Instead of taking it easy during the holidays, Innova officials will be calling on the corporate offices of insurance companies in a quest to raise $20 million by Jan. 1.

Insurance companies that invest with Innova Fund II LP – one of six venture funds selected Friday for a new state economic development initiative – will receive tax credits. The credits will allow insurance companies to offset a portion of their premium tax liabilities while they provide funding for fast-growth startup ventures.

“The requirement by the state is that we’ve got to have the insurance funding really within the next month; then that money has to be committed and

deposited by Jan. 1,” said Ken Woody, president of Innova. “Then we can begin our investment period. It’s a lot – a lot of work to get done.”

Advance prep

Innova had already begun courting insurance companies in hopes that it would be one of six designated “TNInvestcos.” A state law was passed this year to set up the pilot program. It could generate as much as $120 million, depending on how many insurance companies buy into the program.

Innova, which was created by the Memphis Bioworks Foundation, was the only West Tennessee fund to make the final cut.

“There’s a lot of insurance companies interested in this,” Woody said. “We’ve got to let them see that Innova’s a great organization to back and we think they will invest.”

Innova has already invested in seven startup ventures in the Memphis area – investments that have attracted an additional $6 million from others. The new companies are in the biotech, medical device, technology and tech service sectors.

One company that has received funding is Vaxent, whose founders have developed a vaccine for Group A streptococcus, the bacteria that causes “flesh-eating disease.” The vaccine, which is currently undergoing clinical trials, was selected by the World Vaccine Congress this year as a finalist for the “Best Prophylactic Vaccine” award. The selection put Vaxent alongside pharmaceutical giants Merck & Co., Wyeth, Novartis and Sanofi Pasteur.

“We don’t just invest a dollar and walk away,” Woody said. “We sit on the board. We take active involvement in the leadership, mentoring and growth of the companies.”

Catalytic reactions

Jan Bouten, a venture capital investor formally associated with The Aurora Funds in North Carolina, is joining the Innova investment team. Bouten is the executive director of TECworks, which provides education and business services to bioscience and technology companies in Memphis.

Although Woody had begun ground work in anticipation of Innova being selected, he said he felt great relief when he received news of the selection Friday.

“We’ve felt all along that we would be very competitive for this because it does fit our mission and charter extremely well,” he said. “But we also knew there were some very, very good organizations across the state and you just ever know until it’s done exactly what’s going to happen.”

The six TNInvestcos must have allocated at least 50 percent of the seed money within two years, 70 percent within three years, 80 percent within four years and 90 percent within six years.

To qualify for an investment, a startup company must be headquartered in the state, and have no more than 100 employees, 60 percent of whom must be state residents.

Woody has already talked to several startup companies that might qualify for investments and plans to learn about others.

“This is a one-shot deal right now from the state,” he said. “In the future, we hope the state will do this again. If it works, we hope there will be future allocations like this. At this point in time, there’s only allocation planned. It’s a program they want to evaluate and see if it works. If it does, we believe they will do it several times in the future.”

The other five TNInvestcos are based in Nashville. They are Tennessee Community Venture Fund LLC, XMi High Growth Development Fund LLC, Limestone Fund, Tri-Star Technology Ventures and Council & Enhanced Tennessee Fund LLC.

The Tennessee Department of Economic and Community Development and the Department of Revenue will administer the seed fund program. They worked with the Tennessee Technology Development Corp. in choosing the TNInvestcos that will receive the $20 million credit allocations.

Innova is closely affiliated with the nonprofit Memphis Bioworks Foundation. Steven J. Bares, the executive director of Bioworks, said the state program fits Innova’s mission.

“The expertise and experience of the Innova team, the resources of the Memphis Bioworks Foundation and the support we receive as a key initiative of Memphis Fast Forward and MemphisED programs create an environment that we believe has the potential to achieve what the TNInvestco program is designed to enable – ‘transformational economic development’ in the state of Tennessee,” Bares said.