Budget shrinks 21st Century tech fund

Even as some of its investments bear fruit in grand fashion, the state’s principal fund for investing in high-tech companies may get even less in the next budget than it did two years ago when its funding was cut in half.

The Indiana Economic Development Corp. is seeking $31 million for the 21st Century Research and Technology Fund for 2011-2013.

Indiana Secretary of Commerce Mitchell Roob Jr. does not want to see taxes rise.

That compares with $35 million allocated by the Legislature for the current two-year period ending in June.

The IEDC noted that the request for the 21st Century Fund is “essentially flat” from current levels, but the $31 million compares with $70 million the fund received in 2007-2009.

The fund was cut in half in 2009 as the Legislature and Gov. Daniels slashed a half-billion dollars from the state budget in response to sagging tax revenue.

“They asked for less? Wow,” said Bruce Kidd, former director of entrepreneurship at IEDC, when told of the latest request.

Leaders of the technology trade group TechPoint have urged state leaders to restore funding to the $70 million level as a way to bolster innovation and economic growth.

Kidd said he appreciates the state’s financial challenges amid a recovering economy. He also concedes that it can take several years to see results from firms that have received grant money from the fund.

“On the flip side, if you’re going to invest in our future, it has to be investing in innovation, as opposed to infrastructure. … I hate to see the momentum slip,” Kidd said.

Kidd

That momentum became apparent last month when the 12-year-old fund for the first time recouped all the money it granted an emerging company and then some.

Carmel-based Marcadia Biotech paid the fund $2.6 million on a $2 million investment made to the company. Marcadia was acquired by Swiss life sciences giant Roche for $287 million. Marcadia investors have the potential to collect another $250 million as Marcadia’s experimental diabetes medicine moves closer to market.

Another winning company previously funded by the 21st Century Fund was cancer drugmaker Endocyte, based at Purdue University Research Park. Endocyte recently completed an initial public stock offering that raised $79 million.

The fund won’t earn a return on Endocyte, however, because it awarded $4 million to the company before the IEDC changed its terms to require recipients to reimburse the fund a portion of future success.

Since 1999, the fund has invested more than $238 million in 188 projects, sparking $427 million in economic development and 11,000 jobs, according to the Ball State University Center for Business and Economic Research.

Initially, the 21st Century Fund was to be used to demonstrate that technology developed at the state’s universities could be commercialized. Grants are to help companies attract private capital as they grow.

IEDC officials say that, while 21st Century Fund funding has fallen in recent years, the fund has leveraged more private investment to recipients. The agency estimates that, on average, $3 in outside investment has flowed to firms for every $1 invested by the fund. That outside investment includes angel- and venture-capital investors.

The most important thing the state can do for businesses now “is to pass an honestly balanced budget and not raise taxes,” Indiana Secretary of Commerce Mitchell Roob Jr. said in an e-mail when asked by IBJ about the $31 million the IEDC is requesting. “Therefore a dramatic increase in funding was not sought for this biennium.”

In the fiscal year ended last June 30, the fund made direct investments of $12.7 million in 12 firms, compared with $16.3 million awarded to 11 firms the previous year.

During the last fiscal year, it also made 66 matching grants totaling $6.72 million as part of the federal Small Business Innovation Research or Small Business Technology Transfer program. That compares with $4.9 million in matching SBIR/STTR money in the 2008-2009 fiscal year.

The federal programs promote technology and commercialization and cooperation between small business and U.S. research institutions. In 2003, the 21st Century Fund began a dollar-for-dollar state match up to $100,000.•