Homeland Security Fund Set

October 6, 2006
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GRAND RAPIDS — The Michigan Homeland Security Consortium has launched a $1 million fund to provide capital and resources for homeland security startups.

Not intended as a venture capital or angel investment type of program, the fund will instead provide targeted micro-resources to entrepreneurs to help them through the startup process.

“We’re looking for what you might call basement or garage entrepreneurs who are trying to take their business from idea to that next stage where angels and venture capitalists might be interested,” said Tom Hines, consortium president and CEO of local security technology startup SecureMatrix.

That assistance will come in the form of small capital investments, generally $10,000 to $30,000, but up to $100,000, and in-kind service donations.

“A lot of startups fold before they can even get started,” Hines said. “And sometimes it’s something as simple as a little bit of legal advice, financial advice or help with a business plan.”

Keith Brophy, president of NuSoft Solutions and consortium chairman, has seen firsthand how early missteps can derail a promising idea. He cited a recent conversation with a venture capitalist that had opened a dialogue with an entrepreneur, but rejected the deal because the lead had not properly protected his intellectual property.

“Early stage entrepreneurs run into speed bumps,” Brophy said. “Maybe things could have gone differently if they had taken the steps to protect their IP, or if they had come up with a professional, sophisticated marketing plan.”

The fund will consist of roughly $500,000 in cash generated from the venture capital community and other investors, and an equivalent amount of donated services. The consortium is currently seeking investors, with the fund likely to be a major topic of conversation at its Nov. 14 venture capital symposium, tentatively scheduled for an as-yet-undecided site in southeast Michigan.

“This is a place angels fear to tread,” Brophy said. “And for good reason; this is a high risk space. … There is a hole here we intend to fill, for targeted resources to get an entrepreneur over the hump and to the next level.”

Part of Brophy’s motivation to launch the fund came from a panel he once sat on that was intended to encourage small business growth. When asked why it was so difficult for entrepreneurs to gain access to $50,000 to $100,000 in capital, one of the panelists responded that “no entrepreneur who couldn’t get $100,000 on their own was worth their salt.” The next said, “Yes, that’s true; if somebody can’t get $100,000 from family and friends, they’re not going to make it.”

“Many of the panelists expressed that they didn’t think small doses of funding were applicable,” Brophy said. “I was impressed by how little they understood small business. Access to that kind of capital at the right time can be critical.”

Brophy could easily think of times when his company, formerly Sagestone Consulting, could have found that type of assistance helpful, even as a multimillion-dollar firm.

Although the initiative was born from the consortium’s interest in providing “an immediate boost” to the state’s homeland security industry, it is not an entirely altruistic measure: The capital portion of the fund is intended to provide a return on investment.

The fund already has one major sponsor, law firm Clark Hill PLC.    

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