Innovation remains the key to economic growth in the global information age, and as the 1990s boom illustrated, the most innovative entrepreneurs are often little-known pioneers with potentially powerful new ideas. Unfortunately, new ideas can also die in the research lab, someone's basement, or migrate elsewhere if entrepreneurs do not have access to capital and credit.
New ideas are the key to economic
growth and job creation. Unfortunately,
new ideas can also die in the research lab, someone's basement, or migrate elsewhere if entrepreneurs do not have access to capital and credit.
To spur economic development and help create the jobs of the future, Democratic elected officials should take their lead from the state of Michigan and promote the development of university venture funds to finance investment loans to entrepreneurs in targeted regional areas of development.
Due to the efforts of Michigan Gov. Jennifer Granholm and others, the state of Michigan now boasts the most active such program in the nation. The University of Michigan at Ann Arbor's Wolverine Venture Fund (WVF) has been making strategic investments in early-stage, technology-oriented companies since its inception in 1997. Investing primarily in companies affiliated with the university, WVF has helped vastly improve the relationship between the university and the surrounding community.
To promote effective entrepreneurship, the WVF is run as a collaborative effort between the private sector, the faculty, and the students at the University of Michigan. When a local entrepreneur submits a funding request, the largely student-run WVF creates an investment proposal they will eventually defend to a Senior Advisory Board comprised of seasoned professionals in the venture capital market. Upon the board's approval, WVF invests in the company, giving funds typically totaling between $50,000 and $200,000 for seed and first round expenditures in the project. In 2004, WVF received a $1 million return on an investment when it saw one of its portfolio companies go public.
Among the most noteworthy aspects of WVF is the innovative funding method. "Seeded" with a one-time University of Michigan endowment, the proceeds of the fund funnel directly back into its own reserves. The fund's self-sufficiency represents the kind of low-cost problem solving that New Democrats stand for.
Alternative methods of funding could include low-interest loans to be paid off by the royalties of the fund, or contributions made by alumni or private-sector sources, with matching funds coming from the state government.
The benefits of university venture funds are that they connect basic research being conducted in campus labs with a bridge-funding source. This ensures that more ideas have access to funding and the eventual possibility of finding its way to the marketplace. The funds can also help teach our future business leaders about the importance of investing in innovation and how to spot good risks from bad ones. Finally, these funds can be utilized by professional investors to scout for emerging trends in new technologies that otherwise might be ignored.
Other New Democrats should work to develop similar programs that clearly benefit all involved. The University of Michigan's WVF provides business students with significant hands-on experience in a powerful branch of the business world, while creating a relatively inexpensive way to promote innovation, research, and economic development in and around the university community.
Wolverine Venture Fund, University of Michigan, Ann Arbor
http://www.zli.bus.umich.edu/wvf
New Dem of the Week: Jennifer Granholm, Democratic Leadership Council, March 29, 2004
http://www.dlc.org/ndol_ci.cfm?contentid
=252496&kaid=104&subid=116
University of Michigan Business School
Samuel Zell and Robert H. Lurie Institute for Entrepreneurial Studies
701 Tappan Street, 9th Floor
Ann Arbor, MI 48109-1234
(734) 615-4419
(734) 615-4420 (fax)
zlicontact@umich.edu
Paul Weinstein
Chief Operating Officer
Progressive Policy Institute
600 Pennsylvania Ave, SE, Suite 400
Washington, DC 20003
(202) 547-0001
(202) 544-5014 (fax)
pweinstein@ppionline.org
More State Economic