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Venture capital activity gains momentum in Michigan
Number of firms, deals and capital under management are on the rise.
The entrepreneurial spirit in Michigan is emerging as a recent report reveals upward trends in the venture capital community — from pipeline to growth companies — and increased activity in the West Michigan region.
The Michigan Venture Capital Association announced recently that Michigan’s entrepreneurial economy continues to grow, according to the association’s 2013 annual analysis of venture capital activity in the state. The 2013 report, “Building Michigan’s Vibrant Future,” highlighted significant increases in the number of deals in Michigan, the number of venture capital firms and the total capital under management.
As a trade association, MVCA represents angel investors, venture capital firms and the supporting community.
Carrie Jones, MVCA executive director, said the annual report is a way to benchmark data in order to track the activity in the state. It has been conducted since 2007.
“Because of our relationships with the individual firms and others, we are really able to have good data and provide feedback, both to our members as a way to benchmark what we are doing, but also as the state is looking to support the community and support new programs,” he said. “We have great information for them to be able to do that.”
Several of the key findings in the 2013 in-depth report include: $120 million was invested in 40 companies in the state, which is an increase of 111 percent over the past five years; the state had an increase of 137 percent for active angel-backed companies over the five-year period to 116; and 36 Michigan companies received roughly $9.9 million in angel and pre-seed funding.
“If you look at where we are now versus where we were five years ago, there has been a tremendous amount of growth, and I think that is probably one of the greatest takeaways from this report,” said Jones. “Michigan has all of the right things in place to create a really strong venture community. The growth that we have seen is just the beginning, and I think we are going to see that continue to grow.”
Data for the venture capital report is collected on a statewide basis and then subsequently broken down by region to track where investments have been made. According to Jones, although a lot of companies involved in the growth are headquartered in southeast Michigan or Ann Arbor, 20 percent of the venture capital investments made in 2013 were from West Michigan and invested into West Michigan companies.
“I think it will continue to grow as more attention comes to the region, more dollars are invested and the ecosystem grows,” said Jones in reference to the West Michigan venture capital community. “If you look at what the pre-seeds have done and what Start Garden has done, there are 22 investments that have been made, and that really speaks to the growing pipeline. Those are likely to continue to grow and ultimately receive venture funding.”
Jody Vanderwel, president of the regional investment group Grand Angels, said the report validates what the state and the MVCA are investing their efforts in, and the number of investment deals made in the West Michigan region is promising.
“When Grand Angels started, the majority of our deal flow did not come from West Michigan. We’ve seen a continual shift in proportion. I would say more than 20 percent of our deal flow is now from West Michigan,” said Vanderwel. “We’re not partial to any particular region in the state as much as we are to the entire state, but I do like the fact that our deal flow is coming from a bigger geographic area.”
Grand Angels is an angel investor firm located at 36 W. Eighth St., Holland, and invests between $250,000 and $1 million in early-stage companies. According to its 2013 annual report, Grand Angels averaged $1.29 million in annual investments from 2004 to 2013.
Vanderwel attributes part of the growth in the venture capital community in the area to companies understanding their niches and how to implement them in the marketplace.
“I think we have learned a lot over the last five to 10 years. It is not only growing in numbers, but growing in sophistication, growing in the ability to collaborate,” said Vanderwel. “I think that just adds strength to the community statewide — the willingness of investors to collaborate, share due diligence, co-invest in deals, and to refer deals that don’t fit their criteria to someone they know could be interested in it.”
The report stated Michigan has positioned itself as an attractive environment for innovation and venture capital deals and is outpacing the nation in terms of growth in the number of firms, number of investment professionals and total capital under management.
According to Vanderwel, the venture capital and angel investor communities are important not only to the rebound of the state but also to the continuing growth and development in economic success.
“The research continues to show that net new jobs are created by small businesses, and often small businesses begin as startups and grow and add jobs,” said Vanderwel. “I think you could say the same thing on a national level. We need a vibrant entrepreneurial community, which means both entrepreneurs and people willing to invest in them to remove all the barriers to success: financial, networking and intellectual capital. Those are all the kinds of things investors, particularly angel investors, can help with.”
As a state, the number of investment professionals has increased 84 percent since 2009, while the nation saw a decrease of 13 percent. Michigan now has $1.6 billion total capital under management, which is up 45 percent; the amount of capital for the country was up by only 7 percent: $193 billion, up from $180 billion in 2009.
MVCA represents more than 70 organizations throughout the state, including private and corporate venture capital funds, private equity firms, angel investors and entrepreneurial infrastructure participants. The trade association has more than 200 members and is headquartered in Ann Arbor.