At the time, state officials were “throwing everything at the wall to see if it would stick and jumpstart the economy,” said Craig Thiel, research director at the Citizens Research Council. “This was one of them, and obviously it has not materialized like they thought it would.”

While the program was disbanded five years ago, principal payments on the final $250 million in loans the state took out to pay for it are just coming due. And because there is no money left in the Venture Michigan Fund, the state must pay back the lender with tax vouchers it had put up as collateral.

The Whitmer administration projects claims could cost the state $22.9 million in lost tax revenue during the current fiscal year, $67.6 million in fiscal year 2021 and $75 million in fiscal year 2022.

But the governor is proposing a plan her administration says would “free up reserve cash” and reduce total state costs: Buy back the vouchers, and pay the lender back with cash instead.

If it doesn’t, the state could have to issue additional tax vouchers to fully repay the lender, according to a Budget Office briefing.

That’s because the lender — Stanton Equity Trading Delaware LLC, a Credit Suisse affiliate — is not based in Michigan and does not have a state tax liability it could use the vouchers to reduce.

Stanton would have to sell the tax vouchers to a Michigan firm that could use them to cut its tax bill. But those vouchers typically sell at about 90 cents on the dollar, so Michigan would have to give Stanton additional vouchers to make up the 10 percent difference and fully repay the debt.

The Whitmer administration estimates the buyback plan could save the state $3.8 million this year and $11.2 million next.

It sounds complicated, but it’s the same thing then-Gov. Rick Snyder did in 2017 when his administration paid off the first $200 million the state had borrowed for the Venture Michigan Fund.

It’s a sound approach, according to James Hohman of the free-market Mackinac Center for Public Policy.

The venture capital program “accomplished neither its goal of creating new Michigan industries nor in being costless to the taxpayer,” Hohman said. “It’s good that the governor is doing what she can to minimize their costs, but they should never have happened in the first place.”

Whitmer will need sign-off from lawmakers.

The State Budget Office says it needs the Legislature to approve an initial $19.1 million in spending by March 1 “in order for the voucher purchase to occur and the associated financial losses to be avoided.”

Investors stood up for the Venture Michigan Fund program in 2015 when lawmakers put it on the chopping block, arguing it had helped attract other early stage investors and played a role in creating well paying, high-tech jobs in the state.

Success stories from the second round of Venture Michigan Fund investments the state is now paying off include companies like LLamasoft of Ann Arbor, which builds advanced supply chain software, and Pixel Velocity, another software firm in Ann Arbor.

Funding startups can be a “very risky investment” but “I think you do have to look at the long game,” said Ara Topouzian, executive director of the Michigan Venture Capital Association.

Topouzian, who began running the association in 2019, didn't have firsthand knowledge of the defunct Venture Michigan Fund but said the state is generally in a “good spot” for venture capital and is no longer viewed as the kind of “flyover state” it once was.

“You’re not always going to see immediate returns on some of these deals,” he said. “I think that folks need to understand that startups are going in and out of business all the time. It’s risky, but these [venture capital firms] are the ones investing because they see the potential of that startup.”

As of 2019, more than 140 venture-backed startups were operating in Michigan, according to the Michigan Venture Capital Association’s annual report. Twenty-seven venture capital firms are headquartered in Michigan or have an office in the state.

The Michigan Venture Fund did not directly fund startups. Instead, the state invested taxpayer money into other venture capital firms which were then supposed to also invest a similar amount of their own money in Michigan companies.

But only four of 11 venture capital firms matched the state investment in Michigan startups during the first round of the program, and only two of 10 had matched the state in the second round as of late 2016, according to the 2018 audit.

“Although VMF was generally compliant with the legislative requirements, the actual financial results of its investment activities indicate that VMF may not have achieved the success envisioned when the legislation was enacted,” Michigan Auditor General Doug Ringler’s office concluded.