16 Aug $2 million venture debt fund available for high-growth Dane County businesses
MADISON, Wis. — Entrepreneurs at emerging companies often face a dilemma as they reach a stage in the firm’s development that requires additional capital for growth, but are challenged by either the lack of seed and venture capital, or traditional bank financing requirements. The Madison Development Corporation has a variety of new and existing programs that fills a void for growth capital faced by many small and emerging businesses.
Founded in 1977 as a local non-profit development corporation, the Madison Development Corporation stimulates economic development and job creation in Madison and Dane County. Since its inception MDC has made over 350 loans to hard-to-finance local companies ranging from coffee shops to technology-based business. Their efforts have contributed to the creation of more than 3200 new jobs.
In addition the to the $2 million Venture Debt Fund announced in June, MDC’s Business Loan Program makes loans available for growing or start-up businesses that cannot fully meet the underwriting standards of private commercial lenders. Loans can be made for up to $200,000 to qualifying businesses for working capital, inventory, equipment and leasehold improvements, as well as real estate.
MDC has $3 million in assets under management and has approximately $400,000 available to small business of all types for loans with a typical 5-year repayment period.
The Business Assistance Fund makes grants available to local business to improve their ability to grow by utilizing training, course work, consultants, and specialized software. MDC can provide grants up to 70% of the cost of assistance up to $5,000 to qualifying businesses.
Venture Debt Fund
The Venture Debt Fund is a new loan program for technology-based businesses in Dane County that supplements MDC’s existing business loan and assistance programs.
“The new fund demonstrates that MDC is positioning itself to respond to the need of technology-based businesses,” says MDC President, Frank Staniszewski.
The fund is designed to provide debt financing to emerging growth companies and to help fill the “funding gap” for local high-growth businesses. The fund is targeted to companies that need to move beyond the prototype stage, have a product or service that produces revenue, and need working capital or equipment to increase production and sales.
“The fund is a response by MDC and our partners to the local scarcity of venture capital, which many observers complain about,” says Staniszewski. “While it is difficult for local government and traditional financial institutions to get comfortable with becoming equity investors, the Venture Debt model is a creative approach to meet the need for equity-like capital at a risk level that is tolerable. By replacing some of the equity in a company’s total capitalization with a comparable debt source, in effect, we are increasing the venture capital pool for local companies,” Staniszewski adds.
The debt is structured on the company’s ability to reach cash-flow breakeven and beyond with its’ existing liquidity or the company’s ability to raise additional equity capital. The fund is designed for revenue-stage companies to compliment equity sources of capital and provide access to capital at a fixed -rate, with minimal requirements for the founders to give up ownership or control.
The Venture Debt Fund provides loans at rates ranging from Prime plus 2% to Prime plus 8% depending on the level of investment risk. According to MDC, the fund will also take warrants or conversion rights for a small percentage of the face value of the loans that could range from 0 to 10%. “These terms provide flexible and predictable costs of capital to early growth companies, without giving up significant dilution of equity or control,” says Staniszewski.
The MDC Venture Debt Fund is capitalized by a total of $2,200,000. According to MDC, the city of Madison pledged $400,000, through its Community Development Block Grant (CDBG) Program; the City of Fitchburg committed $200,000, along with MG&E, who made the largest pledge of $500,000. The additional $1.1 million was pledged in amounts ranging from $50-300,000 from contributors that include Johnson Bank, Anchor Bank, Associated Bank, State Bank of Cross Plains, Capitol Bank, Middleton Community Bank, and Oak Bank, as well as a start-up grant from Bank One.
An advisory board has been formed to provide scientific and investment guidance to the funds managers.
Partnership to technology transfer
MDC is also taking a creative approach to technology transfer and commercialization. The Center for Advanced Technology & Innovation (CATI) and announced a partnership designed in March to increase private- industry technology transfer in the Madison area.
CATI has developed a technology transfer initiative designed to commercialize via donations from private industry, non-core or underutilized patents.
According to Staniszewski, the partnership with CATI offers additional economic development tools in Dane County. “We felt this initiative would complement those technology transfer efforts occurring at the University through the Wisconsin Alumni Research Foundation.””This relationship takes advantage of our respectable strengths, while not having to duplicate efforts. Why develop a whole new program in this area, bleeding valuable resources, when it already exists through CATI,” Staniszewski said.
MDC is also the entry contact for Dane County businesses and local communities interested in the State of Wisconsin Technology Zone Tax Credits.
“Our new CATI partnership, along with our loan programs and the Tech Zone tax credits, gives MDC a suite of complementary tools to provide assistance to technology and knowledge-based businesses,” Staniszewski added.
For information of the Venture Debt Fund and other programs, contact Frank Staniszewski at (608) 256-2799, ext. 12 or by e-mailing him at fstan@mdcorp.org.