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In addition to an independent audit of the state’s economic development agency, Indiana Gov. Mike Braun on Thursday announced the state is freezing all funds designated for a spun-off venture capital firm amid mounting criticism of its relationship with the state.
The announcement comes days after a wide-ranging report by Hannah News Service called into question the governance of the Indiana Economic Development Corp. and its affiliated venture capital firm, Elevate Ventures.
Braun said his office found potential wrongdoing between the entities and reported it to the Office of the Inspector General. That office said it would not provide a comment on any cases it is investigating.
All funds related to Elevate Ventures, which the state has partnered with for years to provide seed funding for startups, will be frozen until further notice, Secretary of Commerce David Adams, who oversees the IEDC and other agencies, said.
That includes federal dollars from the State Small Business Credit Initiative, a U.S. Treasury Department initiative to invest in local small businesses. IEDC partnered with Elevate Ventures to disperse and “leverage” the funding, which in 2022-23 amounted to $97.5 million in new financing for small businesses.
“We are going to bring transparency to this agency and its partners,” Adams said. “It’s only going to make us overall much stronger.”
Nonprofit activities also on pause
The actions stem from growing concerns over how the state conducts economic development activities, how much it spends on those endeavors and how transparent it is when conducting business.
Hannah News Service, which produces the Indiana Legislative Insight newsletter, published a sprawling account Tuesday that raised questions about the IEDC’s relationship with Elevate Ventures, a nonprofit that serves as a venture capital firm for the state agency. The IEDC gives Elevate millions of dollars each year to invest in Indiana-related startups.
The Governor’s Office confirmed to IBJ Tuesday that it is hiring an outside firm to produce an independent audit of the IEDC’s spending and accounts.
Two weeks ago, Braun singled out the IEDC’s nonprofit arm, the Indiana Economic Development Foundation, while announcing an executive order focused on improving the transparency of state-affiliated nonprofits. The agency and its namesake foundation have since filed missing transparency reports, which the Governor’s Office has said satisfied the order’s requirement.
Adams announced on Thursday that IEDF spending will also be suspended.
IEDC operations will not be paused during this time.
Adams said the state is actively evaluating potential firms to conduct the audit. Adams said he expects the audit, which will be paid for from the IEDC’s budget, will take six to 12 months to complete.
Possible next steps
Braun and Adams said they are waiting to see the audit’s results before taking any additional steps, including changes to the IEDC board and other consequences.
They said they would not speculate on if officials were self-dealing or whether recent staff turnover at the IEDC is related to the issue.
“We’re probably not going to do anything until we get all the information,” Braun said, “but all of that comes into play in terms of what you might do differently to prevent anything like this.”
Braun did not dispute any of the allegations included in the Hannah News Service report and said it included enough information to motivate his office to do a significant review.
When asked if suspected mishandling of funds goes beyond IEDC’s relationship with Elevate Ventures, Adams said that’s why they’re conduction an audit.
“Instead of trying to do this on a piecemeal basis, the appropriate action to take is let’s take a look at everything comprehensively, give the firm an opportunity to come in, understand what’s going on and then provide us feedback in terms of what they find,” he said.
IEDC funding cuts
In what is likely the final version of the budget unveiled Wednesday, state leaders cut funding for the IEDC and its programs by 25%. The major drop in funding is among a series of cuts made to the budget after lawmakers learned they’d have $2 billion less to spend than they had anticipated.
When asked if the cuts are related to transparency concerns, Adams said he doesn’t believe the actions are related. He said it instead makes IEDC a leaner, more effective agency.
The state’s latest budget proposal provides more funding for operations and business-promotion support, but cuts five funds and programs totaling $35 million.
Braun’s new small business and entrepreneurship office, which will eventually absorb some IEDC programming, would receive $1 million a year instead of $1.75 million.
The state has been allocating $32.8 million a year to the 21st Century Research and Technology Fund, which is meant to support early-stage investors. Lawmakers cut that funding to $25 million a year. Elevate Ventures receives funding for contracts and partnerships with the IEDC through the 21st Century fund.
The bulk of the cuts come from cutting Manufacturing Readiness Grants, costing $20 million a year. The Skills Enhancement Fund ($5.75 million), Economic Development Fund ($947,000), direct flights fund ($5 million) and Industrial Development Grant Program ($4.85 million) were also scratched.
Braun has sought to cut wasteful government spending across the board, similar to Elon Musk’s federal Department of Government Efficiency, or DOGE, efforts. The governor has been critical of how the state approaches its economic development strategy, saying the system was picking “winners and losers.”
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