SWMF courts Israeli medical device start-ups
KALAMAZOO — Southwest Michigan First is tapping into Israel’s thriving life sciences market.
The economic development organization expects to announce during the first quarter that an Israeli start-up medical device company will set up shop in Kalamazoo in 2009, CEO Ron Kitchens said.
He said as many as four Israeli companies could arrive in 2009.
However, Israel’s war with Hamas in the Gaza Strip could delay some of the developments in Kalamazoo, Southwest Michigan First’s Executive In Residence Paul Neeb warned. For example, one company being considered for an investment from the Southwest Michigan Venture Capital Fund sent several key members to fight with the Israeli army.
“Certainly, that’s going to push back timelines, although most of the companies we are dealing with are in Tel Aviv,” Kitchens said, which is protected by distance from the fighting. “Barring some kind of collapse in the Israeli economy, I would assume in 2009 we would have, certainly, multiple opportunities. We should locate one or more investments by our fund.”
Kitchens said more than 250 Israeli medical device companies are actively looking to come to the U.S., and the Kalamazoo area boasts four key factors to attract them: space, talent, a track record and capital.
“So if you can put those four things together, then you have an opportunity to compete for this opportunity,” he said.
Israeli Life Science Industry, a nonprofit trade group, counts 888 life science companies as members. Neeb explained that the Jewish nation has 24 business incubators and provides some funding for the start-ups. That has created a lot of businesses in a nation of 7.37 million that need the U.S. market, Kitchens said.
“They have a wealth of technology in an early stage that at some point needs to come to the U.S. market,” Neeb said.
“We’ve proactively searched out, in particular, Israeli medical device companies,” Kitchens added. “We want to be the place that can nurture select companies into the market, and build jobs and wealth in this community as part of that.”
To that end, Kitchens and Neeb both visited Israel last year and met with medical device firms at some of the incubator sites.
Neeb said the trips were facilitated by the Michigan Israel Business Bridge, a nonprofit organization founded in 2007 to connect business interests. SWMF is a corporate sponsor of MIBB.
“Combining the talent that we bring with risk capital through the Southwest Michigan First Venture Capital Funds, we believe we have a unique value proposition to some of the companies over there,” Neeb said.
SWMF already had a $50 million fund and has recently raised another $50 million for a second.
“Our objective is to build the right relationships with the right incubators over there, which will ultimately lead to a productive pipeline of early stage companies that will then establish infrastructure and hire people here in Kalamazoo, funded through our venture fund, and hopefully create the next Pfizer, Upjohn or 10 other small companies — or 50 other small companies, for that matter,” Neeb added.
Kitchens pointed to Kalamazoo’s history as the birthplace of pharmaceutical firm The Upjohn Co. and medical device maker Stryker as proof that Kalamazoo has the talent and know-how to guide products through the regulatory process and get them into the marketplace.
The availability of Southwest Michigan First’s two $50 million venture funds is reverberating more loudly in a business environment where credit is in crisis.
“It’s becoming even more compounded because of the credit crisis we’re in,” Neeb said. “So if you think money is hard to find in the U.S., imagine how difficult it is to find in Israel. So we’re in a position to take advantage of the environment that the world is in from the availability of risk capital. A lot of venture capital firms are taking a conservative approach. We’re in an opportunistic position, given the overall financial environment that we’re in. As such, we’re seeing great quality deal flow at valuations that are very advantageous when you’re on the buy side.”
Neeb said that of the 20 companies he visited in November, six to eight are still in the screening process. He said he anticipates a total of six to eight venture capital deals in 2009 “and one or two of them could be Israeli deals, absolutely.”
Kitchens said Southwest Michigan First is looking for office space for an accelerator for the Israeli companies, but he said it is not a big deal.
“That’s the easy part. Medical device companies do not need world-class research space. They don’t need, by and large, laboratories,” Kitchens said. “They need a place to hang their hat and do business, but it’s really Class B office space.”
Class B office space is much cheaper than wet lab space such as is available in the Southwest Michigan Innovation Center. But if need be, the Innovation Center has 70,000 square feet available, he said.