We are nearing the critical last few weeks of the 2017 legislative session and key legislation needed by the tech, entrepreneur, and innovation community is at risk. As our legislators make important decisions about what to prioritize this legislative session, they need to hear from us about what we value.
Key Legislation before the Indiana General Assembly includes:
- Creation of the Next Level Indiana Fund, which would bring significantly more venture capital and venture capital firms to the state for investment into scale-up stage companies.
- Transferability of VCI tax credit to encourage additional venture capital investment in Indiana businesses,
- Maintaining the $30 million per year 21 Fund and
- Incentivizing more direct flights to major hubs and transatlantic flights.
While all of these items on the tech legislative agenda are good public policy for our community, it is the Next Level Fund that I want to stress as most critical. If we accomplish one thing together this legislative session it should be passage of the Next Level Fund. I am compelled to believe that the Next Level Indiana Fund would have a major impact on the success of Indiana tech companies and innovation, helping us emerge as a Midwest tech hub.
Why we need these bills passed?
Missed opportunity: Indiana’s tech community has the opportunity to emerge as a Midwest leader, but it won’t without sufficient venture capital invested in it. A generation of startup companies is emerging around the state that will need more venture capital in the next year in order to reach their growth potential.
Indiana’s relatively weak venture capital investment position compared to peer states: In 2016, two-thirds of all venture capital dollars and three-fourths of all deals in Indiana were investments in tech companies. Growth capital for scale-up companies comes predominantly from venture capital firms, as a typical $2-20 million investment is more than can be consistently mustered from angel investors. Unfortunately, very few venture capital firms exist in Indiana that make those investments. Further, Indiana fares poorly in venture capital investment compared to other states, as evidenced by these stats from SSTI’s analysis of PricewaterhouseCoopers/CB Insights’ Moneytree Report Explorer:
- Despite having the 17th largest state economy in the country, Indiana ranked 27th in the amount of venture capital invested in Indiana companies in 2016 ($77 million across industries and 31 deals), and 2016 was a stronger year than the past several years.
- For comparison, Minnesota, with the 16th largest state economy, attracted $339 million in venture capital investment in 2016, and Colorado, the 18th largest state economy, attracted $670 million in 2016, 4.4 times more and 8.7 times more than Indiana, respectively.
- All of our surrounding states–Illinois, Wisconsin, Michigan, Ohio, Kentucky, and Tennessee–attracted more venture capital investment in 2016 than did Indiana.
- Even when adjusting for state population size Indiana underperforms, ranking 34th in 2016 in venture capital investment dollars per capita. Indiana’s average deal size ($2.5 million) is much smaller than most states, ranking it 39th in the nation.
Allowing transferability of VCI tax credits to out-of-state investors: This would afford out-of-state investors the same financial incentive that in-state investors have to invest in Indiana startup and scale-up stage companies. It could be a valuable tool for getting out-of-state alumni from Indiana colleges and universities to put part of their wealth to work back in Indiana in Hoosier companies
Great job creation: Looking nationally, Mark Muro from the Brookings Institute notes in his recent article “Tech in Metros: The Strong are Getting Stronger” that of all advanced industry jobs created from 2013-2015, half were in tech, growing jobs 5.5-6 percent per year compared to less than two percent per year across all industries. Indiana needs to capture as much of that growth as possible. In Indiana, tech jobs pay more than double the state median wage.
Culture/Mindset: We need more bold, innovation-driven executives and entrepreneurs with big aspirations of building market leading major employers. You can’t dream big without sufficient growth capital to make it happen.
Better state financial returns for Next Level Fund (currently Next Generation Fund): The funds being proposed for investments into venture capital firms are currently invested in fixed income assets and yield low returns. A more balanced investment strategy would likely yield much better returns in addition to the other benefits. TechPoint investigated how Michigan, through the Renaissance Venture Capital Fund, and Ohio, through Cintrifuse, structured their programs. Renaissance’s first fund invested into 10 venture capital firms based in Michigan and around the country. All 10 firms invested in at least one company, the fund yielded a top-quartile 15 percent return, and many more venture capital firms set up shop in Michigan. Because of the success, Renaissance raised a second fund.
Relationships/Connections to people and companies and innovation happening in other places: In 2014, the Indiana Economic Development Corporation “backstopped” a new nonstop flight from Indianapolis International Airport to San Francisco. That backstop limited the airline risk of beginning a new flight and the route was self-sustaining within one year. This investment paid off as more West Coast service, including another SFO flight, has since been announced. We are under competitive consideration for transatlantic flights from IND with other cities and a $5 million per year backstop, as provided in the Governor’s budget, could make a difference selecting IND as the next direct flight to Europe.
Economic diversification: Indiana is the most manufacturing-intensive state in the country. While this is a good thing in many respects, it means that we are more susceptible to an economic downturn and changes in the broader economy. Indiana needs to diversify its economic landscape to better withstand and capitalize on the changing marketplace. Rating agencies look at Indiana’s economic diversification as a factor in its credit rating. While Indiana has a AAA credit rating, its weakest component score by S&P is in the “Economy” category, largely because of the lack of economic diversification.
How can you help?
Indiana’s tech and innovation community has a lot of momentum and the ability to create a lot more high-wage, tax paying jobs, but not without more venture capital and connectivity to other major hubs.
Call your state representative and state senator and encourage them to support:
- Creation of the $250 million Next Level Fund
- Transferability of the VCI tax credit
- Maintaining $30 million per year to the 21 Fund
- Incentivizing more direct flights.
If you don’t know who your legislators are or need help finding out how to contact them, visit the Indiana General Assembly Legislator Finder.