Republished from MIRS News:
Proponents of venture capital formation were out today touting the 10-year impact of state government involvement in the face of a legislative push to bring it to an end.
“The program started about 10 years ago, and the message here is ‘now’s not the time to take your hands off the wheel,'” said Maureen Miller BROSNAN, the executive director of the Michigan Venture Capital Association.
Brosnan and the 115 professionals her organization represents face a bit of a stiff wind in the Capitol building as lawmakers look for any way possible to cut the state’s liability from unclaimed tax credits and vouchers.
The state began dabbling in the world of venture capital in 2003 by providing seed funding to lure private dollars to invest in Michigan startup companies. In two installments, Venture Michigan Fund I and Venture Michigan Fund II, the state legislature and then Gov. Jennifer GRANHOLM plunked down around $190 million.
The funds were managed by the Early Stage Venture Investment Corporation (ESVIC), an entity created as part of the original legislation allowing state involvement in the industry.
Private venture capital fund managers, like Jim ADOX, managing director of Venture Investors LLC, essentially used the EVSIC resources to secure private match. The state, working with the fund managers, then picked prospects to invest in.
“They (the state) were an anchor investor. They put in about 20 percent of the fund and then we had to go out and get private [dollars] so they [the state] weren’t fully funding it at that point,” Adox told MIRS of the early days.
The problem the program faces is part of the financing was done through promised tax vouchers.
Last week, members of the House voted through HB 4195, HB 4196 and HB 4365 allowing the state to essentially exit the venture capital business. (See “House Votes To Get State Out Of Venture Capital Business,” 04/15/15).
According to a House Fiscal Agency analysis of the Venture Michigan program released in January, the state faces outstanding commitments on the tax vouchers used the secure the private financing of around $140 million. (See “Venture Capital Program Could Bring $140M Loss Over 3 Years,” 01/28/15).
Thus the venture capital industry’s political problem — their program is part of the hundreds of millions in unclaimed tax vouchers and credits that are now deflating the state’s budget.
The MVCA’s Brosnan along with Adox contend once the dollars leveraged by Venture Michigan I, Venture Michigan II and tax credits, hit the street in 2006 and 2007 the stats on the state’s Michigan’s ability to attract venture capital, venture capital funds and professionals saw dramatic improvement.
“In Michigan we’re looking at an 86 percent increase in capital under management, which is typically the way venture capitalists measure their worth and their value,” Brosnan toldMIRS. “We’re also looking at a 98 percent increase in the number of professionals that are here and that are moving families here and a 48 percent increase in the number of firms here.”
Other states, they contend, are now looking at negative growth in venture capital and eyeing the progress Michigan’s made.
More details of the Michigan Venture Capital Association’s report to the legislature on industry growth can be found here.