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InnoVentures Capital – UTFC RAIN Source Capital

InnoVentures Capital – UTFC RAIN Source Capital. Disappearing Small Funds: New Approaches. What Are the Problems?. Number of early stage funds is decreasing Average investment size is increasing Big funds can’t operate in small markets Difficult for small funds to raise money.

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InnoVentures Capital – UTFC RAIN Source Capital

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  1. InnoVentures Capital – UTFCRAIN Source Capital Disappearing Small Funds: New Approaches

  2. What Are the Problems? • Number of early stage funds is decreasing • Average investment size is increasing • Big funds can’t operate in small markets • Difficult for small funds to raise money

  3. Funds Smaller Than $100M YTD06*: 1Q06 – 3Q06

  4. Median Fund Size Dips Median VC Fund Size (for funds greater than $20M) YTD06*: 1Q06 – 3Q06

  5. All SBIC Data

  6. 44% of Deals in California

  7. What Are the Problems? • Issues with New Markets Tax Credit and CDFIs • SBIC application is time consuming and complex – new mgt teams die off

  8. Why Are Small Funds Important? • They invest locally – geographically focused • They invest in a broad range of small businesses - opportunistic • They invest in early stage businesses

  9. Why are SBICs Important? • Banks motivated by CRA will invest in funds they believe guarantee CRA • SBICs are perceived as a CRA safe haven • Except for microloan programs SBICs are the main vehicle for small business investment

  10. How can we make it easier for small funds to raise money? Would a streamlined SBIC application make a difference?

  11. More Options? Would a capital gains tax forgiveness make a difference? How do Angels fit into the equation?

  12. Why Are Small Funds Scarce? • Early stage investing is harder than other stages • Management fees are less • Experienced fund managers gravitate to larger funds • Difficult to specialize investment themes

  13. Angel Funds • Could Angel Funds Qualify for CRA? • Would They Want To?

  14. OPTION ONEStream-lined SBIC Application • Unleveraged • Application would require limited legal expense & be simplified • OMB has to approve • Investments could be reviewed as they are done or annually

  15. Option One What would it take to accomplish Option One?

  16. Option TwoRegulator Approved • Regulators issue a letter that says if each deal is reviewed by a qualified attorney then the investments would be CRA worthy.

  17. Option Two What would it take to accomplish Option Two?

  18. Option Three Promote a capital gains tax break for small funds? Perhaps similar to the New Markets Tax Credit program.

  19. Option Three What would it take to implement Option 3?

  20. InnoVentures CapitalUTFC Contact: Steve Grizzell, Managing Director InnoVentures Capital Management 699 East South Temple Ste. 220 Salt Lake City, UT 84102 801 741-4215 steve@utfc.com

  21. Rain Source Capital Contact: Steve Mercil, Managing Director (651) 632-2140 smerci@rainsourcecapital.com

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