MICHIGAN PRE-SEED CAPITAL FUND A collaborative effort of the Michigan SmartZones

Michigan SmartZones 1.Ann Arbor SPARK 2.Automation Alley 3.Rochester Hills/Oakland University Incubator 4.Battle Creek Aviation 5.Detroit/Woodward Technology Corridor – TechTown 6.Grand Rapids 7.Houghton/Michigan Tech Enterprise 8.Kalamazoo 9.Lansing Regional 10.Mt. Pleasant/Center for Applied Research & Technology 11.Muskegon Lakeshore 12. Sault Ste Marie 7 5 2 1 3 11 6 9 8 4 10 12

Michigan Pre-Seed Capital Fund The mission of this fund is to support high-tech start-up companies throughout Michigan as they near commercial viability. The focus is on companies that are creating the newest technologies in the following competitive areas: Advanced Automotive, Manufacturing, or Materials Alternative Energy Homeland Security and Defense Life Sciences

The mission of this fund is to support high-tech start-up companies throughout Michigan as they near commercial viability.

The focus is on companies that are creating the newest technologies in the following competitive areas:

Advanced Automotive, Manufacturing, or Materials

Alternative Energy

Homeland Security and Defense

Life Sciences

Funding Amount The Pre-Seed Fund will invest $50,000 to $250,000 per company alongside an investment partner who will provide a minimum 0.5:1 match. New Micro Loan Fund will provide loans between $10,000 and $50,000 per company. No match requirement.

The Pre-Seed Fund will invest

$50,000 to $250,000

per company

alongside an investment partner

who will provide a minimum 0.5:1 match.

Accelerate Through Company Development Start-up Company ------------------------------------------------------------- Successful Business Product or Service Product or Service? Technology validation risk reduction relative to customer needs Prototype product risk reduction Production scale-up manufacturing risk reduction Full production or distribution Business Business and product concept Critical analysis and business modeling Robust business plan w/marketing, competitive, financial Full production or distribution plan People Core Technologist and/or Champion Core Tech Team and initial Business Leaders Expand to full management and production team covering all disciplines Funding $ 0 – $100K $100K – $1M $1M and Up Stage Concept Validation Pre-Seed Seed Early Stage Expansion Later Stage (Series A and Above) Funding Source SBIR/STTR, MUCI Grants, Business Accelerators Pre-Seed Funds Angel Investors Venture Capital

Criteria/Eligibility for Pre-seed Investment Companies must meet the following criteria: located in or moving to Michigan company must have the rights (ownership or license) to innovative technology must be a small business (per the SBA) cannot be a publicly held company, but may be a spin-out as a new private entity have a plan for attracting additional funding or become cash flow positive pass the due diligence review of a SmartZone submit their match term sheet or grant approval The match must be new money into the company. The following do not qualify as matching funds: Other State monies such as MTTC/21CJF/MUCI Anticipated or current company revenues In-kind salary deferrals Other trade partner exchanges or trades

Companies must meet the following criteria:

located in or moving to Michigan

company must have the rights (ownership or license) to innovative technology

must be a small business (per the SBA)

cannot be a publicly held company, but may be a spin-out as a new private entity

have a plan for attracting additional funding or become cash flow positive

pass the due diligence review of a SmartZone

submit their match term sheet or grant approval

The match must be new money into the company.

The following do not qualify as matching funds:

Other State monies such as MTTC/21CJF/MUCI

Anticipated or current company revenues

In-kind salary deferrals

Other trade partner exchanges or trades

Other Investment Matters Use of funds could include but are not limited to: intellectual property investigation and protection market and technology assessments partnership relations first/next customer attraction building out management team Background checks will be made on founder(s)/CEO paid by fund administrator. A company can only be approved for funding once. A company may reapply once. A convertible note will be the default investment instrument for companies without a term sheet.

Use of funds could include but are not limited to:

intellectual property investigation and protection

market and technology assessments

partnership relations

first/next customer attraction

building out management team

Background checks will be made on founder(s)/CEO paid by fund administrator.

A company can only be approved for funding once.

A company may reapply once.

A convertible note will be the default investment instrument for companies without a term sheet.

Application The submission package must include: Executive summary (maximum 3 pages) Business plan (maximum 30 pages counting financial pages) Company overview Market information Operations Product description Management Financial history and projections Amount of cash and in-kind invested to-date Financial statements Use of funds Strategy for follow-on funding Matching source Term Sheet or proposal Certificate of Good Standing with the State of Michigan

The submission package must include:

Executive summary (maximum 3 pages)

Business plan (maximum 30 pages counting financial pages)

Company overview

Market information

Operations

Product description

Management

Financial history and projections

Amount of cash and in-kind invested to-date

Financial statements

Use of funds

Strategy for follow-on funding

Matching source Term Sheet or proposal

Certificate of Good Standing with the State of Michigan

Investment Review The Pre-Seed Fund has an Investment Review Board (IRB) made up of experienced investment professionals from around the state. The IRB will review deal submissions continuously and provide constructive feedback to applicants whether or not they recommend funding. The IRB will look for the best opportunity to fund. from any community in the state any of the 4 technology sectors no quotas The review criteria will assess the Company’s potential to be: self sustaining create jobs in Michigan ultimately repay the investment

The Pre-Seed Fund has an Investment Review Board (IRB) made up of experienced investment professionals from around the state.

The IRB will review deal submissions continuously and provide constructive feedback to applicants whether or not they recommend funding.

The IRB will look for the best opportunity to fund.

from any community in the state

any of the 4 technology sectors

no quotas

The review criteria will assess the Company’s potential to be:

self sustaining

create jobs in Michigan

ultimately repay the investment

Deal Acceptance The Investment Review Board will accept the deal in whole or not at all. The co-investing organization or angel terms and investment instrument will be used. The following information will be required of each successful company, in addition to any specific milestone information required by the matching investor: Number of new patents, copyrights, trademarks applied for and issued Annual sales/revenues Number of new jobs, existing jobs, and projected new job growth Follow-on investment figures and other metrics to gauge the positive effect on Michigan's progress toward building a competitive edge technology economy

The Investment Review Board will accept the deal in whole or not at all.

The co-investing organization or angel terms and investment instrument will be used.

The following information will be required of each successful company, in addition to any specific milestone information required by the matching investor:

Number of new patents, copyrights, trademarks applied for and issued

Annual sales/revenues

Number of new jobs, existing jobs, and projected new job growth

Follow-on investment figures and other metrics to gauge the positive effect on Michigan's progress toward building a competitive edge technology economy

Timeline The Pre-Seed Fund will accept applications at any time. Applications are screened for completeness, then forwarded to the IRB for review. Reviews will be concluded and sent to the Fund Administrator within two months. The Fund Administrator will summarize the IRB comments and scores, forwarding to the Smart Zone and company upon decision. Documentation execution and funding will be conducted on the matching fund source schedule.

The Pre-Seed Fund will accept applications at any time.

Applications are screened for completeness, then forwarded to the IRB for review.

Reviews will be concluded and sent to the Fund Administrator within two months.

The Fund Administrator will summarize the IRB comments and scores, forwarding to the Smart Zone and company upon decision.

Documentation execution and funding will be conducted on the matching fund source schedule.

Criteria/Eligibility for Micro Loan Companies must meet the following criteria: located in or moving to Michigan company must have the rights (ownership or license) to innovative technology must be a small business (per the SBA) cannot be a publicly held company, but may be a spin-out as a new private entity have a plan for attracting additional funding or become cash flow positive pass the due diligence review of a SmartZone

Companies must meet the following criteria:

located in or moving to Michigan

company must have the rights (ownership or license) to innovative technology

must be a small business (per the SBA)

cannot be a publicly held company, but may be a spin-out as a new private entity

have a plan for attracting additional funding or become cash flow positive

pass the due diligence review of a SmartZone

Other Loan Matters Use of funds could include but are not limited to: intellectual property investigation and protection, but not patent application market and technology assessments partnership relations first/next customer attraction Background checks will be made on founder(s)/CEO. A company can only be approved for funding once. A company may reapply once.

Use of funds could include but are not limited to:

intellectual property investigation and protection, but not patent application

market and technology assessments

partnership relations

first/next customer attraction

Background checks will be made on founder(s)/CEO.

A company can only be approved for funding once.

A company may reapply once.

Other Loan Matters Subordinated Note is posted on the web site www.annarborusa.org/start-ups/preseedfund / Interest rate is 12% Term is 3 years Note subordinate to all other debt holders Default provisions: Failure to pay when due Violation of any covenant, agreement or condition in the note Bankruptcy or dissolution of the company Fewer than a majority of employees in Michigan Reporting for five years Quarterly financial statements Number of employees and new hires Sales New IP Grants and investments received

Subordinated Note is posted on the web site www.annarborusa.org/start-ups/preseedfund /

Interest rate is 12%

Term is 3 years

Note subordinate to all other debt holders

Default provisions:

Failure to pay when due

Violation of any covenant, agreement or condition in the note

Bankruptcy or dissolution of the company

Fewer than a majority of employees in Michigan

Reporting for five years

Quarterly financial statements

Number of employees and new hires

Sales

New IP

Grants and investments received

Other Loan Matters Loans may be made in two tranches Reviewers may recommend a lower amount to loan Reviewers may recommend the loan be paid per commercialization step accomplishments Second tranche payment based on intermediate milestone achievement, but not guaranteed

Loans may be made in two tranches

Reviewers may recommend a lower amount to loan

Reviewers may recommend the loan be paid per commercialization step accomplishments

Second tranche payment based on intermediate milestone achievement, but not guaranteed

Application The submission package must include: Business plan (maximum 10 pages counting financial pages) Company overview Market information Operations Product description Summary of management talent Financial history and projections Use of funds Strategy for follow-on funding Certificate of Good Standing with the State of Michigan

The submission package must include:

Business plan (maximum 10 pages counting financial pages)

Company overview

Market information

Operations

Product description

Summary of management talent

Financial history and projections

Use of funds

Strategy for follow-on funding

Certificate of Good Standing with the State of Michigan

Timeline The Fund will accept applications at any time. Applications are screened for completeness by the SmartZone and Administrator, then forwarded to the reviewers. Reviews will be concluded and sent to the Fund Administrator within two months. The Fund Administrator will forward to the Smart Zone and company with the recommendation plus scoring sheet with comments. Loan documentation execution and funding will be completed following successful background check.

The Fund will accept applications at any time.

Applications are screened for completeness by the SmartZone and Administrator, then forwarded to the reviewers.

Reviews will be concluded and sent to the Fund Administrator within two months.

The Fund Administrator will forward to the Smart Zone and company with the recommendation plus scoring sheet with comments.

Loan documentation execution and funding will be completed following successful background check.