IEDA distributes $53 million in federal funds to Iowa startups

Now is a good time to have a business idea in Iowa.

The US Treasury Department announced it would give the state $96 million to support small businesses, with startup programs receiving the bulk of the money.

The Iowa Economic Development Authority will direct $31 million of that money to a new venture capital fund. IEDA will use an additional $22 million to bolster existing public programs that provide loans and grants to Iowa startups.

“The phone calls are already coming in,” BioConnect Iowa Executive Director Steve Brody said Thursday morning, two days after the federal government announced Tuesday.

Brody’s organization, a nonprofit that already receives money from IEDA to help companies apply for federal research grants, will manage the new venture capital fund. The group’s board of directors will evaluate proposals from startups looking for money.

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Brody, whose company contracts with the state, said IEDA officials wanted to create the new fund to bring additional money to Iowa startups beyond what the two main State venture capital firms, Des Moines-based Next Level Ventures and Cedar Rapids-based ISA Enterprises, provide.

Brody said his organization’s fund will be managed by a new limited liability company, Iowa Venture Capital Fund. He said the group would participate in efforts by private funders, aiming to provide no more than 25% of a startup’s funding cycle.

Like other venture capital funds, Brody said the new fund would receive equity in startups. If a company later buys the startup, the profits from the investment will flow back into the fund.

Craig Ibsen, managing partner of Next Level Ventures, said he believes his group and ISA Ventures are already providing plenty of investment to startups in the state. But he said the extra funds would give these businesses a better chance to grow. Businesses can use the extra money to buy better technology or more office space.

“That means more lead,” said Ibsen, who has already recommended six companies to BioConnect Iowa. “That means (companies) are hiring more people. This means the funding lasts longer.

Next Level Ventures' Craig Ibsen speaks in favor of HSB 671, a tax bill that would reduce personal income taxes by about $1.7 billion over six years, during a hearing public with members of the Iowa House on Monday, April 9, 2018, in the Iowa Capitol.

The remaining $22 million for startups will go to existing programs for entrepreneurs, which include low-interest loans, forgivable loans and grants. For the past two fiscal years, the state has allocated just $2.9 million a year to such programs, IEDA spokesman Kanan Kappelman said.

The state cannot use all of the $22 million for these existing programs. According to a press release from IEDA, the authority could use some of this money to “fill gaps in the development phases of startups”.

The Fund will inject money far from the coasts; buy robots

Federal money for these programs comes from the American Rescue Plan Act, which Congress passed in March 2021. At a press conference on the money allocated to various states on Tuesday, U.S. Senator Amy Klobuchar, D- Minnesota, said members of Congress wanted to encourage startups away from shore where more investors are pouring money.

“They keep going back to Silicon Valley,” she said. “They keep going back to New York. And our nation is much stronger when we expand that because not all entrepreneurs with great ideas live in the same place.

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In addition to the startup money, IEDA plans to use the federal allocation to:

  • $28 million to buy parts of loans for manufacturers who borrow money for robots;
  • $15 million for small businesses that don’t have enough collateral to get a loan.

To qualify for assistance in acquiring robots, manufacturers must not employ more than 750 workers. To be eligible for a loan, small businesses must be considered underrepresented, which means that at least 51% of business owners are women, people from diverse backgrounds, veterans, people disabilities and long-term rural residents.

Small businesses that the IEDA says contribute to art and culture can also benefit from a loan.

Tyler Jett covers jobs and the economy for the Des Moines Register. Join it at [email protected]515-284-8215, or on Twitter at @LetsJett.

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