Venture capital alliance unites Montana's private/public sectors

David Fettig | Managing Editor

Published December 1, 1989  | December 1989 issue

Cooperation between the public and private sectors—a common economic development theme—can go a long way in Montana, where a state official can even be placed on the board of directors of a new company.

Under the Montana Science and Technology Alliance—a seed capital and research financing program—a high-tech company may not only receive the capital necessary to open a business, but also may benefit from the continuing advice and assistance of an Alliance representative.

That's further than some states will go when it comes to aiding the development of private business, but other states, including Michigan, have similar programs.

The purpose of such a relationship, according to the state, is "to enhance the company's prospects for attaining success and a positive economic development impact on Montana, thereby increasing the prospects that the Alliance will realize a return on its investment."

The Alliance's seed capital program was funded with $7.5 million during the 1989 State Legislature. The funds came from an In-State Investment Fund of about $21 million that was created in 1982 by voter approval—from a coal severance tax—for the purpose of economic development. The Alliance has five years to invest the $7.5 million to companies that may receive up to $350,000 on a single round of financing, $750,000 total.

The creation of the Alliance stems from Montana's awareness that economic success in the future will depend on its diversity; hence, Alliance funds are meant for "innovative scientific and technological development."

"We're looking for an advantage," said Steve Huntington, executive director of the Alliance. He said the state looks for companies that are privy to a special trade secret or a new patent. Since the Alliance has only been funded for a few months it does not have a large portfolio; however, one of its first companies with a high-tech angle manufactures products for the separation, purification and analysis of high value-added chemicals and biochemicals.

"We're not in the business of chasing smokestacks," Huntington said about courting major manufacturers, because sometimes those companies can prove to be more trouble than they're worth.

"You can get a business that ends up holding you hostage," he said. "Or you get a business on wheels, and they'll leave again in a few years."

There is no other venture capital firm in the northern Rockies like Montana's, the Alliance director said—private or public. And certainly, there is no other public venture capital firm that could find itself sitting on the board of one of its companies.

The advantages of having the state of Montana represented on a private company's board of directors are many, Huntington said. The state can recommend resources for raising additional capital; it can provide additional contacts for business consulting; it can suggest research services from within the state's university system; and, it can use its foreign trade offices to help Montana companies establish overseas relationships.

"As we get better at this, we can do a better job for the company," Huntington said.

But what of a potential conflict of interest? What if a competing firm also applies for Alliance funds and would like the advantages of having an Alliance representative on its board? Also, are any established Montana companies critical of the Alliance's involvement in private business?

No such criticism has been heard, Huntington said. Also, because of the novelty of most of the businesses that are approved for Alliance funds, there is a strong likelihood that another company with competing interests will never end up applying for venture capital. However, if that ever does happen, he said such a scenario would only be indicative of the success of the program and the healthiness of Montana's high-tech economy.

Also, Huntington said, if so many good business ventures begin showing up in Montana and the Alliance finds itself faced with a competitive conflict of interest, then private venture capitalists will likely get involved. "Hopefully," he said.