Seed capital primes pump for successful projects
As Oklahomans, we live with pumps. We draw most of our water from out of the ground; we're used to seeing pumpjacks bobbing their grasshopper-shaped heads all over the state. So, when somebody says “prime the pump” we understand the metaphor in a very real-world way.
“Prime the pump” is what i2E's Technology Business Finance Program (TBFP) is all about.
This unique source of early stage capital was created in 1999. It came about because once the Oklahoma Technology Commercialization Center (the former name of i2E) was up and running and Oklahoma startups and entrepreneurs started coming to the organization for help, it became quickly clear that something was missing — capital.
TBFP was designed to provide pre-seed, proof-of-concept funding to qualified Oklahoma startup companies to develop a marketable concept or product. Companies received cash advances of between $20,000 and $100,000 and agreed to repay the advances at 2X the amount advanced after five years.
From 1999 through 2012, TBFP was appropriated a total of $10.7 million. After that, the program has received no appropriations. But that $10.7 million of pump priming did the job it was intended to do and continues to do so.
For the last seven years, TBFP has been self-sustaining, having received repayments of $6.2 million and reclaimed $2.63 million of unused funds. All of which has been reinvested in new Oklahoma companies.
TBFP has made 142 awards to 126 companies, totaling $12.22 million. An additional $572,000 is waiting to be awarded to new companies. After paying all program expenses, the program has shown to date a whopping 65.74 percent return on the state's investment without factoring in any of the job gains or other economic benefits flowing from the investments. Additionally, TBFP recipients have leveraged the stat's investment by raising another $507 million in private capital.
Twenty years ago, having a state provide early stage capital for startup commercial ventures was groundbreaking. After the TBFP had been in operation two years, Battelle Memorial Institute audited the program and determined it to be so effective that Battelle declared it to be the national model for technology-based economic development.
At that point, several states adopted our approach. It was satisfying to gain that vote of confidence, but of much greater significance to Oklahoma was the beginnings of a framework for investment capital anchored by the TBFP.
TBFP led to the Oklahoma Seed Capital Fund in 2007, which led to the formation of SeedStep Angels (now 50-members strong), and after that to the Accelerate Oklahoma! Fund.
Today i2E has more than $62 million of investment capital under management.—and the selfsustaining TBFP is still providing pre-seed capital to Oklahoma Entrepreneurs. For every dollar invested by the state, TBFP clients have raised $53 in private capital and created 1,140 new jobs.
I say this all the time, but it bears saying again. Capital begets capital. It's just like priming a pump.
Scott Meacham is president and CEO of i2E Inc., a nonprofit corporation that mentors many of the state's technology-based startup companies. i2E receives state appropriations from the Oklahoma Center for the Advancement of Science and Technology. Contact Meacham at i2E_ Comments@i2E.org.