By Ben Butkus
The Georgia Research Alliance last week said that it has raised approximately $18.75 million in the first closing of the GRA Venture Fund, a state-subsidized investment fund designed to spur private equity firms in the state to invest in startup companies from Georgia academic institutions.
The first closing comprises a $7.5 million investment from the state — about $2.5 million less than originally planned — and $11.25 million from private investors, a GRA official said this week.
The GRA Venture Fund now hopes to raise at least another $11.25 million from private investors to boost their total contribution to $22.5 million, fulfilling the three-to-one private investment match stipulated by GRA when it launched the program last year.
That would bring the total value of the fund to $30 million, which is three-quarters of the fund's original $40 million target — a shortcoming that GRA is blaming on the weak economy.
"When the fund was first announced, the state had anticipated making a $10 million investment," Kathleen Robichaud, director of communications for GRA, told BTW last week.
"But as with everything around the world, the available financing from the state decreased around August of last year," Robichaud added. "They felt that the $7.5 million commitment would be more appropriate."
GRA has not disclosed the identities of the private investors that have contributed to the fund thus far, although Robichaud said that the "initial set of investors are all affiliated with the state of Georgia."
Despite cutbacks to the fund, it is expected to provide a shot in the arm for university-based economic development in the state by betting on startup companies built around technologies discovered in the six GRA academic partners: the University of Georgia, the Medical College of Georgia, Emory University, Clark Atlanta University, the Georgia Institute of Technology, and Georgia State University.
"The response of the private sector to the availability of this important fund is encouraging, especially in light of the tough economic times in our state and country," Georgia Governor Sonny Perdue said in a statement. "This is a great start for a fund that will strengthen Georgia's position as a center for innovation and entrepreneurship by helping our homegrown technology and research companies thrive and stay in Georgia."
Robichaud said that the fund will likely make its first investments in the third quarter of this year in companies that have graduated from GRA's VentureLab program, which is designed to nurture early-stage university-based technologies to the cusp of commercialization through proof-of-concept grants and non-collateralized loans.
The program has assisted some 85 new companies since its inception in 2002, GRA said. "It's a process where we've been sort of vetting the technology all along, and helping the scientists get involved in the management associated with the company, "Robichaud said. "Since VentureLab is a GRA program, we obviously are evaluating companies that might make sense to be early recipients of the fund."
The GRA Venture Fund board of directors, which comprises individuals from the private investors that have contributed to the fund, will ultimately select which companies are most promising for further investment.
"In that way this operates very much like any private investment fund," Robichaud said, adding that it is difficult to say how many investments would be made or how large each investment would be.
Georgia Tech stands to benefit most from the cash influx, as it is responsible for more than half of the companies that have participated in the VentureLab program, according to Robichaud. The main reason for this is Georgia Tech's engineering school, "which has a deeper background in commercialization, but also has a very strong biomedical engineering program," Robichaud said.
A significant portion of the VentureLab companies fall in the broad category of life sciences, including pharmaceutical development, medical devices, and other biomedical technologies. However, the program has also graduated many companies in fields such as engineering and IT, Robichaud said.
Georgia and the GRA unveiled plans for the Venture Fund in early 2008 with a promise to aggregate some $40 million in investment funds through a $10 million state contribution and a three-to-one match by private investors; as well as a 25-percent income tax credit for participating investors and a 10-percent income tax credit for anybody interested in investing alongside the fund (see BTW, 1/23/2008).
Although the state ultimately did not approve the $10 million needed to reach the $40 million goal, the tax credits were approved by the state legislature — a perk that has the potential to provide in excess of $100 million in total venture backing, GRA estimates.
In addition, the fund is designed to be evergreen, "so the state's return on its investment goes back into the fund," Robichaud said. "So they will continue to contribute in that way, and obviously the income tax credits are a substantial continuing contribution from the state."
GRA is now in the process of organizing a second private investment closing that would boost the fund's net worth to about $30 million — no small task considering that it needs to attract the same $11.25 million that it did in the first closing. Meantime, the state's $7.5 million contribution looks to remain static for the foreseeable future, Robichaud said. The alliance remains optimistic, however, that the investment benefits will bring more private players to the table.
"If it goes beyond $30 million, then that's great, there is no cap," Robichaud said. "We're not going to tell someone that's qualified not to invest. But the target for now is $30 million."