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Home / Start-ups / Pre-Seed Fund / Pre-Seed FAQ's
Pre-Seed FAQ'sWhat is the Michigan Pre-Seed Capital Fund?The Michigan Pre-seed Capital Fund was established by a consortium of Michigan SmartZones to accelerate company development by providing access to early-stage capital. These funds will extend the personal investment of entrepreneurs during the critical stage when they are developing their businesses to the point of readiness for outside investment. The focus is on companies that are creating the newest technologies in the following competitive areas:
 Who qualifies for the Pre-Seed Funds? Many factors will be taken into consideration when choosing companies for the funds. Briefly, though, investment is for emerging businesses trying to meet critical commercialization milestones. These funds will help address key questions and milestones which angel and venture capital investors pose as a condition of investment. In addition to the technology falling into one of the sectors listed above, companies must also meet the following criteria:
Companies not located in Michigan but are moving here or will move here upon funding, and meet the other criteria, are also eligible for consideration. What is the size of investment the fund will make? Investments will range from $50,000 to $250,000. A matching cash investment is required so the total amount of new investment would be a minimum of $100,000. Is this a grant? This is not a grant. It is an investment in the company whereby the fund will own equity in the company. In most cases the investment will be made in the form of a Convertible Note, which is a loan with interest that converts into company stock when a value is put on the company, usually at the time of the next round of investment funding. How much equity will this investment take in a company? The amount of equity, or share of the company, the fund owns will be determined when a value of the company is established. For most companies applying for funds from this Pre-Seed fund there will not be a value established yet. Because the company is at an early stage in development, probably without revenue, a value can’t be or shouldn’t be set. That is why we use a Convertible Note which allows the value to be established at a later date. What qualifies as a match? A minimum matching amount must be 1-to-1 with the Fund. The match must be new money into the company. Match money could be a grant or private investment. The following do not qualify as matching funds:
What do you mean by 'new' money? We are talking about cash that you have not accessed or received prior to this investment. But we are allowing a short window of 30 days for grants or investments received. If you started drawing on your SBIR, for example, within the past 30 days we will still allow it to be used as a match. If an investor is willing to invest when you apply without waiting for our decision, we will consider that ‘new’ money. If, however, you received the cash from your grant or an investor more than 30 days prior to applying to the Pre-Seed Fund it will not be seen as 'new'. How do I apply for the Pre-Seed Fund? Contact your local Michigan SmartZone. Any qualified applicant outside a SmartZone geography (i.e. Flint, Traverse City, or Saginaw) must still select a SmartZone (by geography or expertise) for managing the application. Each SmartZone is responsible for due diligence of the companies and their requests, and sponsor only those requests meeting the outlined criteria. The SmartZone will provide access to the application form and assist filling it out. Here is a list of the critical items you will need to provide.
What other information must be provided for consideration to receive Pre-Seed Funds? There is a Due Diligence checklist the SmartZones will use as a guide to assess the stage of each company and preparedness for investment. A similar checklist is provided for you on this web site so you will know what to expect to be asked and the documentation you will have to provide. Although early stage companies are not likely advanced enough to answer all the questions, a company will be expected to answer most, have all the necessary legal documents, and answer the key points in each of the categories. Confidential information should not be provided, unless it is clearly identified as such. The documents you provide are not a matter of public record so you may attach documents like your business plan with confidence it will not be shared outside the circle of fund advisors and consultants. How long does the application and granting process take? The online application and granting process will involve these steps:
How often can I apply? A company can only be approved for funding once. Although a single investment decision will be made for each company (including subsidiaries), a company may reapply for funding only one additional time if initially rejected. Investments may be traunched as dictated by sponsoring SmartZone or the side-by-side investor. What happens if my application is rejected? Meet with your sponsoring SmartZone and address the issues identified by the Investment Review Board. Based on the recommendations, reapply for the pre-seed fund or seek alternative investment options. Who reviews the applications and makes the investment decision? An Investment Review Board, made up of experienced professional private equity investors, will review deal submissions and provide constructive feedback. The IRB will look for the best opportunity without regard to region and technology. The IRB will assess the Company’s potential to become viable, create jobs in Michigan, and ultimately repay the investment. Funded companies will continue to work with their referring SmartZone for mentoring and business acceleration. Are there reporting requirements for companies receiving an investment? The following information will be required of each successful company, in addition to any specific milestone information required by the matching investor:
How will the fund improve the attractiveness of companies to investors? The Pre-seed Fund will improve the attractiveness of a company to investors in two ways:
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