Michigan’s entrepreneurial ecosystem scored a big win on Friday, December 20, when the Michigan Senate approved the $60M Michigan Innovation Fund (HB 5651-53) and the House passed the final bills in the R&D tax credit package (HB 5100-5101). These legislative actions will significantly boost investment into Michigan-based startup companies and incentivize research and development across the state. Ann Arbor SPARK is set to receive approximately $9 million from the Michigan Innovation Fund, enabling it to further fuel entrepreneurial growth and innovation.
Startup companies in Michigan have historically reported that they lack the capital they need to grow and succeed. As a result, a coalition of entrepreneurial support organizations, including Ann Arbor SPARK, created the Michigan Innovation Fund concept and advocated for the state to support it.
This new program will fund several existing nonprofit investment funds – including Ann Arbor SPARK, the University of Michigan Accelerate Blue Fund, Detroit-based ID Ventures, the Michigan State University Research Foundation, and the Biosciences Research and Commercialization Center of Western Michigan University. The new funding will drastically increase the pace and amount of investment into Michigan startups.
“Michigan had fallen well behind our Midwest neighbors in the last decade in terms of support for startups and we’ve desperately needed the state to act,” said Paul Krutko, President and CEO of Ann Arbor SPARK. “This is a big first step in that direction and will get more capital into the hands of our best entrepreneurs to create growth and prosperity for the state. I applaud this coalition and our legislative champions (Representatives Farhat, Hoskins, and VanWoerkom) in getting this bipartisan initiative across the finish line.”
The funding for the program will come from the investment returns to the Venture Michigan Fund (VMF) program, a prior effort by the state to invest in venture capital funds in the early 2000s. VMF has had significant returns from its underlying investments over the years, which will now be reinvested in a similar manner to support startups. As a result of this structure, the new program is budget neutral for the state.
“We think this is a great model that will enable us to ramp up the pace of investing in Michigan companies from our SPARK Capital fund,” said Mike Flanagan, Vice President of Capital Programs at Ann Arbor SPARK. “And it helps establish an ‘evergreen fund’ that will continue to reinvest returns into the next generation of startups.”
The Michigan Innovation Fund is projected to support over 500 Michigan-based startups and attract an additional $5 billion in investment over time.
Ann Arbor SPARK will play an integral part in program, leveraging its nearly 20-year track record of startup investment. SPARK managed the original MI Pre-Seed Capital Fund starting in 2007 and invested in nearly 200 companies. Many of these companies have been successful and provided significant investment returns to SPARK. As a result, SPARK has been able to reinvest those returns over time into new startups from its SPARK Capital fund.
The Michigan Innovation Fund represents great collaboration between our entrepreneurial support organizations. The coalition worked together on this initiative for nearly 2 years. In July, the program was approved to be included in the state budget. Then in November the enabling bills were passed in the state House. Now, with the passage in the Senate on Friday, the bills will go to Governor Whitmer for final approval. Initial investment from the program is expected to start in 2025.
In addition to the Michigan Innovation Fund, the state is making significant strides in supporting research and development (R&D) efforts through new legislation. Earlier this week, the Michigan House passed the final bills in the R&D tax credit package (HB 5100-5101) with a bipartisan vote of 86-23, sending them to the Senate for a concurrence vote. Once enacted, Michigan will join many states offering a state-level R&D tax credit. Eligible businesses will be able to claim credits of 10% (capped at $2 million) if they have 250 or more employees, and 15% (capped at $250,000) for those with fewer than 250 employees. Businesses collaborating with a Michigan-based research university may also qualify for an additional 5% credit, capped at $200,000. This initiative aims to incentivize innovation and foster stronger partnerships between businesses and research institutions, bolstering Michigan’s reputation as a hub for groundbreaking advancements.
Together, the Michigan Innovation Fund and the R&D tax credit confirm the state’s commitment to fostering a thriving entrepreneurial ecosystem. By addressing critical gaps in funding and incentivizing groundbreaking research, these initiatives lay the groundwork for sustained economic growth and innovation. As these programs take shape, Michigan is poised to solidify its reputation as a leader in supporting startups, creating jobs, and driving forward a competitive, innovation-driven economy.
