Winrock International has announced the creation of a new fund dedicated to deploying early-stage capital to Arkansas startup companies. The Validation Fund, which went live Dec. 10, seeks to catalyze this crucial category of validation-stage funding.
“Winrock’s been a leader in growing Arkansas’ knowledge-based economy for many years,” said Rodney Ferguson, president and CEO of Winrock International in Washington D.C. “Over the years, we’ve come to understand that there is a gap in the startup financial spectrum.”
“The Validation Fund’s purpose is to aid in identifying those small companies that need an infusion of growth capital in order to become successful, sustainable businesses that are going to create jobs that pay well above the median salary for the state of Arkansas.”
Powered by an initial $1.1 million contribution from the Walton Family Foundation, the Validation Fund will fund awards of $50,000 to $150,000 in eight to 10 validation-stage companies in Northwest Arkansas over the next two years. Over time, Winrock plans to raise an additional $6 million to expand Validation Fund awards throughout the state.
“Arkansas and its startup companies are in an interesting time,” Ferguson said. “There is a startup universe in the state and there has been for some time, but we believe there is a category of companies right now that can benefit from this infusion of new capital and really grow and grow quickly to start generating new jobs. I would also say that there’s a heightened interest now among investors looking for these types of companies.”
The lack of early-stage capital is an oft-cited competitive disadvantage for Arkansas entrepreneurs. As the Milken Institute’s State Science and Technology Index shows, Arkansas ranks in the bottom quintile in the availability of risk capital. Per SSTI statistics, Arkansas companies received only 0.051 percent of U.S. venture capital funds between 2010 and 2016.
The new fund not only provides a source of capital for eligible startups, it also represents the first evergreen, not-for-profit fund in Arkansas. Ferguson said this fact, plus Winrock International’s nonprofit status, sets the fund apart in several important respects. For example, profits realized by Winrock’s ownership stake in funded startups will be plowed back into the fund to assist even more entrepreneurs on a go-forward basis.
“Our goal is not to make money for Winrock and certainly anyone associated with Winrock. Our goal is to drive economic growth across the spectrum in the state of Arkansas,” he said. “We hope investors and participants in our program understand we’re doing this out of a mission orientation rather than a for–profit orientation.”
“Certainly, there’s plenty of room for all types of investment categories in the state, but being able to attract the kind of money that nonprofits can attract – like for example, through the Walton Family Foundation – creates additional sources of funding in circulation among these companies. For this reason, we believe our role as a nonprofit is an important part of the ecosystem, to expand potential investment in the state.”
In unveiling the Validation Fund, Winrock International completes a continuum of supporting capital needs throughout the entrepreneurial landscape, from proof-of-concept to validation, angel and venture. The fund links Winrock’s decades-long experience in supporting entrepreneurs with the provision of capital at the earliest stages of new venture development.
At this time, only companies and entrepreneurs based in Northwest Arkansas looking to raise $250,000 to $1 million of growth capital and that are open to equity, convertible note or SAFE agreements are eligible. Funding is awarded via an application process to companies that have completed research and prototype phases and have customer discovery and/or customer validation around the problem.
In addition, ideal candidates for funding will have demonstrated commitment in the form of investment from friends, family or the founder and have a long-term, sustainable competitive advantage through intellectual property or similar assets. Awards for the Validation Fund will be made by an award investment committee comprised of two managers and three committee members.
Winrock plans to leverage other resources, such as Innovate Arkansas, funded by the state, the Delta I-Fund, funded by the Delta Regional Authority, and the Arkansas Women’s Business Center, to provide necessary technical assistance and counseling to companies seeking Validation Fund contributions. Full details and application materials are available at thevalidationfund.org.
In coming years, the Validation Fund plans to raise $6 million for awards to companies statewide in seven targeted industries: health care, retail, transportation, distribution and logistics, agriculture, food and natural resources, financial services, data sciences, advanced analytics and software development, and energy and power electronics.
“Our staff in Arkansas, led by David Sanders, and other folks involved in Winrock’s national program base where our Arkansas work resides, are constantly in conversations with economic development professionals in Arkansas, both within and outside of government,” Ferguson said. “We work together with these professionals to identify industries we believe have both the requisite numbers of validation–phase companies in the state and those industries that we believe present the best opportunities to grow high-paying knowledge-based jobs. That’s how we came up with these categories.”
Ferguson said when discussions for creating this fund started in earnest in late 2018, organizers couldn’t have envisioned the challenges 2020 would lay on the backs of the business community. But while the Validation Fund wasn’t created specifically with the pandemic in mind, he said, the timing could not be better for the companies that will benefit from the program.
“We all know that COVID-19 has hammered American business, particularly small business and entrepreneurs around the country and particularly in areas that have been underserved by investment capital,” he said. “We believe that this fund and the initial funding from the Walton Family Foundation could not have come at a better time and we believe that there will be great demand for it.”
“To us it’s a propitious moment in time to be doing these things and there’s no more deserving place than in Arkansas. We’re anxious to dig our teeth into this and start helping entrepreneurs and startups around the state.”
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