Venture Capitalists Make Their Mark in Michigan

The amount of venture capital invested in Michigan startups has doubled over the last five years, helping create jobs and tax base throughout the state.

by John Gallagher, Detroit Free Press / April 12, 2016
Venture capitalists in Michigan often come from university research and growing tech hot spots like Detroit (pictured) and Ann Arbor.

(TNS) — Reinventing Michigan’s economy as a more nimble player in the entrepreneurial arena takes money, a lot of it. Fortunately, Michigan is seeing a growing amount of venture capital cash invested in the state’s start-up firms.

The annual report from the Michigan Venture Capital Association offers some fairly impressive reasons for optimism about the backing entrepreneurs can find now.

Both the number of start-up firms getting venture investments in Michigan and the amount of venture capital now invested in Michigan start-ups has doubled over the last five years.

This money is helping create jobs and tax base throughout the state. A growing venture capital industry remains an essential piece of creating tomorrow’s economy.

“Venture capital here in Michigan is truly an economic driver,” says Maureen Miller Brosnan, executive director of the Ann Arbor-based association.

Some basic definitions. Most entrepreneurs launch their companies with whatever cash they can scrounge — their own savings, money from friends and family, maxing out their credit cards. There are thousands of such budding start-up firms operating in the state.

Venture capitalists are professional investors who back only those with the greatest promise of future returns. Often those firms are the ones spinning off from university research or in tech hotspots like Ann Arbor and, increasingly, Detroit.

Venture firms raise money from deep-pocketed investors and then put that money to work looking for the next emerging success story. In many ways it’s a small tight-knit industry, with fewer than 150 professionals engaged in placing venture capital in the state now.

But those individuals and their cash are making a big difference. Some data to consider from the latest annual report:

There are now 36 venture capital firms either headquartered or with an office in Michigan. Michigan-based venture capital firms have more money under management than ever before — $2.2 billion, nearly double the amount five years ago.

There are 141 venture-backed companies operating in Michigan, nearly double the number five years ago.

A little over half of the venture investments support entrepreneurs working in life sciences — in part a legacy of the old Pfizer research center in Ann Arbor that closed in 2007 but left a wealth of local talent looking to start new firms.

Another 21% of the entrepreneurs getting venture investments work in the information technology field.

Every $1 invested in a Michigan start-up by a Michigan venture capital firm attracts $4.31 of investment from outside the state.

The start-up firms supported by venture investors tend to cluster in places like Ann Arbor, Detroit, and western Michigan, but as Brosnan said, “People all over Michigan have great ideas."

Unfortunately, we don’t have any data on the success rate of these venture investments. Start-up firms have a fairly high failure rate. How many of the venture investments made in Michigan have succeeded and how many have gone bust would be a good number to know.

So far, nobody is collecting that information, and venture firms themselves would naturally rather talk about their successes than their deals gone bust.

But this much we do know. The increase in venture money available now in Michigan, and the rapid rise in Michigan firms getting venture cash, is a sign that something important is happening.

©2016 the Detroit Free Press, Distributed by Tribune Content Agency, LLC.