New Enterprise Creation Tax Credit

Prolog Ventures

For those of you who are unfamiliar with the term “seed capital fund,” it is a type of venture capital fund aimed primarily at funding and developing the most embryonic and riskiest of entrepreneurial ventures. Seed capital funds are different than traditional venture capital funds due to their willingness, at times, to actually lead the effort to create a company around a promising technology rather investing only in young, but operational companies seeking to expand.

For many years most venture capital funds, including seed capital funds, have been located in either Silicon Valley or the Boston area. Only in recent years has the venture capital industry begun to take note of opportunities in other areas of the country. But for the vast majority of the country, including Missouri, the expansion has come too slowly or not at all.

A little more than three years ago the Missouri Innovation Center organized and led a statewide coalition that wrote and successfully passed the New Enterprise Creation Act (NECA). The primary goal of NECA was to stimulate the creation of a private, professionally-managed, seed capital fund that would serve Missouri. The University of Missouri System and MU were key members of the Seed Capital Coalition, specifically UM System President Manuel Pacheco, MU Chancellor Richard Wallace and MU Vice Provost for Research Jack Burns, as well as the Missouri Department of Economic Development.

The formation of Prolog Ventures was stimulated by investment tax credits made available through the New Enterprise Creation Act, which was signed into law by the late Governor Mel Carnahan in July 1999. This legislation provides up to $20 million of investment tax credits. Investors receive tax credits worth 50% of the amount of their investment. For each tax credit dollar utilized at least three dollars of investable capital will be made available.

NECA also created the Missouri Seed Capital Investment Board (MSCIB), which has overseen the formation of Prolog Ventures. Executive Director of the University of Missouri’s Office of Technology and Special Projects, Dr. Tom Sharpe, is the Chairman of the MSCIB.

Prolog Ventures conducted a closing on May 10, 2001, with more than $21 million in private funds. Initial investors included the University of Missouri, Monsanto and Washington University. Prolog Ventures has already received preliminary approval from the U.S. Small Business Administration to participate in its Small Business Investment Company (SBIC) program that will, with final approval, allow Prolog to draw additional investment funds up to the amount of private capital raised. Thus, the total amount of capital that will likely be available to Prolog for investment, depending on final private fundraising totals, will be between $40 and $60 million. The SBIC program conducts a rigorous approval and licensing process for all applicants who must demonstrate competence in managing venture and seed capital funds.

Missouri’s four innovation centers (Columbia, Kansas City, Rolla, St. Louis) each hold a small ownership interest in Prolog, which could result in significant earnings over the next 10 or so years. As required by the New Enterprise Creation Act, any earnings that accrue to the innovation centers will be used solely for investment in future professionally-managed, seed-capital funds serving Missouri. In addition, Prolog has a formal relationship with the Nidus Center for Scientific Enterprise, a St. Louis based business incubator backed by Monsanto and the Donald Danforth Plant Sciences Center.

Three partners, Greg Johnson, Brian Clevinger and Ilya Nykin, manage Prolog Ventures. Johnson holds a doctoral degree in solid-state physics from the University of Rochester and a bachelor’s degree from MIT. He was in charge of Monsanto's venture capital operations before becoming a partner of Gateway Associates, a St. Louis-based venture capital fund, in 1987. Clevinger holds a doctoral degree in immunology from Indiana University and was a tenured faculty member a Washington University before joining Alafi Capital, a California seed capital fund. Clevinger became CEO of a biotech start-up, Megan Health, in 1993. Megan was recently sold, allowing Clevinger to join Prolog Ventures. Nykin has an advanced degree in mathematics and computer science. He has been involved as a founder, manager, adviser and seed investor in many successful entrepreneurial ventures during the past 15 years.

It is important to note that Prolog is charged with earning maximum returns for its investors. If successful in this pursuit, the Prolog management team should be expected to form future seed capital funds serving Missouri that do not require the use of additional state tax credits, vastly increasing taxpayers return-on-investment. Prolog managers will be expected to make all investment decisions based exclusively on the merits of the prospective company. Entrepreneurs and innovators in need of seed capital have no guarantees that any of them will become the recipient of a Prolog investment, however, they will get consideration, something they have not received in past years. Building a more entrepreneurial community is a long-term project. Prolog Ventures will help.

Prolog is seeking to identify companies with specific characteristics for investment opportunities. Click on Prolog Investment Guidelines if you would like to learn more about the types of ventures the fund is actively pursuing.

Prolog Ventures will immediately begin reviewing business plans and promising technologies for potential investments. Contact your local Innovation Center for additional details and to submit your company’s executive summary.

Prolog Ventures | Pierre Laclede Center II | 7733 Forsyth Blvd., Ste. 1440

St. Louis, MO 63105-1874 | Phone: 314-743-2400 | Fax: 314-743-2403 | Email: Gregory R. Johnson