InvestAL offers high match investments for venture capital organizations with fund-to-fund and co-investment options ranging from $.5 million to $2 million to scale. Early-stage, high-growth small businesses can apply to receive capital, primarily through equity investments, while early-stage venture capital funds can receive partner investments. Note: This is not a grant program, and it is not a matching program.

Background
Alabama’s State Small Business Credit Initiative (SSBCI) Venture Capital Equity Program has been allocated $25 million. Managed by Innovate Alabama, $16 million will be invested directly in Alabama-based startups and $9 million will be invested in venture funds that in turn will invest in Alabama startups. Per Treasury, 60% percent of the funds must be invested in startups majority owned by SEDI Americans, and the funding must be catalytic to the startup or venture fund’s capital raise. All investments require a 1:1 private capital investment and must be made no more than 90 days before the SSBCI investment. All program investors and investees must comply with Treasury’s certification and reporting guidelines on a quarterly and annual basis. The goal of SSBCI is to catalytically drive 10 dollars of investment for every 1 dollar invested over the 10-year life of the program.

Innovate Alabama Co-Investment Program
The Innovate Alabama Co-Investment Program invests directly in high-growth startup and small businesses alongside private investors that meet certain criteria. Eligible private investors include angels, angel groups, syndicates, accelerators, incubators and venture funds. The program targets pre-seed to early-stage companies and will consider supporting follow-on financing rounds in the most promising deals. There will be a programmatic emphasis on funding startups and small businesses majority owned by socially and disadvantaged individuals. Innovate Alabama requires the private investment to have the same standing as (pari passu) the SSBCI investment and will consider capital support up to 50% of an equity financing round. Investments will range from $5,000 to $1,000,000 in high growth startups that are raising less than $20 million and have less than 500 employees.

Innovate Alabama Fund Program
The Innovate Alabama Fund Program makes limited partner investments in seed to early-stage venture capital funds committed to investing in Alabama. Up to ten partner funds are expected to be competitively selected for participation in the program, with capital support ranging from $.5 million to $2 million. The SSBCI investment is expected to range from 5-10 % of the total fund size and will not exceed 50% of the total capital raised for each partner fund. Participating funds will target pre-seed to early-stage companies with an average first round investment size estimated between $25,000 and $1 million, with an emphasis on investing in investees majority owned by socially and economically disadvantaged individuals.

Application Process
All perspective high growth startup founders can submit an application form on the Innovate Alabama website; the application requires basic information on the proposed startup.  The Innovate Alabama VC team will review the data, data room (pitch deck, projections or financials, legal term sheet, corporate governance documents and invite the companies they consider venture-backable for a formal pitch. After the pitch, the Innovate Alabama investment team will complete further due diligence and confirm the private investors. If Innovate Alabama decides to invest, it will invest on the same terms of the current round on a 1:1 basis.

The American Rescue Plan Act of 2021 (ARPA), provided funds to states, territories, and Tribal governments to expand access to capital for small businesses.

ARPA promotes:

• Economic resiliency
• Creating new jobs
• Expanding economic opportunity

BACKGROUND:

Alabama participated in SSBCI 1.0 from 2012 through 2017

• Completed 568 transactions, mostly under the Loan Guaranty Program
• Facilitated $231 Million in Financing – 13th best in the country
• Created 2,362 jobs and retained 4,050 jobs
• Median size of businesses assisted had 3 full-time employees
• CDFI Banks were the primary users of the SSBCI 1.0 program
• Reached 8.11x Leverage

Innovate Alabama’s SSBCI 2.0 will focus on:​

• Supporting Alabama-based businesses, lenders, and investors ​
• Ensuring that small businesses will be complemented by technical assistance support​
• Establishing a state-wide network to source loans and investments between vetted, eligible, and qualified Alabama-based sources of capital
• Special emphasis and pricing for Borrowers who are Socially and Economically Disadvantaged Individuals – or businesses owned/controlled by SEDI (min 56.5% will be deployed to SEDI borrowers)

What is SEDI – Socially and Economically Disadvantaged Individuals?​

• Business enterprises that certify that they are owned and controlled by individual(s) who have had their access to credit on reasonable terms diminished as compared to others in comparable economic circumstances
• Business enterprises that are located inCDFI Investment Areas
• Business enterprises that certify that they are owned and controlled by individuals whose residences are in CDFI Investment Areas
• Business enterprises that certify that they will use the loan proceeds in a location that is a CDFI Investment Area

Under the ARPA, Alabama was allocated up to $97,943,015 in funding, which will be distributed in three tranches based on performance.

• SSBCI 2.0 – $10 Billion vs SSBCI 1.0 – $1.5 Billion
• SSBCI 2.0 for AL – $98 Million vs SSBCI 1.0 for AL – $31 Million

A portion of SSBCI capital will be invested into SEDI (Socially or Economically Disadvantaged Individual) owned and controlled businesses, meaning at least 51 percent of the business is owned and controlled by SEDI individuals meeting one or more definitions from the following criteria.  More than half of Alabama geographically qualifies as SEDI! SEDI-owned and controlled businesses are at least 51% controlled and owned by SEDI individuals who meet one or more definitions from the criteria.

• Long-term residence in a rural community
• Veteran status
• Disability
• Membership of a group that has been subjected to racial or ethnic prejudice or cultural bias within American society, such as Black, Latino, and Indigenous and Native American persons; Asian Americans and Pacific Islanders and other persons of color; members of religious minorities; lesbian, gay, bisexual, transgender, and queer (LGBTQ+) persons
• Gender
• Limited English proficiency
• Long-term residence in an environment isolated from the mainstream of American society
• Membership of a federally or state-recognized Indian Tribe
• Residence in a community undergoing economic transitions (including communities impacted by the shift towards a net-zero economy or deindustrialization)
• Membership of another underserved community, such as persons otherwise adversely affected by persistent poverty or inequality.
• Individuals whose residence and/or business address is located in Community Development Financial Institution-designated (CDFI) investment areas, or the business will operate a future location in a CDFI investment area.

The following businesses are NOT eligible:

• Businesses engaged in speculative activities
• Businesses that earn more than 50% of their revenue from lending activities unless a CDFI Loan Fund or Tribal Enterprise Lender
• Businesses engaged in pyramid sales
• Businesses engaged in activities that are prohibited by federal law
• Businesses deriving more than 1/3 of annual revenue from gambling activities
• Businesses that have a principal that was convicted of a sex crime against a minor
• Business with more than 750 employees at the time of the loan. (The program average is not to exceed 500 employees at the time of the loan.)