Legislative Analysis
Phone: (517) 373-8080
MICHIGAN INNOVATION FUND
http://www.house.mi.gov/hfa
House Bill 5651 (H-1) as passed by the House Analysis available at
Sponsor: Rep. Greg VanWoerkom http://www.legislature.mi.gov
House Bill 5652 (H-2) as passed by the House
Sponsor: Rep. Jason Hoskins
House Bill 5653 (H-5) as passed by the House
Sponsor: Rep. Alabas A. Farhat
Committee: Economic Development and Small Business
Complete to 12-7-24
BRIEF SUMMARY: Together, House Bills 5651, 5652, and 5653 would establish the Michigan
Innovation Fund, a program that would provide grants to certain venture capital funds and
nonprofits to promote venture capital investment. House Bills 5652 and House Bill 5653 would
amend the Michigan Early Stage Venture Investment Act and the Michigan Strategic Fund
Act, respectively, to create the program and provide for its funding through the Michigan Early
Stage Venture Investment Fund (known as the Venture Michigan Fund). House Bill 5651 is a
companion bill that would make complementary changes to the Michigan Trust Fund Act.
FISCAL IMPACT: The bills would authorize realized investment returns in investment funds of the
Michigan Early State Venture Investment program to be utilized earlier than they otherwise
would have been under current law. See Fiscal Information, below, for further discussion.
THE APPARENT PROBLEM:
According to committee testimony, entrepreneurship in Michigan is hindered by a lack of
access to early-stage capital for startups, and many believe that Michigan is far behind other
states when it comes to support for early-stage businesses. Reportedly, very few funds exist
that can take the risk on a new business to help it gain traction, so entrepreneurs feel pressured
to move elsewhere to start their businesses for better access to capital. Legislation has been
proposed to address this funding gap and encourage entrepreneurs to start and grow their
businesses in Michigan.
THE CONTENT OF THE BILLS:
House Bill 5652 would amend the Michigan Early Stage Venture Investment Act to extend the
Michigan Early Stage Venture Investment program and to require $60.0 million from the
program’s investment funds to be deposited into the 21st Century Jobs Trust Fund, which
would be used for the Michigan Innovation Fund program that would be established by House
Bill 5653. The remainder of returns would be distributed into the general fund.
The Michigan Early Stage Venture Investment Act established the Michigan Early Stage
Venture Investment Corporation (MESVIC) and authorized the MESVIC to create a Michigan
Early Stage Venture Investment Fund (known as the Venture Michigan Fund, or VMF, which
House Fiscal Agency Page 1 of 10
 comprises the Venture Michigan Fund I and the Venture Michigan Fund II) to invest in
Michigan startups.
Because of changes made to the act in 2015, the Michigan Early Stage Venture Investment
Corporation currently cannot enter into any new agreements with investors, and the Michigan
Early Stage Venture Investment Fund is set to expire on January 1, 2030. Upon expiration,
subject to any outstanding debts and obligations, $140.0 million from the fund must be
deposited in the general fund, and the remaining money must be deposited in the 21st Century
Jobs Trust Fund. Upon the MESVIC’s dissolution, the first $140.0 million of its property must
go to the general fund, with the remainder going to the 21st Century Jobs Trust Fund.
House Bill 5652 would instead require the MESVIC board of directors to determine the
investment fund’s expiration date, which would have to be after January 1, 2030. All money
remaining in the fund and other property upon expiration would be deposited into the general
fund.
If the MESVIC has one or more investment funds with realized earned returns on investments
as of June 30, 2024, the corporation’s board would have to enter into an agreement with the
Department of Treasury to distribute $60.0 million of the earned returns to the state treasurer
for deposit in the 21st Century Jobs Trust Fund and to distribute the remainder of the returns
into the general fund. For each following year, if the MESVIC has one or more funds with
realized annual returns as of June 30 of that year, those returns (as of June 30) would have to
be distributed to the state treasurer to be deposited in the general fund.
The bill would also amend the act’s requirements for a MESVIC’s articles of incorporation to
reflect these changes.
MCL 125.2237 et seq.
House Bill 5653 would add a new section to the Michigan Strategic Fund Act to create the
“Michigan Innovation Fund” program, which would be administered by the Michigan Strategic
Fund (MSF) to provide grants to certain venture capital funds and nonprofits. The bill would
also modify the current Venture Capital Investment Program.
Michigan Innovation Fund
The bill would authorize the MSF to create and spend or invest money for the Michigan
Innovation Fund program for the stated public purpose of encouraging economic development
and job creation in Michigan. The program would provide grant support for qualified
evergreen venture funds, qualified venture capital funds, qualified emerging evergreen
funds, and qualified start-up support services in Michigan and would fund investments made
through the Jobs for Michigan Investment Fund, and grants would have to be awarded to all
eligible applicants. The Michigan Innovation Fund, and other programs under Chapter 8A of
the act, would be operated and administered by the authorized officers, employees, and agents
of the MSF, including the Michigan Economic Development Corporation (MEDC) and its
employees.
Qualified evergreen venture fund would mean a tax-exempt qualified higher
education institution or Michigan nonprofit corporation that administers, manages, or
operates one or more evergreen funds, if at least one of those funds provides early-
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 stage venture capital funding to entities in Michigan, has been actively operating in
Michigan for at least three years, has at least four years of experience in making early-
stage venture capital investments and in mentoring start-up companies, and has at least
$15.0 million in deployable capital or investments before January 1, 2024.
Qualified higher education institution would generally mean a state institution of
higher education. It would also include a Michigan nonprofit corporation with the word
“foundation” in its name that is incorporated under the Nonprofit Corporation Act for
the purpose of supporting the objects and purposes of the University of Michigan,
Michigan State University, or Wayne State University and for the purpose of assisting
in that university’s educational purposes in an exclusively charitable manner, 1 in
addition to a Michigan corporation incorporated under the Business Corporation Act
for which a state institution of higher education is the only shareholder and whose name
includes the words “biosciences” and “research.” 2
Evergreen fund would mean either of the following:
• An investment plan or program of a Michigan nonprofit corporation that is
exempt from taxation under section 501(c)(6) of the federal Internal Revenue
Code.
• An investment fund organized for the purpose of investing in private debt or
equity that has limited restrictions on or no provision for investor withdrawal
and redemption rights, that operates on an open-end basis without a definitive
closing date or fixed end date, and that allows capital to be raised on an ongoing
basis and for the reinvestment of returns.
Qualified venture capital fund is defined under the act as a firm principally or
primarily engaged in investing or acquiring early-stage businesses with growth
potential that have not yet demonstrated consistent profitability or a proven business
model, that is managed by two or more individuals with not less than five years of
direct experience in venture capital, and that holds capital from investors other than the
MSF.
Qualified emerging evergreen fund would mean any of the following:
• A public institution of higher education or a Michigan nonprofit that is exempt
from taxation under section 501(c)(3) or 501(c)(6) of the Internal Revenue
Code that administers, manages, or operates one or more evergreen funds, if at
least one of those funds is organized to provide early-stage venture capital
funding to entities within Michigan and has a principal office located in a
county with a population of more than 600,000 and less than 700,000. 3
• A Michigan nonprofit that administers, manages, or operates one or more
evergreen funds, if that nonprofit is organized for the purpose of enhancing the
vitality of the communities affected by Michigan’s Upper Peninsula by
1
This provision appears to reference the Michigan State University Research Foundation.
2
This provision appears to reference the Biosciences Research and Commercialization Center at Western Michigan
University.
3
This provision would apply to a public institution of higher education or a nonprofit based in Kent County.
House Fiscal Agency HBs 5651 (H-1), 5652 (H-2), and 5653 (H-5) as passed by the House Page 3 of 10
 leveraging local resources with capital and expertise and fostering economic
opportunity throughout the area. 4
• A Michigan nonprofit that administers, manages, or operates one or more
evergreen funds and grants, if that nonprofit is organized to provide early-stage
venture capital funding to entities within Michigan and has a principal office
located in a county with a population of more than 90,000 and less than 99,000.
Qualified start-up support services would mean any of the following:
• Activity that supports the growth of the state’s venture capital talent pool and
the development of the next generation of venture capital fund leadership in
Michigan.
• Activity that supports the creation and growth of Michigan start-up companies
or that supports the professional development and growth of their founders.
Michigan Innovation Fund grants would be funded through money deposited into the 21st
Century Jobs Trust Fund from the Michigan Early Stage Venture Investment Fund (as would
be required by HB 5652). Each fiscal year through 2053-54, the MSF would use 80% of the
money deposited into the 21st Century Jobs Trust Fund to provide grants to qualified evergreen
venture funds for eligible activities, 7% for grants to qualified nonprofits for qualified start-
up support services, 8% for grants to qualified emerging evergreen funds for eligible activities,
and 5% for transfer and deposit into the Jobs for Michigan Investment Fund for investments
with the purpose of creating incentives for creating or retaining jobs, encouraging the
development and commercialization of competitive edge technologies, and revitalizing
Michigan communities. The MSF could not enter into any new grant agreements or make new
commitments to recipients after December 31, 2054.
Eligible activity would mean an investment through an investment instrument (such as
a convertible note, a simple agreement for future equity [SAFE], or an equity
investment) in an early-stage start-up company located in Michigan that is engaged in
one or more competitive edge technologies, in addition to technical assistance related
to such an investment and grants related to the investment or assistance.
Competitive edge technology is defined by the act as life sciences technology;
advanced automotive, manufacturing, materials, information, and agricultural
processing technology; homeland security and defense technology; alternative energy
technology; or any other innovative technology as determined by the MSF board.
Qualified nonprofit would mean a nonprofit corporation that provides programming,
technical assistance, or other support to promote the growth and development of the
state’s start-up companies and their founders. It would include entities in Michigan that
administer, manage, or operate funds that invest in start-up companies in Michigan.
The MSF would have to award grants to qualified evergreen venture funds and qualified
emerging evergreen funds no later than 182 days after the money is deposited into the 21st
Century Jobs Trust Fund. For all grants to those funds in a fiscal year, the total amount of grants
4
This provision appears to reference InvestUP.
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 provided to funds that invest in multiple industry sectors would have to be at least twice the
total amount of grants provided to those that invest in only one sector.
Grant agreements
House Bill 5653 would authorize the MSF to enter into grant agreements to ensure that a
qualified evergreen venture fund or qualified emerging evergreen fund complies with the bill’s
requirements. A grant agreement would have to require an award to be committed within five
years after its receipt and would have to allow up to 15% of the award amount to be used for
the recipient’s administration of the award and technical assistance related to its investments
(such as coaching, mentoring, and programming to support business founders).
Grant agreements would also have to require at least 5% of the grant money invested to be
invested in geographically disadvantaged business enterprises, require the recipient to
reinvest at least 85% of money invested with grant proceeds, and require the recipient to notify
the MSF within 90 days if there is a change in the recipient’s senior leadership team.5
Agreements would also have to require a recipient to pay an amount equal to 10% of an
investment’s return to the state treasurer if any investment using grant proceeds results in an
earned return of at least $8.0 million within 15 years of the initial grant investment. The
payment would have to be made within one year after the realized return exceeds the $8.0
million threshold, and the money would be deposited into the general fund.
Geographically disadvantaged business enterprise would mean a person that is
certified as a HUBZone small business concern by the United States Small Business
Administration, 6 has a principal place of business located within a qualified
opportunity zone in Michigan, 7 or for which more than half of its employees have a
principal residence located within a qualified opportunity zone in Michigan.
An agreement would also have to require a recipient to provide an annual report on its activities
by April 15, which would be published on the MSF website and the recipient’s website. 8 The
report would generally have to summarize all administrative and operational costs incurred,
including any professional fees and expenses, provide the amount, date, and description of
returns made from each investment made with grant proceeds, and provide a list of investments
made with grant award proceeds during the immediately preceding calendar year that includes
the following information: 9
• The name and physical address of the recipient of each investment.
• The date and amount of each investment.
• A description of the type of investment and a description of the industry or economic
sector in which the recipient operates.
5
Within 90 days after the MSF is notified that there has been a change in the senior leadership team, the MSF would
have to conduct a performance review of all investments made by the grant recipient and submit a report to the Senate
and House appropriations subcommittees on general government, the Senate and House fiscal agencies, the Senate
and House policy offices, and the State Budget Office on those investments that includes any considerations the MSF
deems relevant regarding the change.
6
See: https://maps.certify.sba.gov/hubzone/map#center=44.722800,-103.249700&zoom=4.
7
See: https://michigan.maps.arcgis.com/apps/webappviewer/index.html?id=8b1413d59b8d420faaf5217a5ab52851.
8
The MSF would be responsible for prescribing a standard form for the report.
9
A recipient would not be required