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Louisiana Seed Capital Program Rules

Title 19
CORPORATIONS AND BUSINESS
PART VII. Economic Development Corporation
Subpart 11. LOUISIANA SEED CAPITAL PROGRAM

7701. PURPOSE

The purpose of this program is to encourage the formation of Louisiana-based seed capital funds. Funding under this program shall be limited to those qualified organizations who agree to invest such funds exclusively in companies based in Louisiana for the purpose of financing any process, technique, product, or device which is or may be exploitable commercially, which has advanced beyond the theoretical state, and which is capable of being or has been reduced to practice without regard to whether a patent has or could be granted. Not intended for retail or professional services.

7703. DEFINITIONS

A. For the purposes of this program Seed Capital will be defined as:

1. An amount no less than $25,000 of capital provided to an inventor or entrepreneur to prove a concept and to qualify for start-up capital. This may involve product development and market research as well as building a management team and developing a business plan, if the initial steps are successful.

2. Research and development financing to finance product development for start-up as well as more mature companies.

3. Start-up financing to companies completing product development and initial marketing. Companies may be in the process of organizing or they may already be in business for one year or less, but have sold their product commercially.

4. First-Stage financing to companies that have expended their initial capital and require funds to initiate full-scale manufacturing and sales.

7705. ELIGIBILITY

A. Applicant organization must be a Louisiana-based fund organized for the sole purpose of making seed investments in businesses.

B. Must be organized for profit.

C. The applicant must demonstrate that its management personnel have at least three years of experience in managing investments in individual, privately-held companies, utilizing funds provided by others to make said investments.

D. Have raised a minimum of $250,000 to be eligible for co-investments or raised a minimum of $500,000 to be eligible for a match investment. The minimum funds may be in cash and commitments.

E. A minimum cash investment sufficient to cover the general and administrative costs for the first year.

7707. APPLICATION FOR CO-INVESTMENT

A. Prior to a Seed Capital Fund submitting a request to be considered for co-investment by LEDC the Seed Capital Fund must submit an application for the Fund to be considered qualified. The application for qualification to the Louisiana Economic Development Corporation shall consist of detailed information covering two main categories: 1) experience and qualifications of the proposed management team, and 2) the business plan for the Seed Capital Fund. The following sections specify in more detail the information that should be covered. While these sections provide a possible format, the applicant should in no way feel bound by this format. The applicant can use its own format, as long as the basic information is provided. Moreover, the applicant should feel free to provide additional information which is viewed as relevant. The Louisiana Economic Development Corporation may request additional information beyond what is specified below.

B. The completed application will be submitted to the next scheduled Screening Committee meeting for recommendations. The recommendations of the Screening Committee will be submitted to the full Board of Directors at their next scheduled meeting for final approval.

EXPERIENCE AND QUALIFICATIONS

1. Submit resumes, references, and personal financial statements for all principal members of the management team that are identified. Note: Louisiana Economic Development Corporation reserves the right to perform criminal background checks on the principal members of management.

2. Describe the responsibilities of each of the principal members of the management team that have been identified. If any of these people are not full time, describe their other activities.

3. Describe the responsibilities of any principal management position for which a person has not been identified.

4. Specify any directors that have been identified, and submit resumes.

5. Specify any other key people that have been identified, including any advisors, consultants, attorneys and accountants, and submit resumes and/or descriptions of firms. Note: Louisiana Economic Development Corporation reserves the right to perform criminal background checks on these key people.

BUSINESS PLAN

1. MARKET

a. Describe and discuss the types of businesses that the Seed Capital Fund will finance. Discuss the extent to which the Seed Capital Fund intends to specialize in certain industries, or whether a more broad based approach is planned.

b. Describe the size range of businesses that it is contemplated the Seed Capital Fund will finance, with a general indication of where most of the focus is expected.

c. Discuss the life cycle stage or stages of the companies which the Seed Capital Fund will likely finance, with an indication of where most of the focus is contemplated.

d. Discuss the geographic area in which the Seed Capital Fund plans to focus. Specify the city or parish in which the Seed Capital Fund's principal office is planned to be located, and discuss intentions, if any, to establish any additional offices.

e. Provide any market analysis that you deem relevant.

2. Financing - Describe and discuss the financing instruments that are intended to be used by the Seed Capital Fund. Discuss the anticipated mix of the various types of financing instruments. Discuss the anticipated size range of investments to be made, and information regarding pricing, term, and other conditions. Discuss risk/return expectations on projects. Discuss methods of exit from investments.

3. Marketing Strategy - Describe the Seed Capital Fund's plans and approach to marketing its services, including the identification of potential applicants for financing assistance.

4. Screening Process & Evaluation Criteria - Discuss the anticipated number of business firms that will be reviewed for possible investment, in comparison with the number that will actually be invested in. Discuss the approach to screening business firms, and the evaluation criteria for deciding whether, and under what terms and conditions, to provide investment.

5. Fee Income - Discuss the potential for fee income, and any plans that the Seed Capital Fund might have for generating fee income.

6. Management Assistance - Discuss the plans of the Seed Capital Fund to provide management and/or technical assistance to companies for which the Seed Capital Fund provides investment. Discuss the Seed Capital Fund's plans for monitoring its investments, and enforcing provisions of investment agreements. Discuss how the Seed Capital Fund plans to handle problem investments. Discuss the Seed Capital Fund's plans to provide management assistance to companies that the Seed Capital Fund is not investing in.

7. Complementary Relationships - Discuss the nature of complementary relationships that are anticipated with banks, commercial lenders, investment bankers, venture capitalist and other institutions. This discussion can be based on general types of institutions and/or can identify specific institutions where complementary relationships have already been discussed.

8. Management Structure - Describe the proposed management structure for the Seed Capital Fund, and anticipated compensation for principal members of the management team.

9. Idle Funds - Describe plans for the management of the idle funds of the Seed Capital Fund.

10. Tax and Accounting Issues - Discuss relevant tax and accounting issues for the Seed Capital Fund.

12. Financial Projections

a) Provide a detailed operating budget for the first three years of the Seed Capital Fund's operation. The first year shall be month by month. The second and third years may be presented on an annual basis.

b) Provide performance projections, year by year, for a 5 year period. These projections should show cash flow, income and expense (including taxes), and balance sheet data. For these performance projections, operating expenses can be consolidated into one line item.

c) Specify the assumptions used for the performance projections. It is permissible to submit several sets of performance projections based on differing assumptions. However, if applicant submits several sets of projections based on differing assumptions, specify which set of assumptions are applicant's primary assumptions.

d) Specify computer programs used for projections, and specify formulas used.
B. The application for the co-investment project shall contain but not be limited to the identical information provided to the eligible Seed Capital Fund requesting the co-investment.

7709. APPLICATION REQUIREMENTS FOR MATCH INVESTMENT

A. To apply to the Louisiana Economic Development Corporation for a commitment to invest, a prospective Seed Capital Fund shall submit detailed information covering three main categories: 1) fund raising; 2) experience and qualifications of the proposed management team, and 3) the business plan for the Seed Capital Fund. The following sections specify in more detail the information that should be covered. While these sections provide a possible format, the applicant should in no way feel bound by this format. The applicant can use its own format, as long as the basic information is provided. Moreover, the applicant should feel free to provide additional information which is viewed as relevant. The Louisiana Economic Development Corporation may request additional information beyond what is specified below.

B. All completed applications will be acted on by the requisite loan committee of the Louisiana Economic Development Corporation..

FUND RAISING

1. Specify the amount of LEDC commitment sought.

2. Provide evidence of the amount of private capital that has been raised. Specify the ratio of actual cash to commitments raised.

3. Describe the basic legal structure of the Seed Capital Fund.

4. Describe and discuss the applicant's fund raising strategy for raising of any additional private capital.

5. Specify the principal investor sources that the applicant will be targeting.

6. What is applicant's basic proposal to prospective private investors. What expectations and objectives are the applicant specifying. This includes, for example, representations regarding reasonably expected returns on private equity investment, indirect financial benefits, if any, and social purposes, if applicable.

7. List all specific investors and financing commitments already obtained, including documentation for each. This should include the evidence of the initial $500,000 required capital.

8. Specify whether applicant anticipates taking in all of the LEDC equity investment at closing, or whether applicant plans a phase in. If a phase-in is planned, specify the proposed schedule. It is permissible to have different scenarios based on the actual amount of equity capital raised.

EXPERIENCE AND QUALIFICATIONS

1. Submit resumes, references, and personal financial statements for all principal members of the management team that are identified. Note: Louisiana Economic Development Corporation reserves the right to perform criminal background checks on the principal members of management.

2. Describe the responsibilities of each of the principal members of the management team that have been identified. If any of these people are not full time, describe their other activities.

3. Describe the responsibilities of any principal management position for which a person has not been identified.

4. Specify any directors that have been identified, and submit resumes.

5. Specify any other key people that have been identified, including any advisors, consultants, attorneys and accountants, and submit resumes and/or descriptions of firms. Note: Louisiana Economic Development Corporation reserves the right to perform criminal background checks on these key people.

BUSINESS PLAN

1. MARKET

a. Describe and discuss the types of businesses that the Seed Capital Fund will finance. Discuss the extent to which the Seed Capital Fund intends to specialize in certain industries, or whether a more broad based approach is planned.

b. Describe the size range of businesses that it is contemplated the Seed Capital Fund will finance, with a general indication of where most of the focus is expected.

c. Discuss the life cycle stage or stages of the companies which the Seed Capital Fund will likely finance, with an indication of where most of the focus is contemplated.

d. Discuss the geographic area in which the Seed Capital Fund plans to focus. Specify the city or parish in which the Seed Capital Fund's principal office is planned to be located, and discuss intentions, if any, to establish any additional offices.

e. Provide any market analysis that you deem relevant.

2. Financing - Describe and discuss the financing instruments that are intended to be used by the Seed Capital Fund. Discuss the anticipated mix of the various types of financing instruments. Discuss the anticipated size range of investments to be made, and information regarding pricing, term, and other conditions. Discuss risk/return expectations on projects. Discuss methods of exit from investments.

3. Marketing Strategy - Describe the Seed Capital Fund's plans and approach to marketing its services, including the identification of potential applicants for financing assistance.

4. Screening Process & Evaluation Criteria - Discuss the anticipated number of business firms that will be reviewed for possible investment, in comparison with the number that will actually be invested in. Discuss the approach to screening business firms, and the evaluation criteria for deciding whether, and under what terms and conditions, to provide investment.

5. Fee Income - Discuss the potential for fee income, and any plans that the Seed Capital Fund might have for generating fee income.

6. Management Assistance - Discuss the plans of the Seed Capital Fund to provide management and/or technical assistance to companies for which the Seed Capital Fund provides investment. Discuss the Seed Capital Fund's plans for monitoring its investments, and enforcing provisions of investment agreements. Discuss how the Seed Capital Fund plans to handle problem investments. Discuss the Seed Capital Fund's plans to provide management assistance to companies that the Seed Capital Fund is not investing in.

7. Complementary Relationships - Discuss the nature of complementary relationships that are anticipated with banks, commercial lenders, investment bankers, venture capitalist and other institutions. This discussion can be based on general types of institutions and/or can identify specific institutions where complementary relationships have already been discussed.

8. Management Structure - Describe the proposed management structure for the Seed Capital Fund, and anticipated compensation for principal members of the management team.

9. Idle Funds - Describe plans for the management of the idle funds of the Seed Capital Fund.

10. Tax and Accounting Issues - Discuss relevant tax and accounting issues for the Seed Capital Fund.

12. Financial Projections

a) Provide a detailed operating budget for the first three years of the Seed Capital Fund's operation. The first year shall be month by month. The second and third years may be presented on an annual basis.

b) Provide performance projections, year by year, for a 5 year period. These projections should show cash flow, income and expense (including taxes), and balance sheet data. For these performance projections, operating expenses can be consolidated into one line item.

c) Specify the assumptions used for the performance projections. It is permissible to submit several sets of performance projections based on differing assumptions. However, if applicant submits several sets of projections based on differing assumptions, specify which set of assumptions are applicant's primary assumptions.

d) Specify computer programs used for projections, and specify formulas used.

7711. APPLICATION PROCESS

A. Applications for funding under this program must be submitted to the Executive Director, Louisiana Economic Development Corporation, P.O. Box 44153, Baton Rouge, 70804.

1. Co-Investment application
a. The application for eligibility of the Seed Capital Fund and the co-investment project may be submitted simultaneously for consideration.

b. Once a Seed Capital Fund is deemed eligible, the Fund is not required to resubmit an eligibility application for subsequent co-investment requests.

2. All completed applications will be acted on by the requisit loan committe of the Louisiana Economic Development Corporation.

7713. INVESTMENT

A. Co-Investment

1. An eligible fund that has not received a match investment from the Louisiana Economic Development Corporation may apply for Co-Investment funds on a case by case basis. The co-investment of the Louisiana Economic Development Corporation shall not exceed the lesser of 50% of the total round of investment needed or $250,000.

2. Only investments in Louisiana businesses are eligible for co-investments.

3. Co-Investments will be on the same terms and conditions as the seed capital fund has negotiated with the business.

B. Match Investment

1. An eligible fund may receive a match investment equal to $1.00 of LEDC funds for each $2.00 of privately raised funds. The maximum LEDC investment shall not to exceed $1,000,000.

2. An eligible fund shall be a Louisiana organized and based Seed Capital Fund. For purposes of this program, "organized and based" means the seed capital applicant is registered with the Secretary of State's office and that it maintains a staffed office in Louisiana where investments may be initiated and closed.

3. The method of investment will be equal to the method of the other investors i.e.. committed capital for committed capital; cash investment for cash investment, or cash and commitment for cash and commitment.

4. The terms of the investment will be negotiated on a case by case basis.

C. Closing

1. Prior to disbursement of funds, the secretary-treasurer and one of the following; president, chairman or executive director of the corporation, shall execute all necessary legal instruments after certification by counsel that all legal requirements have been met.

7715. REPORTING

A. Each year, on the anniversary date of the initial disbursement of funds, or on such date as may be authorized by the corporation, each recipient of funds shall provide the following:

1. List of all investors in the fund, including the amounts of investment and nature of the investment.

2. A statement of financial condition of the fund including, but not limited to, a balance sheet, profit and loss statement and changes in financial condition.

3. Current reconciliation of the fund's net worth.

4. Annual audited financial statement prepared by a certified public accountant (prepared within 120 days of the end of the fund's fiscal year).