capital

The Federal Reserve Bank of New York reported that startup firms (small businesses that were five-years-old or younger and had full- or part-time employees in 2016) were twice as likely to be adding jobs and growing revenues but more likely to be higher credit risk than mature firms. The 2016 Small Business Credit Survey: Report on Startup Firms provides an in-depth look at the financing and credit experiences of the startups. The report notes that startups account for 34 percent of all small employer firms and “play an outsized role in U.S. innovation and productivity.” Despite their role in innovation and job creation, the rate of startup creation has been decreasing for years and the rate of failure for those that do launch is high, the report states. Noting that access to capital is critical for startups, the report offers a detailed look at startups financing needs and challenges.

Over the past four years, 1,668 deals involving university spinout companies from across the globe attracted approximately $35.6 billion from 2013 to 2016, according to a new report from Global University Venturing. The report, however, highlights that global deals peaked in 2014 with 529 deals and total investments dollars peaked in 2015 with nearly $14 billion invested. As the authors highlighted, these global numbers were unsustainable and 2016 saw significant declines in both deals and dollars. In 2016, the total deals reported were 407 (21.6 percent decrease from 2015) and dollars invested was $6.4 billion (a 54.3 percent decrease from 2015).

On May 16 of last year, the Securities and Exchange Commission (SEC) finally allowed both accredited and non-accredited investors to engage in regulation crowdfunding. Under the new SEC rules, startups and other private companies could offer equity in return for capital to help support business growth. As of May 2017, total contributions under the regulation crowdfunding into startups and small businesses are over the $40 million mark with an average investment of $833 per investor. Using data from the Crowdfund Capital Advisors, Catherine Yushina from Crowdfund Insider highlighted several data points about the first year of regulation crowdfunding:

While many universities maintain startup investment funds targeted at growing university-affiliated startups, several universities are looking beyond their walls for investment opportunities that will create a return on investment (ROI), but also support economic prosperity. Through these investment funds, universities are able to make strategic investment in startups that will contribute to the future growth of their community, region and state. Massachusetts provides a recent example where MIT will invest $25 million in local startups.  Virginia Tech has also said it will invest $15 million in startups willing to locate in Blacksburg and Roanoke’s innovation corridor.

A portfolio company of JumpStart Inc., an Ohio venture development organization, is to be purchased for $1.1 billion. The proposed acquisition of Ohio startup CoverMyMeds by McKesson Corp. marks Ohio’s first tech startup unicorn. JumpStart Evergreen, the non-profit fund that invested in CoverMyMeds, was funded in part by Ohio Third Frontier. CoverMyMeds was started in Ohio in 2008 and is now headquartered in Columbus. It provides electronic prior authorization solutions to pharmacies, providers, payers and pharmaceutical manufacturers. The deal is expected to close in the first half of FY 2018 and its workforce, in both Cleveland and Columbus offices, is expected to grow. Following the close of the transaction, CoverMyMeds will operate as an independent business unit under its existing leadership team. The deal was covered in a Columbus Business First story. Both Ohio Third Frontier and JumpStart Inc. are SSTI members.

While equity crowdfunding has received widespread attention since the 2012 JOBS Act, another SEC rule change (named Regulation A+) that allowed companies to offer “mini-IPOs” has flown largely under the radar. However, it has shown early promise as a new method for startup financing since it was passed in 2015. In this feature, SSTI addresses three important questions related to Regulation A+ (Reg A+) including:

The U.S. Department of Commerce announced this week that 35 organizations will receive nearly $15 million in funding to create and expand cluster-focused, proof-of-concept and commercialization programs, and early stage seed capital funds through the Economic Development Administration’s (EDA) Regional Innovation Strategies (RIS) program. The organizations, including nonprofits, institutions of higher education, and entrepreneurship-focused organizations, reach urban and rural areas across the U.S.

The U.S. Department of Agriculture (USDA) announced the launch of the McLarty Capital Partners’ Rural Business Investment Company (RBIC) – a new private investment fund with the potential to inject $100 million into growth-oriented, small businesses across rural America. As the fifth RBIC to launch since 2014, McLarty Capital Partners’ RBIC is part of the Made in Rural America initiative, an ongoing effort by the Obama administration to attract private sector capital to investment opportunities in rural America and drive more economic growth in rural communities.

Venture development organizations are reaching into new territory for funding partners and finding success in innovative models. Two new funds, the San Diego Tech & Life Science Investor Syndicate and Rev1 Fund I in Columbus, OH, have recently opened with less traditional funding sources, testing the waters of crowdfunding and heavy corporate backing, respectively.  The San Diego fund, launched by CONNECT, allows anyone wanting to invest $1,000 the opportunity to participate alongside more experienced lead investors. Rev1 Fund I gathered significant backing from community corporate powerhouses located in Columbus, such as Nationwide, Cardinal Health, and Worthington Industries. It also has the backing of institutions like Ohio State University and the Columbus Foundation, as well as government backing from Ohio Third Frontier. The funding models present two ends of the spectrum of defining community involvement for venture development organizations.

Indiana Gov. Mike Pence announced plans to invest $1 billion over the next 10 years to advance innovation and entrepreneurship in the state, and to ensure the Hoosier State plays a leading role in solving 21st century challenges, while supporting Indiana’s long-term economic growth, job creation and talent attraction. The 10-year proposal centers on and seeks to enhance the collaborative partnerships between government, education and research institutions, as well as communities in the private sector, while focusing on further advancing Indiana’s current economic momentum and innovation activities. The proposal includes: requesting the Indiana Public Retirement System invest $500 million in in early stage and mid-market Indiana companies; $300 million for 21Fund, which directs investments and grants into early stage, mid-market and high-growth companies; $100 million for transferability of the Venture Capital Investment tax credit to increase the accessibility of private sector funding for innovators and startup companies; and, $100 million to further advance innovation and entrepreneurship education, programs and practice through strategic partnerships with higher education and research institutes in Indiana.