• Update for December 2009

    21 December 2009
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    It’s been a few months since I’ve done an update, and there are a few things of substance to cover.

    CENTERS OF ENERGY EXCELLENCE

    The State has authorized up to $30MM for the Centers of Energy Excellence program over the next two years. ($45MM has been previously awarded in this program). From my read of the legislation, there are new guidelines for the program – acceptable projects must have ALL of the following:

    • A for-profit company as lead
    • Match federal funding of 1:1
    • In-kind contributions by a third-party
    • Focus on commercialization of a technology that will be ready for the market in 3 years
    • Activities including workforce development and technology demonstration
    • Inclusion of a university or national laboratory

    The web site does not have the updated information yet, so MEDC must still be working out the internal management of the program. (Note, though, that they probably ARE looking for deals already – if you could qualify, you should contact MEDC now.)

    21CJF FOLLOW-ON FUND

    21CJF did have money that could have been used for a competition this year, but, like many investors, MEDC has decided to use the funds to protect and promote their prior investments rather than make new ones. The “Follow-on Fund” has $6MM available for companies that have already won 21CJF awards, with new loans up to $500K. From the looks of the summary on the MEDC’s 21CJF web site (the link under the Follow-On Fund heading takes you to a Word-document summary), the process seems to be pretty manageable.

    2010 COMPETITION

    MEDC and the SEIC Board seem to be in the process of abandoning the “direct investment” philosophy that guided the 2006 and 2008 competitions. Instead, they are finalizing plans for 2 new “accelerator funds” that seem to be similar in function to the pre-seed funds that have already been funded with 21CJF money.

    At the SEIC meeting this month, there was a fair amount of discussion and even confusion about the MEDC staff’s proposed structure for the program. For example, the draft RFP said that applicants should be affiliated with at least 1 Michigan VC and one university – but there was active discussion about why the program should have that requirement, and the issue was left open pending further discussion by the RFP Subcommittee.

    At the end of the discussion, the Board had agreed that the program would have the following objectives:

    • Invest in seed-stage Michigan companies that can be successful
    • Create venture capital funds and talent
    • Provide value-added assistance to companies
    • Develop follow-on funding channels and commitments

    There were also several issues that were assigned to the RFP Subcommittee to address, including:

    • Should the program require/proscribe certain design factors (e.g., university or VC partnerships), or should the applicants have flexibility to design their solution as best they can?
    • How should the funds address the 4 “competitive edge sectors” that the 21CJF program focuses on? Do funds need to address all 4, or just 1?
    • What is the role of the Board in making investment decisions – does it just decide to award the money to the 2 Funds and then the Funds make investment decisions, or does the Board have to decide on each investment that a Fund makes?
    • Should a match be required? (The range discussed was $500K.)
    • Should the VC partnership be with VCs headquartered in Michigan, or can there be a partnership with a fund anywhere?

    The two envisioned accelerator funds are planned to be $6MM each, and it is likely that a draft RFP will be released for public comment in January or February, which would likely mean an April submission deadline and decisions in the summer.

    COMMENTARY

    In this time when so many government decisions, and so much government funding, has been driven by expediency, the Board, to their credit, decided not to release the RFP, and to take the time to look at the strategic questions around the funds. The easy thing would have been for the Board to push the RFP forward despite some important strategic questions because “a solution is needed now.” But the program will be stronger because they didn’t.

    That said, it seems that MEDC staff have put together a vision for the accelerator funds that sounds reasonable for accomplishing the objectives specified. In the past, the Board has gotten cross-wise with staff when the Board wasn’t clear on what rules it needed to follow, or didn’t look to the staff for guidance. Let’s hope that the Board and staff are able to align in the strategic planning for these funds.

    Of course, the Board is still hampered because it has never really defined its mission and long-term strategic goals, so they don’t have a good framework they can use to decide the strategic questions of the RFP for the accelerator funds. But, by taking time to talk about strategy for this latest program, the Board has a chance to use a “build-the-strategy-as-we-go” approach. Although not optimal, it can be a start to the deeper questions of strategy that the Board has never addressed. But that may be wishful thinking, because the political environment that the Board operates in does not provide a lot of support for strategy.

    Imagine what the Board could have done if it had focused on strategy, rather than expediency, back in 2006 when it was allocating tens and tens of millions of dollars, instead of this year’s $12MM.

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  • 4Q 2009 Strategic Issues For Small Businesses

    15 December 2009
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    Here are the latest themes that ran through the various 4Q09 strategy and planning sessions with my Stage 2 business clients.

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