Introduction. Contact: Arkansas Venture Capital Investment Trust 2012 Progress Report

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2 Arkansas Venture Capital Investment Trust 2012 Progress Report Introduction From small startups to the world s largest company, a culture of entrepreneurship drives the Arkansas economy. The Arkansas Venture Capital Investment Trust ( Trust ) works to build the state economy by increasing access to venture capital for Arkansas innovative entrepreneurs. During the 83 rd General Assembly the Arkansas Development Finance Authority (ADFA) was given the tools to implement a Venture Capital Investment Program. Beginning with a venture capital fund of funds in 2003 the Trust s program was expanded in 2010 to support direct investments in early stage companies. In 2012 the program was again expanded to support the launch of seed capital and angel funds matched by private investors. Program investments are expected to result in over $420 million of equity, near equity, and debt capital for Arkansas businesses. Contact: Gene Eagle Vice President, Development Finance Arkansas Development Finance Authority Phone: gene.eagle@adfa.arkansas.gov The Trust is expected to yield significant economic benefits to our state over time by fostering the growth of a robust risk capital industry serving Arkansas entrepreneurs. Mac Dodson, President, Arkansas Development Finance Authority 1

3 Contents Message from Mac Dodson, ADFA President... 3 About ADFA... 4 Arkansas' Venture Capital Environment... 5 Arkansas Venture Capital Investment Trust Risk Capital Matching Fund... 6 Seed and Angel Capital Network... 7 Arkansas Institutional Fund... 8 Portfolio of Funds... 9 Arkansas Investments Success Stories Arkansas Tax Credit Purchase Consortium Partners in Building the Entrepreneurial Ecosystem Portfolio companies BlueInGreen, Arkansas Automatic Sprinklers, and Acumen Holdings. 2

4 Arkansas Venture Capital Investment Trust 2012 Progress Report Message from Mac Dodson, ADFA President Since 1985, the Arkansas Development Finance Authority has worked to respond to the changing needs of Arkansas' growing, increasingly diverse population. ADFA's commitment to giving Arkansans the most cost-effective financing choices possible has aided a broad spectrum of sectors, from housing, education and health care to small industries and agricultural enterprises. ADFA's tools are as diverse as Arkansas' vibrant business community. In 2012 ADFA launched a seed capital network program (SACN) to support seed and angel funds. The Trust is helping capitalize these local funds with private investors. Since 2010, Arkansas entrepreneurs have had access to ADFA s Risk Capital Matching Funds (RCMF), a source of early stage capital to leverage direct private investment. The foundation for these efforts is the Arkansas Institutional Fund (AIF), a fund of funds investment model launched in Eight years into the program, the AIF is making remarkable progress towards its long-term investment objectives. To date, the Trust has: Invested $18.9 million in 7 funds, of a total $24.1 million committed. Seen total capitalization of these 7 funds reach roughly $500 million. Received $4.4 million in early distributions, ahead of expectations. Secured the support of 6 corporations through membership in the tax credit purchase consortium. Invested and attracted co-investment of $15.5 million in 14 companies through the RCMF. Invested and attracted co-investment of $37.6 million to 18 Arkansas companies through the AIF that s nearly $2 in Arkansas for every $1 invested in funds. ADFA anticipates the Trust programs will result in a broadly diversified and sophisticated financial industry for Arkansas, one that provides our innovative businesses with the equity capital they need to grow the economy and create jobs. Mac Dodson ADFA President 3

5 About ADFA The Arkansas Development Finance Authority has responded to the changing needs of Arkansas' growing and increasingly diverse population and business community since ADFA is Arkansas' largest source of low-cost financing for low-to-moderate income housing development, small industries, government, education, agricultural business enterprise and health care. ADFA administers funding in the form of tax exempt bonds and other debt instruments through its series of program activities. ADFA Management Mac Dodson, ADFA President ADFA administers the Trust and its Venture Capital Investment Program to increase the availability of equity and near equity capital for emerging, expanding, relocating, and restructuring enterprises in Arkansas. Gene Eagle, Vice President Development Finance Contact ADFA 900 West Capitol, Suite 310 P.O. Box 8023 Little Rock, AR Phone: Jesse Sharp ADFA Board Chair 4

6 Arkansas Venture Capital Investment Trust 2012 Progress Report Arkansas' Venture Capital Environment The Arkansas Venture Capital Investment Trust works to strengthen Arkansas' venture capital network and promote economic growth within the State. PHOTO BY STATON BREIDENTHAL Scott Osborne, president and CTO of BlueInGreen, at the 7 th annual Arkansas Venture Forum The Trust attracts the participation of "Real economic development seed stage investors who support startups and later stage funds that further capital is invested into a local occurs when outside venture the growth of existing firms. business opportunity." Gene Eagle, ADFA The Trust communicates the opportunities for investment in Arkansas with the help of the Arkansas Economic Development Commission, the Arkansas Science and Technology Authority, Arkansas BioVentures, Innovate Arkansas, and the Genesis Incubator, among others. The long term institutional support of these organizations demonstrates the vitality of the networks that support venture investing in Arkansas. These networks include the quarterly investor presentations of Innovate Arkansas and the periodic UAMS BioVentures venture capital roundtable. Local Seed and Angel Funds National Venture Capital Funds Arkansas Entrepreneurs Targeted Matching Investments 5

7 Risk Capital Matching Fund Targeting Technology Start-ups The Arkansas Risk Capital Matching Fund (RCMF) works to strengthen and advance the financial infrastructure that supports and accelerates technology-based enterprises in Arkansas. RCMF targets investments in technology-based enterprises that are in the early stages of development and not yet able to attract adequate private sources of traditional financing, venture or investor-backed capital for their growth and development. RCMF can invest up to $100,000 to validate the effectiveness and market value of new technologies, and up to $750,000 to augment investments proposed or made by angel or other institutional investors. "The commitment from ADFA enabled Merchant View to test its technology, make adjustments, and come out with a solid product." Stan Zylowski, Merchant View RCMF is managed by ADFA. Equity interests are held by the Arkansas Venture Capital Investment Trust. Are you eligible for matching funds? RCMF-eligible companies may be classified in one or more of the following business sectors: Advanced materials and manufacturing systems; Agriculture, food and environmental services; Information technology; Transportation logistics; For more information 900 West Capitol, Suite 310 P.O. Box 8023 Little Rock, AR Phone: gene.eagle@adfa.arkansas.gov Bio-based products; Biotechnology, bioengineering, medical technology and life sciences. 6

8 Arkansas Venture Capital Investment Trust 2012 Progress Report Seed and Angel Capital Network Expanding the Base of Arkansas Investors Beginning in 2012, ADFA launched a program to invest in Arkansas-based seed and angel funds. These funds attract capital from private investors, to consider projects in the state, and to provide guidance to entrepreneurs seeking capital, often for the first time. The resources for this program come from the State Small Business Credit Initiative of the U.S. Treasury. The Trust holds these funds for investment and subsequent recycling. Ark Challenge is the first fund to receive a SACN commitment. The Iceberg, a coworking space at The Ark. State Small Business Credit Initiative The State Small Business Credit Initiative (SSBCI), created by the Small Business Jobs Act of 2010, was funded with $1.5 billion $13.1 million of which was awarded to Arkansas. SSBCI funds in Arkansas are expected to result in an additional $130 million for the state s entrepreneurs by strengthening lending and capital access programs for Arkansas small businesses and small manufacturers. 7

9 Arkansas Institutional Fund Increasing access to venture capital for Arkansas businesses The Arkansas Institutional Fund (AIF), a fund of funds venture capital investment program, works to build the state economy by increasing access to venture capital for innovative Arkansas businesses. Over time, the AIF is dedicating approximately $70 million to proven, professional private equity and venture capital funds that commit to include Arkansas in aggressive and visible deal prospecting. The capital base attracted by AIF supports those "AIF is building an industry of proven companies which are the engines of economic growth; professionals that actively serve the companies that diversify and stabilize the state's economy; state s most promising companies that create jobs. entrepreneurs." The AIF program is designed to exceed the stated goal of Mike Tharp, Cimarron two dollars invested in Arkansas businesses and projects for every one dollar invested in funds. Over the life of the program the AIF expects the State will enjoy significant economic benefits at minimal cost to the taxpayers of Arkansas. The AIF is authorized by ADFA and managed by Cimarron Capital Associates I, LLC ( Cimarron ). Equity interest in the AIF is held by the Arkansas Venture Capital Investment Trust. Eight years into the program, the AIF is making remarkable progress towards its long-term investment objectives Mac Dodson, ADFA President Contact: Michael A. Tharp, CFA Managing Director, Cimarron Capital Associates I, LLC Phone: mtharp@cimarroncapital.com Robert G. Heard Managing Director, Cimarron Capital Associates I, LLC rheard@cimarroncapital.com 8

10 Arkansas Venture Capital Investment Trust 2012 Progress Report Portfolio of Funds Petra Growth Fund II, L.P. Petra, a private equity limited partnership located in Nashville, Tennessee, is focused on private debt and equity investments in high growth U.S. small businesses situated between the venture capital and buyout sections of the growth capital market. The $160 million, 10 year fund is licensed by the United States Small Business Administration program as a Small Business Investment Company. Petra has invested in nine companies to date. Noro-Moseley Partners VI, L.P. NMP6, a private equity limited partnership located in Atlanta, Georgia, is focused on equity investments in technology, health care and tech enabled services companies from startup through early growth. The $119 million, 10 year fund has invested in sixteen companies to date, one of which is an Arkansas firm, Acumen Brands in Fayetteville. Arkansas is a natural fit with our regional strategy of providing management teams with an extensive contact network to build great companies." Mike Elliott, Noro-Moseley Meritus Ventures, L.P. Kentucky-based Meritus is a $36.4 million, 10 year fund licensed by the United States Department of Agriculture and the United States Small Business Administration as a Rural Business Investment Company under USDA s Rural Business Investment Program. Meritus has invested in six companies to date, one of which is an Arkansas firm, Arkansas Automatic Sprinklers in Cabot. "Arkansas, through the Arkansas Institutional Fund, has done an effective job of attracting institutional investors to the state. We aren't the only venture fund looking for opportunities in Arkansas." Grady Vanderhoofven, Meritus Ventures 9

11 Memphis Biomed Ventures II, L.P. MBV is a private equity limited partnership focused on building a diversified portfolio of equity investments in private high-growth medical device and biotechnology companies. The $54 million, 10 year fund operates from its principal office in Memphis, Tennessee. MBV's geographic focus concentrates in the Southeast and Midwestern regions of the United States. The fund is now fully invested with ten companies in its portfolio. They, along with Prolog, conducted an in-depth assessment of the UAMS intellectual property portfolio from which has grown the periodic UAMS BioVentures venture capital round table. Prolog Capital II, L.P. Prolog is a venture capital fund investing in early-stage life sciences companies. The principal office of the $66 million, 10 year fund is located in St. Louis, Missouri. Prolog's geographic focus is primarily on opportunities in Missouri and the surrounding states, including Arkansas. The fund is now fully invested in sixteen companies in its portfolio. They co-lead with MBV the comprehensive assessment of the UAMS intellectual property portfolio. Fund for Arkansas Future, LLC FAF is an Arkansas limited liability company, organized as a venture capital fund for angel investors. With headquarters in Little Rock, Arkansas, the $6.575 million, 12 year fund has invested in thirteen companies to date, all of which are Arkansas firms: four high tech startups within Virtual Incubation, plus Duralor, Merchantview and BlueInGreen in Fayetteville; Patriot Biofuels in Stuttgart; and Balm Innovations, Infusion Marketing, Ceton, Collision Hub and Rx Results in Little Rock. SSM Venture Partners III, L.P. SSM III, a $57 million, 10 year limited partnership fund, operates from a principal office in Memphis, Tennessee. SSM focuses primarily on opportunities in the South to Southeastern United States, including Arkansas, Oklahoma and Texas. The fund has invested in twelve companies to date, a portion of one of which is an Arkansas firm (a wound care clinic in Pine Bluff). 10

12 Arkansas Venture Capital Investment Trust 2012 Progress Report Arkansas Investments Arkansas home to the University of Arkansas Medical Sciences and Engineering schools, the National Center for Toxicological Research, incubators like BioVentures, Genesis, and Virtual Incubation, and soon a new technology research park in Little Rock is an epicenter of private knowledge in big data, big retailing and global logistics. To date, Trust programs have delivered capital to 24 promising Arkansas companies. Year Company City Description 2003 NMA Pine Bluff wound care clinic 2005 NanoMech - Vir. Inc. Fayetteville nano manufacturer 2005 Vegrandis - Vir. Inc.* Fayetteville diagnostic instruments & assays 2005 BioDetection - Vir. Inc. Fayetteville food borne pathogen detection 2005 SFC Fluidics - Vir. Inc. Fayetteville microfluidic pumps 2005 Patriot BioFuels Stuttgart bio diesel producer 2006 Balm Innovations Little Rock skin care products producer 2007 Infusion Marketing Little Rock cross marketing system for banks 2008 Ceton Little Rock digital cable tuner card producer 2009 AR Automatic Sprinklers Cabot fire protection sprinkler system manufacturer 2009 Duralor ** Fayetteville produces nanoparticle coatings for cutting tools 2009 Merchant View Fayetteville retail vendor management system 2009 Collision Hub Little Rock car collision repair industry web portal 2010 RxResults Little Rock pharmacy benefits consulting 2010 BlueInGreen Fayetteville water purification 2010 Acumen Holdings Fayetteville electronic retail stores 2010 Stage 1 Diagnostics, Inc. Little Rock early stage ovarian cancer detection research 2010 Pathagility, LLC Conway solutions for clinical data distribution 2011 Insight Ecosystems, LLC Little Rock banking software solutions based on data analytics 2011 First Orion Corp. Conway privacy & call blocking applications for smartphones 2011 AgRobotics, LLC Little Rock precision automated agriculture solutions in soil sampling 2012 TiFiber, LLC Fayetteville nano fiber applications focusing on filtration solutions 2012 Ascendant Diagnostics Fayetteville early stage breast cancer detection research 2012 Silicon Solar Solutions Fayetteville advanced materials focusing on photovoltaic applications * merged into SFC Fluidics in 2011 ** merged into NanoMech in

13 Success Stories BlueInGreen In 2010, BlueInGreen received the Innovative Technology Award for its SDOX system from the Water Environment Federation, presented at the Arkansas Venture Forum, and closed an investment round from the Fund for Arkansas Future. Arkansas Automatic Sprinklers, Inc. In early 2009, Meritus Ventures announced an investment in AASI, a fire protection sprinkler company founded in Meritus co-invested in AASI with Diamond State Ventures (Little Rock, AR), Kansas Venture Capital (Leawood, KS), and Midstates Capital (Overland Park, KS). "We were excited to find this outstanding company in rural, central Arkansas, and delighted to invest as part of a syndicate of exceptional venture funds." -Grady Vanderhoofven, Meritus Ventures Acumen Holdings NanoMech NanoMech opened Arkansas' first nanomanufacturing operation in The company is backed by Fund for Arkansas Future and the Risk Capital Matching Fund. A prime example of how different parts of the state s entrepreneurial ecosystem work together is the funding of Acumen Holdings in late Innovate Arkansas, the Arkansas Venture Forum and the ADFA s risk capital matching fund all had a hand in what became a substantial funding lead by AIF portfolio fund Noro-Moseley. Acumen Holdings, an internet retailer employing over 50 people, is opening a multimillion dollar fulfillment center in Fayetteville. 12

14 Arkansas Venture Capital Investment Trust 2012 Progress Report Arkansas Tax Credit Purchase Consortium By use of a contingent liability funding structure, AIF mobilizes capital and covers all program costs until such time as investment returns materialize. Consortium members make AIF financing possible by committing to purchase tax credits if needed in the future. AIF funds commitments in outstanding venture capital funds which focus a portion of their time, talent and capital on finding the best Arkansas investment opportunities. To date no tax credits have been sold. AIF s portfolio of funds and selected Arkansas investments are listed later in this report. Consortium Members OGE Energy Corp. Southwestern Electric Power Company (SWEPCO) Simmons First Bank of the Ozarks CenterPoint Energy First National Bank of Fort Smith "The AIF is a fabulous example of the way government can partner with private enterprise to generate real growth opportunities for new businesses. Mac Dodson, ADFA President History of the AIF ADFA was given the authority to implement a Venture Capital Investment Program during the Eighty Third General Assembly. The AIF operates under an investment policy approved by the ADFA Board of Directors. Governor Mike Huckabee authorized the establishment of the Arkansas Venture Capital Investment Trust to hold an equity interest in the AIF. On behalf of the state, the ADFA president, the Arkansas Science and Technology Authority president, and the Director of the Arkansas Department of Finance and Administration serve as trustees for this public trust. 13

15 Partners in Building the Entrepreneurial Ecosystem The Arkansas Venture Capital Investment Trust achieves its goals in concert with partners equally committing to building Arkansas' entrepreneurial economy. From events that foster quality networking to research park authorities, state agencies and universities, our partners support the state's most promising companies, from small startups to large corporations. Events Network Arkansas Economic Development Commission Arkansas Science and Technology Authority Arkansas State University Genesis Technology Incubator University of Arkansas University of Arkansas - Little Rock University of Arkansas - Medical Sciences Winrock/Innovate Arkansas Coming Soon In 2002, Arkansas Act 1045 authorized the formation of research park authorities. In 2012, the Little Rock Technology Park Authority formally launched its official website the first step in creating Little Rock s first technology park. 14