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Bipartisan Bills Creating Michigan Innovation Fund Introduced in Lansing

Funding would provide crucial support for entrepreneurs and startups by helping to create self-sustaining nonprofit early-stage evergreen funds and leverage existing fund infrastructure

A bipartisan group of lawmakers in Lansing has introduced new bills to create the Michigan Innovation Fund, providing critical funding support to Michigan’s existing early-stage evergreen venture funds and entrepreneur ecosystem. Michigan House Bills 5651, 5652 and 5653, sponsored by Representative Alabas Farhat (D-Dearborn), Jason Hoskins (D-Southfield) and Greg VanWoerkom (R- Norton Shores), would provide $105m to a coalition of five impactful, established Michigan-based nonprofit early-stage evergreen funds as well as provide additional increased funding to key partners in the ecosystem that support startup companies, founders and funds. The Michigan Innovation Fund is designed to provide long-term investments in Michigan’s startup companies, grow and diversify the economy, create jobs; and build a strong, competitive, and sustainable financial network to support startup companies across Michigan.

“House members on both sides of the aisle recognize the importance of supporting Michigan startups and entrepreneurs,” said Representative Farhat. “We can’t continue to overlook the importance of helping grow all areas of our economy, especially Michigan entrepreneurs and the impact they can have on future jobs and economic growth. With the Michigan Innovation Fund, we have a powerful tool to support new business creation and stop the trend of companies leaving Michigan to find the startup capital they need. The investments we make in budding entrepreneurs, innovative technologies, and new industries today will power Michigan’s economic future as well as help support an innovation economy and attract talent.”

“At the University of Michigan, we know all too well what it’s like to watch high potential startups leave Michigan for other states who can provide the essential early-stage capital needed to grow their companies.” said Kelly Sexton, Ph.D., associate vice president for research, innovation partnerships and economic impact at the University of Michigan. “Other states are looking ahead and recognizing the return that investments like this bring. By acting now, we might ensure that the next “unicorn” is founded, grows, and stays in Michigan.”

Recent studies show that Michigan is losing significant jobs, talent and investment opportunities due to the lack of early-stage investment capital available to would-be entrepreneurs. Overall, new early-stage, pre-seed investment capital in Michigan has decreased over 40% in the past several years, creating a major challenge to companies looking for early-stage funding, even for companies with high growth potential.

“The Michigan Innovation Fund will be a key component to the state’s economic ecosystem by supporting entrepreneurs to create the next great Michigan business,” said Rep. VanWoerkom, Republican vice chair of the House Appropriations Subcommittee on Labor and Economic Opportunity. “This fund will fill a missing component to help our risk-takers be successful.”

Michigan suffers one of the largest disparities between academic research expenditures and invested venture capital. For every $149 of academic research expenditures in Michigan there is $1 of funding. In California, the ratio is $7 of academic research expenditures for $1 of funding. Additionally, many companies that get their start in state are forced to leave to follow investment capital in other states, increasingly to Ohio. The Michigan Innovation Fund will help provide critical early-stage funding and keep companies here in Michigan.

“We have been an early-stage investor in Michigan since 2007, investing in over 200 Michigan-based startups, and know the economic impact these companies can have” said Paul Krutko, president and CEO of Ann Arbor SPARK. “Early-stage capital is crucial for getting startups to the next stage and becoming future growth engines for the state. But we’ve reached a 10-year low in the availability of startup funding in Michigan. And as a result, we’ve been losing some of our best companies to other states.”

“Michigan has amazing talent and strong research institutions,” said Rep. Hoskins. “There is real potential to be a leader in creating and growing innovative startups. Other states, especially on the coasts, figured this out a long time ago and more recently our neighboring states. The Michigan Innovation Fund is key if we truly want to generate more opportunities for entrepreneurs, leverage the state’s research universities, and see our state emerge as a leader in business growth and compete with our Midwest states.”

The Michigan Innovation Fund will give Michigan a chance to become a leader in early-stage, pre- seed funding, combining entrepreneurial support services and early-stage capital to create and nurture an entrepreneurial ecosystem that can grow over time, reinvest in new and growing assets and develop a sustainable network of support for entrepreneurial activity across the state. It will provide $105m to a coalition of five impactful, established Michigan-based nonprofit early-stage evergreen funds as well as provide additional increased funding to key partners in the ecosystem that support startup companies, founders and funds.

Under the plan, funding would be awarded to nonprofit and university-backed funds with proven track records and all investment returns would be recycled back into the respective funds for future investment in MI companies, ensuring long-term impact. The Michigan Innovation Fund’s investment in these funds would go a long way to creating evergreen, self-sustaining funds that recycle capital and provide long-term investments in Michigan startups. Funding for the Michigan Innovation Fund will not impact the general fund but rather re-direct returns from the Venture Michigan Funds I and II (VMF) which were created by Public Act 296 of 2003 to support early-stage companies. The VMF has seen recent returns equaling more than $100M and the bills call for the state to re-direct $105M in VMF funding for the Michigan Innovation Fund this year as well as dedicate future returns from VMF to the Innovation Fund.

“We want to thank Governor Whitmer for including the Michigan Innovation Fund in her budget recommendation this year and we are grateful to representatives Farhat, Hoskins and VanWoerkom for their leadership and championing this important issue,” said Patti Glaza, executive vice president, Invest Detroit and Managing Partner, ID Ventures. “The Michigan Innovation Fund is a major step forward in Michigan’s journey toward becoming a leading hub for startups and entrepreneurial talent. This initiative not only emphasizes our state’s dedication to fostering innovation and growth but also showcases our collective commitment to creating a nurturing environment for diverse and ambitious founders.”

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