Seven Steps to a Public-Private Seed Fund

Incubator managers increasingly have the option of steering companies toward state and local seed funds for the early rounds of financing they need to develop ideas and technologies. These pools of private and/or public capital are focused on investing in emerging companies at the earliest stages and can meet capital needs at a time when a company is perceived as too risky for standard bank financing and too small for traditional venture capital investment.

But incubator managers themselves can participate in the creation or operation of seed funds in a number of ways – by championing the establishment of a fund, sitting on a fund’s board of directors, or simply staying in contact with fund managers to keep them abreast of potential deals. For those interested in helping to establish a public-private seed fund in their communities, the following points describe some of the typical stages in the process.

1. Champions of the knowledge-based economy begin to communicate the need for early-stage capital in their community and gain the support of community leaders.
   
   
2. These champions assess the community’s ability to sustain a seed fund. Are there enough investment-worthy companies to provide adequate deal flow and return on investment? Are civic leaders committed and adequate financial resources available to create a fund? Can the community provide or attract quality management for the seed fund? Are there legal constraints to public entities being involved in seed investing that must be overcome?
   
   
3. Developers establish the structure of their fund. Will it be geographically focused? Will it concentrate on a specific sector of the economy? What kind of public oversight will it have? How will the fund raise money? Who will manage it? What money will cover the fund’s operational costs – the fund’s assets or some other source?
   
   
4. Developers outline a strategy to navigate the political process. A publicly supported fund may require legislative approval.
   
   
5. Developers identify/recruit fund managers from within their ranks or through research, solicitation of proposals, and/or interviews of professional managers, and establish compensation acceptable to developers and the fund’s manager(s).
   
   
6. Developers and/or managers raise the fund, either through direct government funding or by using public money as a stimulus to attract private investment.
   
   
7. Managers seek and make investments within the parameters established by the fund’s creators.