Establishing Community-Based Seed Capital Funds

1
Establishing Community-Based Seed Capital Funds

• Gregg Barcus
• Emerging Growth Group
• Des Moines

2
Increasing Interest

• Heightened Interest In Venture Investing
• 1990s Media Coverage of VC Returns
• View that Venture is Possible for More Investors
• Economic/Community Development Interest
• Brain Drain
• Gazelle Companies
• 2002 Legislative Initiatives
• Programs and Media Coverage

3
2002 Legislative Initiatives

• Fund of Funds
• Iowa Capital Investment Corporation
• 100M State Tax Credits to Develop a VC Industry
• Angel Tax Credit
• Iowa Capital Investment Board
• 20 Tax Credit for Cash Investments in
• Qualified Businesses, or
• Community Based Seed Capital Funds
• Reduction in State Premium Tax
• Insurance Industry VC Commitment

4
Qualified Business

• Iowa-based
• Less than 3 Years Old
• Less than 3 Million in Net Worth
• Minimum 250,000 in Equity Secured
• Entrepreneurial Management Experience
• Certain Excluded Business Types

5
Community Seed Capital Fund

• 500K-3Million in Size
• At Least 10 Investors
• No One Investor gt 25 Ownership
• Invests at least 33 of Investments in 2
  Qualifying Businesses in 3 Years
• Qualifications Modified in 2004
• 125K Minimum Size
• At least 5 Investors
• 1 Business Investment Required Within 3 Years
• (Also Expands Qualifying Business Tax Credit to
  Corporate Investors Previous Investors)

6
ResultMany Local Community Funds

• Iowa City
• Cedar Falls/Waterloo
• North Iowa (Mason City)
• Several More in Discussion
• Plus New Managed Funds
• Cedar Rapids
• Des Moines (2)

7
Starting a Seed Capital Fund

• Rural Angel Investor Network (RAIN) Funds
• State Template IDED
• Low Cost
• LLC Structure
• Volunteer/Member Management
• Managed Funds
• Individually Designed
• Typically LP Structure

8
Issues to Consider

• Investment Objectives
• ROI, ROI, ROI
• Investment Territory -- Local or Statewide?
• Deal Flow of Qualified Companies
• Defined Investment Process
• Management Issues Intake, Due Diligence,
  Monitoring, Exit
• Legal Counsel
• Patience

9
Biggest Hurdles

• Adequate Deal Flow
• Management

10
An Initiative Coming

• An Angel Network Fund of Funds
• Organization, Management of Pooled Funds
• Broader State Coverage
• Retain Local Focus
• Best of Both Worlds