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Bills Creating Innovation Fund Discussed By House Committee (Reprinted from Gongwer News Service, 5/14/24)

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The following story is a reprint from Gongwer News Service, an online news outlet for Michigan policy and political stories. 

Legislation creating an economic development fund designed to attract and retain younger companies, first floated by Governor Gretchen Whitmer during her State of the State earlier this year, was brought before a House panel on Tuesday.

The House Economic and Small Business Development Committee heard testimony on HB 5651 , HB 5652 and HB 5653 , a package that would create the Michigan Innovation Fund program to support small business development. The committee also heard testimony on HB 5463 , which would create a center for microenterprise development.

“We often talk about a lot of the tools we’re lacking in the state to really attract and retain business and talent here,” said Rep. Jason Hoskins (D-Southfield), who sponsors HB 5652 . “The Michigan Innovation Fund, I think it’s going to be one of those tools that really sets us apart.”

The Michigan Innovation Fund would create funding through the Venture Michigan Fund for businesses in their early stages. The program would provide grants to certain venture capital funds and nonprofits to promote venture capital investment. HB 5652 and HB 5653 would amend the Michigan Early Stage Venture Investment Act and the Michigan Strategic Fund Act to create the program and provide funding through the Michigan Early Stage Venture Investment Fund. HB 5651 would make complementary changes to the Michigan Trust Fund Act.

Grants would be funded through money deposited into the 21st Century Jobs Trust Fund from the Michigan Early Stage Venture Investment Fund. For the 2023-24 fiscal year, the Michigan Strategic Fund would use 85 percent of the money deposited into the 21st Century Jobs Trust Fund to provide grants to qualified evergreen venture funds for eligible activities, and the remaining 15 percent for grants to qualified nonprofits for qualified start-up support services.

Michigan needs to step up its game to compete with other states when it comes to economic development, Hoskins said.

“Ohio is really eating our lunch,” he said. “That’s why we need to be able to get into the game and create this fund to be able to help those entrepreneurs that just need that little step, that little bit of funding to help them really succeed here in the state.”

For too long, the state has focused on companies that are already established, Rep. Greg VanWoerkom (R-Norton Shores) said.

“We need to be focusing on the gardening aspect of economic development,” he said. “Here is a tool that I think is essential for us to start that gardening and get those next great companies because I truly believe the next great company here in Michigan already exists, they just need the help and support to make it happen.”

Rep. Alabas Farhat (D-Dearborn) said that although Michigan is home to great researchers, innovators and industry disruptors, the state lacks the capital for startups.

“As we consider how we keep Michigan’s economy competitive, as we consider how we keep talent here, and our workforce here and our high-quality researchers here, this is a big tool in doing that,” he said.

Rep. John Roth (R-Interlochen) raised concerns about the fund, comparing it to the original goals of the Strategic Outreach Attraction and Reserve Fund.

“SOAR was supposed to go to small business activities, and that’s a joke. It never has,” he said. “What kind of mechanisms is there to ensure that our smallest of small businesses have the opportunity to get some money?” he said.

VanWoerkom said grant decisions wouldn’t be made by the government officials influenced by lobbyists, but by experts who would want to see returns on investment.

“They have the expertise. They have the resources. They have the ability to help these small businesses as they pursue and develop,” he said. ‘This is going away from the model of government knows best and putting it with the actual experts.”

Ara Topouzian, executive director of the Michigan Venture Capital Association, testified in support of the bill package.

“Michigan has a robust entrepreneurial community that we must support if we want to grow our innovation economy without our state,” Topouzian said. “Many of these innovating entrepreneurs require access to additional capital and investment. To stay competitive with other states…. Michigan’s funding and resources must step up to the plate to effectively provide resources to our founding community.”

Brandon Reed, director of external affairs at the Metro Detroit Black Business Alliance, also testified in support of the bills.

“The need to access capital is omnipresent for small businesses, particularly Black-owned small businesses,” he said.

Reed cited a study from the Brookings Institute that found that without additional support, Black-owned businesses won’t reach parity with the actual population percentage for another eight years.

“This delay is really detrimental to not only the entrepreneur ecosystem, but the economy in Michigan as well,” he said.

Several other organizations also testified in support of the investment fund, underscoring the lack of available capital for startups in Michigan.

Farhat also testified in support of HB 5463 , which would amend the Michigan Strategic Fund Act to create a Center for Microenterprise Development to be operated by the Michigan Strategic Fund.

The center would be authorized to seek new federal and private sources of funding to assist community-based nonprofit organizations with the ability to provides business development training, technical assistance or business loans to microenterprise businesses, or to the microenterprise businesses themselves, which would mean businesses headquartered in Michigan with 10 or fewer employees.

The goal would be to consolidate services for businesses.

“We’re not recreating the wheel,” Farhat said. “There’s programs and funding that is out there, but what is not out there is a consolidated, easy-to-find, concise spot for businesses to find that. And that is what we’re trying to accomplish here.”

Fiscal analysis is still in progress, but Farhat said the goal was to show small businesses in Michigan they had the support of the state.

“We do hear that they’re struggling,” he said. “We want to be very intentional, and our approach will be very thoughtful.”

No further action was taken on any of the bills on Tuesday.