Frequently Asked Questions
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Ann Arbor SPARK FAQ’S
The following are frequently asked questions about our organization, our purpose, funding structure and financial statements. Ann Arbor SPARK, like all other non-profit organizations, has specific legal reporting requirements to comply with federal and Michigan law. Since its inception in 2006, SPARK has been in full compliance with these requirements. For example, SPARK’s federal tax returns are available to the public online.
While these legally required documents provide a wealth of information, this information can be difficult to interpret depending upon an interested party's familiarity with economic development and financial reporting.
As a result, the SPARK Executive Committee has determined that it is important to be clear about how SPARK is funded and to do a better job of educating the public on our work and impact on the economy for this entire region. This FAQ will be updated on a regular basis as part of our commitment to clarity and education. We welcome this opportunity to share more about our mission with the general public.
More information can be found within our previous annual reports at this link.
FAQ last updated on November 21, 2016
About SPARK – The Organization
What is Economic Development?
Economic development is the sustained, concerted actions that promote the standard of living and economic health. According to the Federal Economic Development Administration, economic development creates the conditions for improved quality of life by expanding the capacity of individuals, firms, and communities to maximize the use of their talents and skills to support the innovation that drives economic growth.
Economic Development requires collaboration, and Ann Arbor SPARK is committed to bringing together partners, like the Michigan Economic Development Corp., Michigan Works, city and municipal partners, University of Michigan, and others to support the growth of companies and the creation of jobs.
What is Ann Arbor SPARK?
Ann Arbor SPARK is an economic development organization committed to growing the Ann Arbor region’s economy. A non-profit organization, Ann Arbor SPARK is advancing the region by encouraging and supporting business acceleration, attraction and retention. The organization identifies and meets the needs of business at every stage, from start-ups to large organizations.
Ann Arbor SPARK accomplishes its mission by attracting new businesses to locate in the region, and startup here, and also helps existing businesses access critical resources that they need to continue to grow here. It works with range of partners at the state and local level, including educational institutions, other economic development organizations, and those in the private sector to provide these services – from talent to business incentives to business acceleration and incubation.
Ann Arbor SPARK operates two business incubators in Washtenaw County: SPARK Central and SPARK East. These business incubators provide affordable office space and business support services to startup companies. Support services include help with marketing, financial planning, investor pitch preparation and access to other expertise that would otherwise be unaffordable to these startup businesses.
Ann Arbor SPARK public partners include the Michigan Economic Development Corp, MichiganWorks, University of Michigan, Eastern Michigan University, Washtenaw Community College, the City of Ann Arbor, and Washtenaw County and Livingston County, including small municipalities in each of those two counties
Why does Ann Arbor SPARK file two tax returns?
Ann Arbor SPARK files a tax return for each of its registered corporate entities:
- One for Ann Arbor SPARK, a 501c6 organization
- One for Ann Arbor SPARK Foundation, a 501c3 organization
The mission of SPARK is to advance the economy of the Ann Arbor region by establishing the area as a desired place for business expansion and location by identifying and meeting the needs of business at every stage, from those that are established to those working to successfully commercialize innovations. Most of our programs are run through Ann Arbor SPARK, including our business acceleration and incubation work with startups, business development services for established businesses, funding programs (the Michigan Pre-Seed Capital Fund, Ann Arbor/ Ypsilanti LDFA microloans and Eastern Washtenaw microloans), talent services and marketing the region.
The mission of the Foundation is to provide funding and support for the activities of Ann Arbor SPARK, for the encouragement, promotion and support of area development, re-development, and renewal. In 2013, the Ann Arbor SPARK Foundation supported management of the Accelerate Michigan Innovation Competition, and in this current year, the Foundation is supporting the delivery of Ann Arbor SPARK's Virtual Business Advisor program.
The majority of Ann Arbor SPARK's revenue, budget, and work are reflected in the Ann Arbor SPARK tax return.
Why is SPARK registered as both a 501(c)(3) and 501(c)(6) organization?
Ann Arbor SPARK, a 501(c)(6), and Ann Arbor SPARK Foundation, a 501(c)(3), are the same entities as the Washtenaw Development Council and the Washtenaw Development Council Foundation, that have existed since 1982 and 1998, respectively. This can be verified on the website for the Michigan Department of Licensing and Regulation at http://www.dleg.state.mi.us/bcs_corp/sr_corp.asp. If you type in “Washtenaw Development Council” references to both entities will appear and show that they are former names for Ann Arbor SPARK and Ann Arbor SPARK Foundation.
The Washtenaw Development Council was SPARK's predecessor. The difference between the two is that the Foundation is a 501(c)(3), a charitable organization, and Ann Arbor SPARK is a 501(c)(6), an association whose purpose is to promote the common business interests and improve business conditions.
It is a very common arrangement for organizations to have both a 501(c)(6) “trade or business organization” and 501(c)(3) “public charity”. For example, the Ann Arbor Chamber has both as well.
SPARK’s tax forms show that the organization’s budget has grown year over year. What is the reason for this budget increase?
Ann Arbor SPARK’s work in these areas is in direct response to the new and existing businesses in our region requiring assistance with expansion, investment, and talent in our region. To meet the needs of our growing economy, Ann Arbor SPARK has expanded its businesses and startup services every year. Recent examples include opening new space in our SPARK Central Innovation Center to accommodate second stage entrepreneurs as well as provide a “soft landing” space for international companies looking to establish a presence in the U.S. Ann Arbor SPARK’s team identified office space as a need for these two different types of businesses, and responded, and the new space at SPARK Central is at capacity.
A key area where SPARK has expanded services has been talent initiatives. As companies grow here, so does the demand for skilled and high tech talent, and ways to reach potential employees. Ann Arbor SPARK has grown its talent initiatives to include annual, marquee events Tech Trek and Tech Homecoming, as well as talent mixers.
The growth in our budget also accommodates our work administering the Michigan Angel Fund, which supports very early stage startups, and our work in Livingston County, which began in 2012.
SPARK Reporting - Job Numbers
How does SPARK count job numbers for its annual report?
The job numbers in our annual report are results of business development services, and are economic development successes. The first three items on the results page of our annual report are business development projects; these projects are not funded by LDFA or state. The remaining items are for business accelerator programs that are funded by the LDFA, the state, and other sources.
SPARK’s business development metrics–reported in our annual report–are the company’s announced capital investment and/or jobs. SPARK's jobs and capital investments numbers are based on these project announcements provided by the companies of their expectation for job creation over a multi-year period.
Does SPARK use actual job numbers when presenting to the public?
SPARK's jobs and investments numbers, as reported in its annual report, are based on information provided by companies when they announce a project.
Why doesn’t SPARK verify the company announced job numbers?
As part of our business development efforts, Ann Arbor SPARK does have an on-going business retention, expansion and attraction calling program to help companies achieve continued success. These services, which are funded by city, county and the private sector, include:
- Expansion and site selection assistance
- Assisting with applying for incentives
- Employee training and recruitment
- Business connections to government, academic and service providers
The objective of these efforts is to encourage companies to invest, in some cases, millions of dollars in the Ann Arbor region either through a retention, expansion or attraction project that will result either in the retention of existing jobs or the creation of new jobs. We use the company’s announced jobs because it reflects the intention of their project.
When a company receives a state or local incentive, they are contractually obligated to report metrics to the state and local funders. These metrics are not influenced or determined by SPARK.
SPARK role is project management and facilitation of the incentives process by assisting companies with applying for these programs. The incentives are tools that SPARK can use to attract a business to this region, or convince a company to stay here and expand versus choosing another destination for growth.
A recent report by the MEDC shows that SPARK companies created 711 jobs from 2005-2013. SPARK’s annual report shows that SPARK companies created 13,024 jobs from 2005-2013. Why is there a discrepancy between these figures?
There isn’t a discrepancy between the numbers. The 711 jobs are not included in the 13,024 jobs that SPARK reported in its annual report. The 711 jobs are those tied to SPARK business accelerator programs that are funded by MEDC’s 21st Century Jobs Fund. The 13,024 jobs are those tied to SPARK business development programs that are not funded by MEDC and are not included in this MEDC report.
The 711 jobs tied to SPARK business accelerator programs were pulled from an annual report submitted by the Michigan Strategic Fund to the Governor on March 14, 2014, based on results for fiscal year 10/1/12 – 9/30/13. The jobs are attributed to specific programs funded by the state:
131 jobs from the PreSeed I fund
121 jobs from the PreSeed II fund
183 jobs from the PreSeed III fund
102 jobs from the PreSeed Microloans
0 jobs from the Angel fund
175 jobs from ‘Accelerate Michigan’
It’s important to note that none of these programs receive LDFA funding support and therefore not reported to the City of Ann Arbor or LDFA, except in the context of SPARK’s overall work and effectiveness. Many Ann Arbor start-ups have benefited from these programs.
How does SPARK track and report the results of its programs funded by the city, county and state?
Ann Arbor SPARK helps a range of companies, from startups to large established, global businesses. We work with partners to accomplish our mission, including MEDC, which funds specific programs that are offered by SPARK. Each of our partners requires SPARK to report back on the results of the specific programs that they fund contractually. For example, there has been no reporting requirement under SPARK’s contract with the City of Ann Arbor in the last nine years. There is no reporting requirement set forth by our private funders. Our annual report is our report of results to the community at large in Washtenaw and Livingston Counties.
SPARK Funding Sources
How is Ann Arbor SPARK funded?
SPARK’s main sources of funding are corporate and academic partners, and local governments in Washtenaw and Livingston Counties. Additional funding comes in the form of grants and contracts from the state and federal government and foundations.
Public funding for SPARK is provided by the City of Ann Arbor through the Local Development Finance Authority (LDFA) and general fund allocation and from Washtenaw County from Act 88 millage and federal workforce funding. It also receives funding from the state through the Michigan Economic Development Corp.
The State provides money to LDFA specifically for economic development, for the purpose of creating new companies and diversifying the economy. This funding is made available from a TIF (Tax Increment Financing) district that captures a small amount of incremental property tax increases.
Ann Arbor SPARK operates its SPARK Central business accelerator under contract with the LDFA. SPARK East is partially supported by Act 88 funding from Washtenaw County. Ann Arbor SPARK’s funding from the Michigan Economic Development Corp. is to administer the Michigan Pre-Seed Capital Fund and Michigan Microloan Fund Program, additional funding for SPARK EAST, administration of the Michigan Angel Fund and the Washtenaw County Incubator Collaboration.
How is the SmartZone funded?
The SmartZone is funded by tax revenue collected within the geographic boundaries of the Ann Arbor DDA. The tax capture is based on the increase in taxable value due to new development and appreciation above the base year of 2002. So in effect, the State funds the LDFA and LDFA provides SmartZone funding. The SmartZone (LDFA) received approximately $2 million of revenue in FY2014. For more information please visit: http://www.a2gov.org/departments/finance-admin-services/smart-zone/Pages/Home.aspx or
Why does the city of Ann Arbor provide Ann Arbor SPARK $75,000?
Economic development is generally a role a local government allocates resources towards because it supports the growth of businesses, provides for a strong economic environment and increases the tax base for local businesses and city services. The City of Ann Arbor chose to outsource this role to Ann Arbor SPARK at a rate of $75,000 per year rather than staff it internally or not have it covered at all.
The city values economic development and the benefits it provides to the community. Ann Arbor recognizes that this investment supports an entire professional economic development team, and affords services that far exceed $75,000 in value. For ten years, Ann Arbor has benefited from a team and coordinated economic development effort and would not be able to conduct this level of activity in house for $75,000.
Many other municipalities in Washtenaw County also provide funding to SPARK; SPARK is the economic development organization for the region, not just the city of Ann Arbor.
Throughout the state, it is customary for other local cities opt to contract out for economic development services. For example, Livingston County (population 182,000) through its Economic Development Corporation has chosen to contract out to SPARK for economic development services, at an annual amount of $336,000.
How does Ann Arbor SPARK account for its City of Ann Arbor and LDFA public funding?
Ann Arbor SPARK receives $75,000 annually to support efforts related to business expansion and attraction and marketing the city as a great place to locate a business. These are the only general fund dollars SPARK receives from the City of Ann Arbor.
The Local Development Finance Authority receives funding from a TIF district that captures a small amount of incremental property tax increases. These dollars come from taxes committed to schools and are by law repaid to the local school district by the state so their funding remains whole. So in effect, the State funds the LDFA.
The LDFA contracts for services to Ann Arbor SPARK to educate and support entrepreneurs who are starting up technology companies with potential for large and rapid growth in the city. SPARK provides the LDFA quarterly activities reports and the LDFA provides City Council an annual report on those activities. LDFA meetings are open to the public and are held at Ann Arbor City Hall.
Per Ann Arbor SPARK’s LDFA contract, SPARK is required to report to the LDFA every quarter on our results, including specific metrics such as the number of companies that received services that were funded through the LDFA funds. SPARK's annual reports to the LDFA are included below:
For City of Ann Arbor resources, Ann Arbor SPARK makes a presentation as a part of City Council’s annual budget process, providing a report on how the funding received from the City was used.
How does Ann Arbor SPARK account for its Act 88 County public funding?
Ann Arbor SPARK provides the Office of Community and Economic Development at Washtenaw County with the metrics for that office’s Act 88 report to the Board of County Commissioners, which is also a part of the Board’s annual budget preparation process.
Our results are included with a full funding report. The metrics that Ann Arbor SPARK reports include leveraged funding, jobs created and retained through the funding, and the location of the project.
The most recent report is available at this link:
Do other municipalities provide financial support to SPARK?
Yes, the following spreadsheet summarizes that support by jurisdiction and the projects, capital investment and projected jobs that have been impacted by SPARK activity in each community.
When a company leaves Ann Arbor, is it required to pay back any loans or grants funded by the LDFA?
It’s inevitable that some companies will leave Ann Arbor for another location. In 2015, a total of 162 companies received LDFA funded business services. Out of those 162 companies, 25 companies relocated outside of downtown Ann Arbor. Twenty-one of those companies are still registered in southeast Michigan, which is exciting news for the state’s economy. In this way, the goal of the funding was achieved: LDFA is funded by the State, and the state’s money is what was awarded to the companies.
When a company leaves Ann Arbor, a provision does exist in the agreements and loans that they will repay any LDFA funding. Ann Arbor SPARK is earnest in collecting from those companies to the extent that the time and actual expense related to collecting repayment isn’t greater than the amount of funding to be collected.
Audited Financial Statements
Why has Ann Arbor SPARK not previously released audited financials?
Ann Arbor SPARK is required to release its tax returns. SPARK has done so and posted them online. It is neither a requirement of federal or state law for a non-profit organization like Ann Arbor SPARK to release its audited financials. Under Michigan law, SPARK is a board-directed organization and financial statements in that context were provided to that board. The board is made up of corporate executives, elected and appointed public officials and leaders from regional academic institutions and other non-profit organizations. In the past the board and executive committee determined that the release of our federal tax returns was sufficient for interested parties to understand SPARK’s financial affairs.
Ann Arbor SPARK lists “investment management fees” on its audited financials. What does that mean?
Ann Arbor SPARK hires expert consultants to work through specific challenges with the companies that it helps. These activities are funded through the LDFA contract. The services that these consultants provide range from marketing and business plan development to legal and financial counsel. Often, entrepreneurs can’t afford to hire these consultants on their own, but they need these services in order to get their businesses started.
Has Ann Arbor SPARK ever been audited by the IRS?
Yes. The IRS routinely audits tax exempt organizations to ensure compliance with federal tax requirements. Ann Arbor SPARK was selected for a routine audit of its 2012 Federal 990 return, which was reviewed by the IRS Tax Exempt and Government Entities Division. As a result, Ann Arbor SPARK’s return was accepted as filed, and we continue to qualify for exemption from Federal income tax.
Why does the latest financial audit exclude the microloans that were included in the previous year’s audit?
The information concerning microloans was a supplemental report to last year’s audit. The information about SPARK’s microloans is available on our website at http://www.annarborusa.org/about-us/policies-and-reporting/audited-financials/financial-statement-supplementary-information
We know that SPARK invested in companies outside of Washtenaw, so why does the latest audit state “The organization’s investments are all in start-up companies located in Washtenaw County.”?
The auditors Yeo and Yeo agreed they made an error and they have revised the financial statements to read, “The Organization’s investments are all in start-up companies located in the State of Michigan”.
Is SPARK a Venture Capital Firm?
Between 2007 and 2013, Ann Arbor SPARK managed the SmartZone network pre-seed investment fund with a grant from the State of Michigan. This fund, created with 21st Century Jobs Fund dollars, co-invests with investors in start-up technology companies supported through one of the SmartZones. These companies have been assisted with consulting advice and other acceleration services. The investment requires a minimum 1 to 1 match. To be eligible, the company must raise their match and have negotiated terms of the investment prior to application to the pre-seed fund, which if approved by an Investment Review Board, co-invests on the same terms as the matching investor.
SPARK does not engage in the decision making process or perform any of the due diligence or valuation assessment a venture firm would do. The fund does not make follow-on investments, hold board seats or seek exit opportunities for the companies in the portfolio as a venture firm would do. SPARK’s involvement was purely as the fiduciary and administrator of the program. This program is an economic development tool to help retain talent and great start-up businesses in the state, not a venture capital firm.
Entrepreneurial Service and Business Incubators
What are the services provided to entrepreneurs and startup companies?
Ann Arbor SPARK provides a range of support services to entrepreneurs and startup companies. Public funding goes towards our business incubators. Specifically, Act 88 funding, or county funding, supports SPARK Central and SPARK East. LDFA funding supports SPARK Central.
Our business incubators offer space and services that help startups grow. These services include office space, internet access, and meeting space, as well as consulting services from marketing sales, finance and legal experts. These are services that would otherwise be unavailable to startups due to the associated costs. Being able to offer this support in Ann Arbor not only keeps University of Michigan startups here, it attracts other startups to grow here. These startups create jobs and investments in our region.
Explain how SPARK Capital and Funding programs work.
How does SPARK report the results of its MEDC-funded business accelerator activities?
As part of its funding obligations for the business accelerator programs that are funded by the MEDC’s 21st Century Jobs Fund, Ann Arbor SPARK is required to report data back to MEDC on a regular basis. The MEDC requires different reports and reporting requirements for each of the programs:
- Michigan Pre-Seed Capital Fund
- Michigan Angel Fund
- Washtenaw County Incubator Collaborator
- Accelerate Michigan Innovation Competition
- SPARK East business incubator
The information reported to the state is specified by MEDC, and SPARK has provided all data on time and as required.
How does Ann Arbor SPARK validate its entrepreneurial services jobs figures that it reports to LDFA?
The Ann Arbor/Ypsilanti SmartZone Local Development Finance Authority (LDFA) contracted Abraham & Gaffney, P.C. to assist them in evaluating the job creation reporting of Ann Arbor SPARK. Abraham & Gaffney’s evaluation included interviewing and observing SPARK’s management and operational personnel to determine how the information is gathered and reported, and also included direct confirmation of the information provided by SPARK with the companies it reported having served.
SPARK didn't request microloan funding this year from the LFDA. Will microloans continued to be offered for local entrepreneurs?
Ann Arbor SPARK will continue to offer microloans. Over several budget cycles, Ann Arbor SPARK received $950,000 to make microloans in Ann Arbor companies. Currently, $228,000 is still available for microloans, thanks to returns that early loan recipients have made to the microloan program.
What are the recent changes to the pre-seed capital fund?
In early 2014, the Michigan Economic Development Corporation made new grant funding available for the Michigan Pre-Seed Capital Fund II. This is a new fund, separate from the Michigan Pre-Seed Capital Fund that is administered by SPARK. Ann Arbor SPARK will continue to administer the Michigan Pre-Seed Capital Fund, and invest returns to that fund in future startups.
The Michigan Pre-Seed Capital Fund II is being administered by Invest Michigan. As a SmartZone partner, Ann Arbor SPARK will continue to help companies in the Ann Arbor region apply for these funds and use them to grow their businesses as effectively as possible.
What happens when a company returns funding to the Michigan Pre-Seed Capital Fund?
In 2007, The Michigan Pre-Seed Capital Fund (PSF) was established by the Michigan Economic Development Corporation, using its 21st Century Jobs Fund. Ann Arbor SPARK was selected as fiduciary to administer the state Fund as an intentional economic development tool to create jobs and retain startups in Michigan.
Returns to the Michigan Pre-Seed Capital Fund are used to make new investments in startups that will benefit the state’s economy by attracting investment and creating jobs.
SPARK Pre-Seed Fund Program 2007 - 2016
Business Growth and Investment
Why does SPARK have a Foreign Direct Investment Committee?
Ann Arbor SPARK's Foreign Direct Investment Committee has been meeting since August of 2012. The purpose of this group is assist SPARK in promoting the Ann Arbor region to companies that have a foreign parent company and educating them about resources available to help them in establishing a physical presence in the Ann Arbor region. Particularly, SPARK wants to leverage the regional assets of Ann Arbor to attract and retain jobs and investment.
The Michigan Angel Fund
What is the Michigan Angel Fund?
The Michigan Angel Fund is a for-profit, professionally managed equity fund focused on capital efficient early stage companies located in Michigan. The Michigan Angel Fund I is a $2.1 million fund that, with 72 members, is the largest angel organization in Michigan. SPARK has begun the solicitation process for Michigan Angel Fund II.
The Michigan Angel Fund finances early stage companies in Michigan and works to attract additional angel investors to the state.
As managing member of the Michigan Angel Fund, Ann Arbor SPARK coordinates screenings of fund applicants, conducts due diligence, and works with the New Enterprise Forum to prepare companies for their investor presentations. Ann Arbor SPARK also works with business accelerator organizations around the state to identify quality companies for potential Michigan Angel Fund investment.
The Michigan Angel Fund invests in companies that are seeking early funds, from $200,000 to $2,000,000.
Are the funds invested private funds?
Yes, 100% of the funds invested by the Michigan Angel Fund are private funds. No public money is invested in the companies. This for-profit activity is high risk from an investor perspective. All investors sign an participation agreement that clearly points out the possibility they could lose all their investment.
How does the Angel Fund affect SPARK’s non-profit status?
The Michigan Angel Fund has no impact on SPARK’s non-profit status. It is not uncommon for non-profits to have for-profit subsidiaries, usually to help support the non-profit. The IRS allows this as long as the for-profit entity is paying taxes on gains.
Are any of the funds SPARK receives from the City of Ann Arbor or the Ann Arbor-Ypsilanti Local Development Finance Authority used to administer the Michigan Angel Fund?
No funds from the City of Ann Arbor or the LDFA are used to support the Michigan Angel Fund. The funds for administration of the fund come from the 21st Century Jobs Fund program controlled by the Michigan Strategic Fund and managed by the Michigan Economic Development Corp (MEDC). Those funds come from the Tobacco Settlement Agreement. These funds were awarded through a request for proposal process managed by the MEDC.
If there are returns, how are they handled?
If successful, the fund will return capital to the investors until they are made whole, then there is a 20% carry on profits that go to SPARK (the organization). These profits do not go to any individual (e.g. a SPARK board member).
Is there a potential for a conflict of interest between the SPARK board or governmental funders of SPARK?
No SPARK board or committee member, or federal, state or local government official (elected or employee) is an investor/member of the fund. Thus no such person will benefit from any return to fund investors.
Why did SPARK create the Michigan Angel Fund?
The reason this for-profit activity exists is to facilitate private funding for the start-ups we help accelerate. It moves these companies from needing/using public funding to the private sector, which is the ultimate goal. Finding and acquiring private capital for a start-up in Michigan is very difficult.