Program to open doors for entrepreneurs

Technology-based companies are now an integral part of the business landscape companies such as Springfield-based TravelNow.com and Way2Bid. com provide services to the world and jobs and dollars to Missouri.

That's why the General Assembly passed the New Enterprise Creation Act in 1999. The act is one of the cornerstones of Gov. Mel Carnahan's technology development plan for Missouri, and through its seed capital program, it authorizes the issuance of $20 million in transferable state tax credits to attract funding for early stage, technology-based enterprises in Missouri.

The tax credits will be awarded to investors in the fund at the level of $5 million per year for four years, according to Rick Prugh, the Innovation Center director for the Missouri Enterprise Business Assistance Center's Rolla location. The Rolla Innovation Center also serves the Springfield region through the Missouri Enterprise office in the Plaza Towers.

The fund will be disbursed to qualifying enterprises through the state's four Innovation Centers, located in cities with University of Missouri campuses. Qualifying enterprises could receive up to $2 million in funding from the program, Prugh said.

"These are your very early-stage type businesses. Seed capital goes to a business that is involved in pre-commercialization activities and has not yet experienced positive cash flow," Prugh said.

He said the Innovation Centers will begin taking business proposals from entrepreneurs in October.

The New Enterprise Creation Act also established a 13-member Missouri Seed Capital Investment Board, which is charged with monitoring the activities of the program. The board is comprised of eight representatives appointed by Gov. Carnahan, a representative of each of the four Innovation Centers and Joseph L. Driskill, director of the Missouri Department of Economic Development. The board selected a chairman and met for the first time in June in St. Louis. It also granted approval for Prolog Ventures of St. Louis to manage the seed capital funding program.

Prugh said Prolog is now in the process of soliciting investors for the fund and will meet with the board this week to give a progress report on how much has been raised so far. He said projects for funding will not be considered until Prolog has raised at least $30 million through the $20 million in tax credits.

"We're looking to leverage that $20 million up to at least $40 million in seed capital for the state of Missouri," Prugh said. "Right now, Prolog is in the process of approaching investors with the tax credits and asking them to invest in the seed capital fund. Prolog has organized the fund in such a way that they are also asking investors to invest in a parallel fund that's more of a venture capital fund, not just limited to seed."

He said investors are required to invest in the parallel fund to receive a 100 percent tax credit.

"What this means for investors is that they're guaranteed not to lose more than 50 percent of their principal," Prugh said.

Prugh said Prolog starting in October will send representatives to Missouri Enterprise offices in Rolla and Springfield six days per month to consult with individuals interested in submitting proposals for seed capital funding.

"Prolog will consult with people regarding the seed capital fund, provide mentoring services and help people determine what they need to do to put together a deal," Prugh said. "Typically in the venture capital realm, for every 100 deals considered, only three to six deals are selected.

While the board will oversee the seed capital fund's activities and ensure its compliance with the New Enterprise Creation Act, Prolog representatives will determine which projects to fund, Prugh said.

Through the Innovation Center program, Missouri provides marketing and management assistance to emerging companies. The seed capital fund provides a source of professionally managed seed capital and fills a previous void in the program's offerings. An important provision of the act requires that the Innovation Centers will be awarded ownership in the seed capital funds, which will ensure taxpayers a good return on their investments. Continued seed capital investment is guaranteed by a provision requiring all Innovation

Center earnings from the fund to be reinvested in future Missouri seed capital funds, according to a March 1999 press release from the Department of Economic Development.

"In recent years, the state has successfully focused its efforts toward bringing greater venture and seed capital to Missouri," Driskill said in a June press release. "The New Enterprise Creation Act will give start-up businesses a better chance to grow and prosper in Missouri."