Find Funding in Your Backyard Local, state and regional funds aim to keep local economies going strong.

Creating a must-have product for a hot market is every entrepreneur's dream. Frank Greer had it. The president and CEO of Zipit Wireless developed a nifty little device with embedded technology to allow users to communicate via SMS texting without using a cell phone or a computer. Teens and tweens no longer needed to compete for time on the family computer to IM friends, nor did their parents have to worry about spilling over the texting limits of their cell phone plans.

There was one little problem. Greer needed funding.

Though initial response was strong, Greer's patents were expiring, just when he was ready to finesse a second-generation product. He was also ready to spin Zipit out from under its then-parent company's umbrella and resources. So he hit the road.

"I went to every venture capital firm and angel investor in the state of South Carolina," Greer says, adding that the doors he knocked on remained tightly closed.

A fortuitous networking encounter led Greer to the South Carolina Research Authority and, subsequently, to its funding initiative for startups, SC Launch. SC Launch's mission to provide seed money and business resources to new companies to facilitate applied research, product development and commercialization programs in South Carolina was just what Zipit Wireless needed to get to the next level.

"Without the $200,000 from SC Launch, we would not exist," Greer says, noting that the money helped Zipit obtain its patents, complete product development and seek manufacturing in Asia. In one year, "It got us over the hump and to market," he says.

Who Are the Funders?
As venture capital dwindles and angel investors continue to hold their purses tightly, local, state and regional research and economic development organizations continue to fund startups to keep the economic engines running in their backyards and beyond.

The unique, hybrid organizations that provide this kind of funding vary greatly in size and scope. For example, the Battelle Memorial Institute is the world's largest nonprofit independent research and development organization. Kef Kasdin, a general partner with Battelle Ventures, says the firm is an independent early-stage venture-capital fund that works closely with Battelle and the National Labs to commercialize technologies and resources, either by creating companies or accelerating growth of the fund's portfolio companies.

The Southern Appalachian Fund is one of six New Markets Venture Capital companies in the U.S. Formed to provide equity capital and operational assistance to qualifying businesses in Tennessee, Kentucky and the Appalachian counties of Georgia, Alabama and Mississippi, it promotes economic development and job opportunities in low-income areas.

The Southwest Michigan First Life Science Fund is allowed geographical concentration to make a big impact on a relatively small area. Managing director Patrick Morand says it has made 10 strategic investments in early-stage life science companies.

"The region is rich in life-science talent in therapeutics, devices and diagnostics, providing a robust environment in which companies can develop their technologies and value," Morand says, adding that Southwest Michigan First's portfolio companies operate in a range of life-science-related industries, representing a mix of homegrown firms and companies that have relocated to Kalamazoo, Mich.

What's Available?
Bill Mahoney, CEO of SCRA, says that SC Launch guidelines cap initial investments to individual companies at $200,000. "We are not intending to replace venture capital," Mahoney explains. Funding in the form of grants, loans and equity investments is available to qualified companies. Grants can help defray legal, financial, marketing and intellectual property protection costs as well as further applied research and development efforts for future growth and fundraising.

Entrepreneurs in the area funded by the SAF can tap into that organization's $12.5 million venture capital fund. Battelle Ventures has $220 million under management. Kasdin says, "The amount that we invest in a company is determined by its stage of development--seed, early stage, expansion--and a thorough evaluation covering numerous criteria. We could provide an initial investment as small as $100,000 and could invest up to $10 million in a company over its life."

Who's Most Likely to Get Funded?
This is the tricky part. Each of these organizations, and others like them, are looking at a company's growth potential. But there's more to it than that. Entrepreneurs seeking funding must apply and meet specific guidelines.

When Frank Greer applied for SC Launch seed money, he says the third-party firm hired to do due diligence put him through the paces. "Even if we hadn't gotten funding," Greer says, "We came out of it with a better business plan."

The reason Zipit Wireless made the cut, according to Mahoney, is because, "They had a proprietary technology that is protectable as intellectual property, in addition to potential for high growth." That, and the fact that Zipit's headquarters is located in-state.

Ditto for SWMF Life Science Fund. Locating facilities in Kalamazoo is critical, and life sciences are a must. Morand says the fund is "rather agnostic" about defining life sciences and has already funded therapeutic technologies, medical devices, health-IT, diagnostic and bio companies.

Who Won't Get Funded?
No matter how good the idea, Kasdin points out, "A startup that does not meet our criteria would not get funded." Mahoney concurs: "We've seen marvelous entrepreneurial ventures, but not in our sweet spot," which for SC Launch includes advance materials, nanosystems and alternative energy.

The take-away lesson for entrepreneurs: Do your homework. Research the funding source thoroughly, and make sure you fall within its guidelines.

How to Find Them
Both Kasdin and Morand say most entrepreneurs find them through word of mouth. "The fund's general partner, Southwest Michigan First, is a rich source of referral due to its efforts in attraction with companies and regions around the globe," Morand says.

Kasdin notes, "Battelle Ventures has a website that those searching for VCs would find, and we are also listed in various directories."

The International Economic Development Council is a nonprofit membership organization dedicated to helping economic developers and has a wealth of information about funding initiatives across the globe.

Home Field Advantage
After getting SC Launch funding, Frank Greer went on to raise more than $4 million for Zipit Wireless, including investments from venture capital firms. But he's quick to point out that organizations such as SC Launch have something of a home-field advantage. "A typical VC sees thousands of applications. A home state organization provides encouragement and resources, and is not purely looking at returns. They are more invested in fostering local economic development."