Venture capital in Michigan is on a record-breaking round of fundraising.
Four numbers indicate historical high-water marks for VC activity in the state:
12 — that’s the number of firms either based in Michigan or with offices here that are currently raising new funds.
806,000,000 — that’s the total number of dollars those 12 firms plan to raise over the next two years.
8 — that’s the number of firms headquartered in Michigan that are raising new funds.
4 — that’s the number of firms that are concurrently targeting funds of at least $100 million.
No wonder, then, that there was a sense of optimism and excitement about the state of venture capital in Michigan at the recent Michigan Growth Capital Symposium, which drew 35 companies from around the Midwest to Ypsilanti to pitch for equity capital. The symposium attracted a record attendance of 530, which included angel investors, venture capitalists and service providers from around the state.
“What we are seeing is long-term vitality in the venture ecosystem,” Maureen Miller Brosnan, the executive director of the nonprofit Ann Arbor-based Michigan Venture Capital Association, told Crain’s prior to addressing the crowd at lunch on the first day of the two-day conference, in a speech filled with statistics from the organization’s 2017 research report. (See related story.)
“There are a lot of firms looking to expand their capital availability at every stage of investment — seed, early stage and later stage,” she said.
The surge has surprised some in the VC community, who worried that venture capital activity might slow after the state decided not to fund a third Venture Michigan Fund. Two previous funds, the $95 million Venture Michigan Fund I, created in 2006, and the $120 million VMF II, created in 2011, are credited with jump-starting VC activity in the state.
Those funds invested in venture-capital funds either based in the state or willing to open an office here. By 2015, those funds had deployed their capital, and the venture community began lobbying for a third fund.
But the legislature had grown more conservative and balked at the idea of creating a third fund, in part because the recession had slowed the projected timetable for when VC firms who got state funding would begin paying back their investments.
VC firms held off raising new funds until it became clear there would not be a third VMF, and a handful of out-of-state firms closed their local offices, including Cleveland-based Early Stage Partners, Cambridge, Mass.-based Flagship Ventures, Boston-based Fletcher Spaght Ventures and Effingham, Ill.-based Open Prairie Ventures.
“This is a really important period for the VC community in Michigan, to see if it can get to the next level,” said Chris Rizik, CEO and fund manager for the Ann Arbor-based Renaissance Venture Capital Fund.
“Some feel it’s time for the VC community to be on its own. But it’s a reasonable attitude that a third VMF would have been very helpful in getting us to where we want to be. VMF I and II were created as a bridge and we’re not quite there yet. There have been a lot of small funds created, but we need more large institutional funds.”
“VMF I and VMF II did what they were designed to do: grow a Michigan venture capital community and attract out-of-state money to the state,” said Brosnan. “Though I still hope there will be an appetite within the Michigan Economic Development Corp. and the legislature to support entrepreneurship through investing in venture capital. For every $1 invested by state VCs here, $4.61 is coming in from out of state.”
Jim Adox, who manages the Ann Arbor office of Venture Investors LLC, was chairman of the MVCA two years ago and made repeated trips to Lansing to lobby legislators for a third VMF. Some of the out-of-state VCs who have left the state in the last two years were based in his building in downtown Ann Arbor.
“Did they leave because there was no VMF III? Absolutely,” he said.
Adox said it is heartening that so many firms — including his firm — are out in the marketplace at once.
“The question is, will they all get there? Nothing is guaranteed,” Adox said.
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