When a company leaves Ann Arbor, is it required to pay back any loans or grants funded by the LDFA?
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.
Is Ann Arbor SPARK required to release audited financials?
Why does Ann Arbor SPARK report conflicts of interest on its financials?
Ann Arbor SPARK reports all possible conflicts of interest as part of its commitment to organizational transparency. As a non-profit, the IRS Form 990 examines whether a nonprofit has a written conflict of interest policy as well as the process for managing conflicts of both staff and board members.
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.
I hear SPARK administers a pre-seed fund. Does that make SPARK a Venture Capital firm?
No, SPARK is not a venture capital firm. In 2007, SPARK was selected by the State of Michigan to administer the Michigan Pre-Seed Capital Fund which was established using 21st Century Jobs Fund dollars. In 2014, the state established a new fund, the Michigan Pre-Seed Capital Fund II (MPSF 2.0), which is administered by Invest Michigan.
SPARK still serves as the administrator of the original Michigan Pre-Seed Capital Fund. Today, it focuses on reinvesting the fund returns to keep the cycle of SmartZone innovation perpetually advancing.
The fund is used to co-invest with investors in startup technology companies supported through a Michigan SmartZones at a minimum one-to-one 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 that 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 purely is as the fiduciary and administrator of the program. This program is an economic development tool to help retain talent and great startup businesses in the state.
What is the Michigan Angel Fund and why was it created?
The Michigan Angel Fund (MAF) is a for-profit, pooled, and professionally managed angel fund. MAF was established by Ann Arbor SPARK and supported by the Michigan Economic Development Corporation to help finance early stage companies in the state of Michigan and to attract additional angel investors to the Michigan entrepreneurial ecosystem. The fund helps move companies from public funding to the private sector.
As the managing member of MAF, 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 MAF investment.
MAF is a distinct entity, of which Ann Arbor SPARK is the managing member. 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.
100% of the funds invested by the Michigan Angel Fund are private funds. No public money is invested in the companies. 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), but instead help support MAF.
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 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.
Another 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.