MICHIGAN PRE-SEED CAPITAL FUNDA collaborative effort of the Michigan SmartZones

Michigan SmartZones

1.Ann Arbor SPARK2.Automation Alley 3.Rochester Hills/Oakland University Incubator4.Battle Creek Aviation 5.Detroit/Woodward Technology Corridor – TechTown6.Grand Rapids 7.Houghton/Michigan Tech Enterprise8.Kalamazoo 9.Lansing Regional 10.Mt. Pleasant/Center for Applied Research & Technology11.Muskegon Lakeshore 12. Sault Ste Marie

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Michigan Pre-Seed Capital Fund

The mission of this fund is to support high-tech start-up companies throughout Michigan as they near commercial viability.

The focus is on companies that are creating the newest technologies in the following competitive areas:

Advanced Automotive, Manufacturing, or Materials Alternative Energy Homeland Security and Defense Life Sciences

Funding AmountThe Pre-Seed Fund will invest

$50,000 to $250,000 per company

alongside an investment partner who will provide a minimum 0.5:1 match.

New Micro Loan Fund will provide loans between $10,000 and $50,000

per company. No match requirement.

Accelerate Through Company Development

Start-up Company ------------------------------------------------------------- Successful Business

Product or Service

Product or Service? Technology validation risk

reduction relative to customer needs

Prototype product risk reduction

Production scale-up manufacturing risk reduction

Full production or distribution

Business Business and product concept

Critical analysis and business modeling

Robust business plan w/marketing, competitive,

financial

Full production or distribution plan

People Core Technologist and/or

Champion

Core Tech Team and initial Business

Leaders

Expand to full management and production team covering all disciplines

Funding $ 0 – $100K $100K – $1M $1M and Up

Stage Concept Validation Pre-Seed Seed Early Stage Expansion Later Stage

(Series A and Above)

Funding Source

SBIR/STTR, MUCI Grants, Business

Accelerators

Pre-Seed Funds Angel Investors Venture Capital

Criteria/Eligibility for Pre-seed InvestmentCompanies must meet the following criteria:

located in or moving to Michigan company must have the rights (ownership or license) to innovative technology must be a small business (per the SBA) cannot be a publicly held company, but may be a spin-out as a new private entity have a plan for attracting additional funding or become cash flow positive pass the due diligence review of a SmartZone submit their match term sheet or grant approval

The match must be new money into the company.

The following do not qualify as matching funds: Other State monies such as MTTC/21CJF/MUCI Anticipated or current company revenues In-kind salary deferrals Other trade partner exchanges or trades

Other Investment MattersUse of funds could include but are not limited to:

intellectual property investigation and protection market and technology assessments partnership relations first/next customer attraction building out management team

Background checks will be made on founder(s)/CEO paid by fund administrator.

A company can only be approved for funding once. A company may reapply once.

A convertible note will be the default investment instrument for companies without a term sheet.

ApplicationThe submission package must include:

Executive summary (maximum 3 pages) Business plan (maximum 30 pages counting financial pages)

Company overview Market information Operations Product description Management Financial history and projections

Amount of cash and in-kind invested to-date Financial statements Use of funds

Strategy for follow-on funding Matching source Term Sheet or proposal Certificate of Good Standing with the State of Michigan

Investment ReviewThe Pre-Seed Fund has an Investment Review Board (IRB) made up of

experienced investment professionals from around the state.

The IRB will review deal submissions continuously and provide constructive feedback to applicants whether or not they recommend funding.

The IRB will look for the best opportunity to fund. from any community in the state any of the 4 technology sectors no quotas

The review criteria will assess the Company’s potential to be: self sustaining create jobs in Michigan ultimately repay the investment

Deal AcceptanceThe Investment Review Board will accept the deal in whole or not at all.

The co-investing organization or angel terms and investment instrument will be used.

The following information will be required of each successful company, in addition to any specific milestone information required by the matching investor: Number of new patents, copyrights, trademarks applied for and issued Annual sales/revenues Number of new jobs, existing jobs, and projected new job growth Follow-on investment figures and other metrics to gauge the positive

effect on Michigan's progress toward building a competitive edge technology economy

TimelineThe Pre-Seed Fund will accept applications at any time. Applications are screened for completeness, then

forwarded to the IRB for review. Reviews will be concluded and sent to the Fund

Administrator within two months. The Fund Administrator will summarize the IRB comments

and scores, forwarding to the Smart Zone and company upon decision.

Documentation execution and funding will be conducted on the matching fund source schedule.

Criteria/Eligibility for Micro Loan

Companies must meet the following criteria: located in or moving to Michigan company must have the rights (ownership or license) to innovative

technology must be a small business (per the SBA) cannot be a publicly held company, but may be a spin-out as a new

private entity have a plan for attracting additional funding or become cash flow

positive pass the due diligence review of a SmartZone

Other Loan MattersUse of funds could include but are not limited to:

intellectual property investigation and protection, but not patent application

market and technology assessments partnership relations first/next customer attraction

Background checks will be made on founder(s)/CEO.

A company can only be approved for funding once.

A company may reapply once.

Other Loan MattersSubordinated Note is posted on the web site

www.annarborusa.org/start-ups/preseedfund/Interest rate is 12% Term is 3 years Note subordinate to all other debt holders Default provisions:

Failure to pay when due Violation of any covenant, agreement or condition in the note Bankruptcy or dissolution of the company Fewer than a majority of employees in Michigan

Reporting for five years Quarterly financial statements Number of employees and new hires Sales New IP Grants and investments received

Other Loan Matters

Loans may be made in two tranches Reviewers may recommend a lower amount to loan Reviewers may recommend the loan be paid per

commercialization step accomplishmentsSecond tranche payment based on intermediate milestone

achievement, but not guaranteed

ApplicationThe submission package must include:

Business plan (maximum 10 pages counting financial pages) Company overview Market information Operations Product description Summary of management talent Financial history and projections Use of funds

Strategy for follow-on funding Certificate of Good Standing with the State of Michigan

TimelineThe Fund will accept applications at any time. Applications are screened for completeness by the

SmartZone and Administrator, then forwarded to the reviewers.

Reviews will be concluded and sent to the Fund Administrator within two months.

The Fund Administrator will forward to the Smart Zone and company with the recommendation plus scoring sheet with comments.

Loan documentation execution and funding will be completed following successful background check.