VOICES FROM THE INDUSTRY: VC investment will help Indiana through any recession

In 2002, Indiana ranked an anemic 37th among all states in the amount of total venture capital investment. That year, California had 41 times the investment of Indiana on the basis of per dollar of gross state product. Indeed, few local entrepreneurs or finance professionals could identify more than a
couple of Indiana-based VC funds.

Few national venture funds even visited Indiana companies as they flew over the Hoosier state on their way between the coasts. As I learned while managing Lilly Ventures, the prevailing attitude of wellknown venture funds was that there was nothing in Indiana worth examining-let alone investing in.

Now, move the calendar forward to 2008. While no one will yet mistake Indiana for Silicon Valley, things are different here from a venture investment standpoint. The increase is measurable:

Indiana’s percentage of total U.S. venture activity tripled from 2002 through the first half of 2007;

Our state venture investment ranking went from 37th to 21st (per PricewaterhouseCoopers);

Indiana life science companies received $45.3 million of funding during the second quarter 2007 vs. $19.1 million during the same quarter of 2006;

And, Indiana was ranked in the top four states in the number of life science jobs in Battelle’s 2006 report.

The story of Indiana’s emergence is qualitatively supported as well. National venture funds are beginning to pursue opportunities in Indiana. Frazier Healthcare Ventures and 5AM Ventures recently joined Indiana-based Twilight Venture Partners in funding Carmel-based Marcadia Biotech with $15 million.

Several other funds not headquartered in Indiana are active investors here, including Blue Chip, Burrill, EDF, Pappas and Triathlon. There are more than 15 Indianabased or focused venture firms actively exploiting opportunities here, up from a very few in 2002.

Finally, a number of new Indiana-based venture funds have raised or are in the process of raising capital, including Clarian Health Ventures, Heron Capital, Mid-Point Food & Ag and Clean Wave. Entrepreneurs and startups here are getting numerous inquiries from potential investors-when no one may have called four or five years ago. In short, the environment has changed.

What’s caused the change? It’s not the amount of VC activity nationwide: 2007’s total U.S. venture investing, $61 billion, is still well below each of the peak years of 1999, 2000, and 2001. Several critical elements converged between 2004-2006 that began to put Indiana on the VC map:

The formation of BioCrossroads: The product of the Central Indiana Life Science Initiative, BioCrossroads has drawn on funding and management support from numerous sources, but most importantly
Eli Lilly and Co. and the Lilly Endowment. There are so many good things happening in life science in Indiana through BioCrossroads-the Indiana Seed Fund, several startups, promotion of the sector, the Linx Program, and the enthusiastic cross-pollination of ideas, to name a few.

Creation of the Indiana Future Fund:

This $73 million fund under the leadership of Credit Suisse invested in six local and national venture funds, which in turn have made significant investments in Indiana. This has brought national attention to Indiana and entrepreneurial opportunities.

Increased attention by Indiana and
Purdue universities: Indiana’s premier research universities not only invested in the Future Fund, they have begun to actively invest dollars and intellectual capital in starting new businesses. Purdue’s Research Park houses more than 90 tech firms. IU’s RTC and School of Medicine are increasingly spinning out and fostering new technologies and companies.

Enhanced focus by the state: The state has invested in the Indiana Future Fund, but also in the Indiana Seed Fund, the Indiana Investment Fund, and soon, emerging manager funds. Gov. Mitch Daniels has taken job creation to a new, higher level.

The bottom line? While venture activities languish in surrounding states, Indiana institutions have come together to support and foster a growing venture and entrepreneurial industry. Our continued venture growth and success is not, however, assured. The next challenges to turbocharging this activity will be sustaining the enthusiasm and finding more venture dollars for seed funding.

Schalliol is an attorney at Baker & Daniels LLP, former head of Lilly Ventures, former CEO of BioCrossroads, and active in venture capital fund-raising. Views expresssed here are the writer’s.

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