
investment capital. The programs referenced in this study can provide examples of best
practices to emulate and adapt in order to address the specific needs of the Arkansas advanced
energy sector.
130
131
See the list of investor firms who’ve attended past SE conferences at http://www.seventure.org/investors.html.
http://www.cga.ct.gov/2010/rpt/2010-R-0376.htm
40