RPM Ventures’ Tony Grover Expects Michigan’s VC/Entrepreneurial Ecosystem to Continue its Expansion in Near Future

Success builds upon success, says Tony Grover, managing director of Ann Arbor-based RPM Ventures. So it’s no surprise that the year-over-year success of Michigan’s venture capital and entrepreneurial community has accelerated its growth. Grover expects that expansionary trend will continue in the near future.

“Over the past five years, the number of in-state and out-of-state venture capital firms and investment professionals actively putting capital to work in Michigan has increased significantly,” he explains. “I attribute this expansion to programs set in place by the state, such as the Venture Michigan Fund; the emergence of regionally focused fund-of-funds Renaissance Venture Capital Fund; and tangible start-up successes. Large exits by venture-backed companies, such as Arbor Networks, HandyLab, Esperion Therapeutics, HealthMedia, ForeSee Results and Accuri Cytometers, provide validation to investors that great companies can be built here and that the pool of experienced management talent is available locally, and increasing.”

Grover sees a diverse range of industry sectors, in addition to those represented by the aforementioned venture-backed companies, where Michigan has proven capabilities and offers the ingenuity and experience to foster the design and development of technological innovations. Chemical-engineering expertise emanating from Dow Chemical Co. in Midland, for example, has been applied to the design of advanced battery technology while automotive engineers from Detroit’s Big Three auto makers have leveraged their know-how to develop next-generation engines and automotive components.

Timing is very important in venture investment due to the ebbs and flows of economic cycles, according to Grover. Moreover, the increasing length of time it takes to build a company from start-up to exit can try investors’ patience. “Early stage companies can require a relatively long time to mature,” he explains. “If a venture investor is chasing companies in hot sectors, the reality is that it’s probably too late to find the best companies by the time the sector is recognized as hot.” RPM Ventures held its investment for nearly 10 years in Xtime, a provider of service-scheduling and workflow software to automotive retailers, until the California-based company was bought for $325 million by Cox Automotive in mid-November.

Grover’s advice to Michigan VCs seeking a pathway to success is to:

  • Take a long-term view of investment and be patient.
  • Invest in sectors where their firm has industry expertise, is able to add value and can be differentiated from other firms.
  • Find start-ups with scalable business models and help drive them to rapidly growing revenues and cash flow in order to withstand market cycles.
  • Focus on building great companies rather than building for exits.

“When we raise money for our funds, institutional investors look for many of the same attributes we value in start-ups: a team you can trust and believe in, people with previous results and a good track record, and a business that’s unique and differentiated,” Grover says. “At RPM Ventures, we have built a differentiation based on our years of experience, our network of relationships and our unique areas of expertise. This platform enables us to forge stronger relationships with entrepreneurs within a sector, conduct more-thorough due diligence, make better decisions and add more value to start-up companies once we have invested in them.”

On a statewide basis, the Michigan Venture Capital Association reports encouraging progress in the expansion of the VC/entrepreneurial ecosystem in the state. Results from a 2013 research report show that over the past five years:

  • The number of active venture-backed companies in Michigan increased 66 percent.
  • Michigan-based venture capital firms increased the dollars in capital under management by 45 percent.
  • The number of venture capital firms either headquartered or with an office in Michigan rose 50 percent.
  • The number of active angel-backed companies increased 137 percent.

“These results indicate we have more entrepreneurs gaining experience, more ‘shots on net’ for successes and a more robust, active VC/start-up community locally,” says Grover, who is chairman-elect and treasurer of the MVCA. “Raising awareness via industry advocacy is a top priority, and the MVCA is working proactively to take a leadership role at the national level.”

Female entrepreneurs honored in U-M roundup

In honor of Women’s History Month and International Women’s Day, the University of Michigan’s Innovate Blue blog recently recognized 15 female U-M student innovators to keep an eye on this year.

Among those named were several female entrepreneurs associated with the Zell Lurie Institute.

Jordana Schrager, an undergraduate student in STAMPS Art + Design, has a business minor in the Ross School of Business and was particularly inspired by an entrepreneurship class with Professor Len Middleton. Thanks to her experiences at the University of Michigan, Jordana has grown the customer base for her companies, SKICKS and Sneakers by Jordana, and has sold custom sneakers to celebrities such as Nick Cannon, Ariana Grande, Selena Gomez and Pink. You can read about her on the ZLI blog, and Crain’s Detroit Business.

Lamees Mekkaoui and Sushmitha Diraviam are helping their users manage their anxiety and stress with Change of Mind, a mobile/web application that aims to fill the gaps between formal treatment appointments and emphasizes social support for its users. The team is in talks with clinicians at U-M’s Depression Center and hopes to launch trials of the app soon. Mekkaoui and Diraviam, along with their team members Sean Ma, Evan Gennrich, and Aaron Schippert, are part of TechArb, U-M’s student accelerator, and competed in the Michigan Business Challenge.

Alexandra Pulst-Korenberg and Heather Ray are trying to make life just a little more comfortable for hospital patients and their healthcare providers with EasyIV, a device that organizes the usually tangled mess of medical lines and cords. Pulst-Korenberg is also the co-founder of Women Who Launch, an initiative to promote women in entrepreneurship, and a member of the Zell Lurie Commercialization Fund. She and Ray have also pitched EasyIV at the Michigan Business Challenge and received two Dare to Dream grants.

Camille Merritt has created an online platform and mobile app called Graduate that helps students and parents keep track of graduation requirements so that students can graduate high school in four years. With her partner Eric Katz, Merritt hopes Graduate will help students meet college admissions expectations and plans to one day expand Graduate’s scope to higher education. Graduate has also won an Outstanding Presentation award at the Michigan Business Challenge and was awarded a grant through the Dare to Dream program. You can read about her on the ZLI blog.

Also a co-founder of the Women Who Launch initiative, Marianna Kerppola is the woman behind BetterHope, an online marketplace that curates products made with dignity so that customers can be sure their purchases support safe and sustainable jobs. She has won a Mayleben Venture Shaping grant, was a Social Impact Finalist at the Michigan Business Challenge, participated in the Marcel Gani internship program and has been a member of TechArb.

To find out more about each of these projects and the rest of the 15 featured women, read the full story on Innovate Blue.

Blue Water Satellite Aims High to Expand its Customer Base, Boost its Sales Revenue and Attract New Investors

Companies across a wide range of industries are clamoring for more detailed digital information about their land and water resources world-wide in order to increase sales and reduce costs. Until recently, those resources were monitored by taking physical samples of soil or water, sending them to a laboratory for analysis and obtaining limited information about one or two data points. Blue Water Satellites has transformed that data collection and analysis process and revolutionized the satellite-imagery industry.

“We are taking the lab and moving it into the sky,” says CEO Milt Baker, who co-founded the company in 2009 to commercialize patents licensed from Bowling Green State University in Ohio. The Toledo-based start-up obtains rich spectral imagery of large areas from government and commercial satellites and then uses proprietary image processing to provide high data density on minerals, chemicals, vegetation and biological organisms to customers at a fraction of the cost of laboratory-acquired data. “We take the spectral band information collected by sensors on satellites and are able to cull out the fingerprint for chemical and biological constituents,” Baker explains. “That’s our secret sauce.”

Blue Water Satellite is now partnering with Google and using Google Earth Engine and Maps Engine to automate the image-serving process. “Google found out about us quite by accident and made us a trusted tester to help them develop these image-processing tools,” he said. “We use their tools to process the satellite imagery data and sell that data to our customers. Our relationship with Google will be a great thing going forward.”

Currently, Blue Water Satellite has four major verticals of customers: oil and gas producers, pipeline companies, large environmental engineering firms and power-producing utilities. “Satellite imagery is global, so we see expansion of our customer base everywhere,” Baker says. The company achieved $1 million in sales in 2014, and has a growth target of $50 million in five years. To reach that goal, it needs investments in four platforms of growth and is seeking to an A round of financing of $3.5 million. To date, the company has received $1.8 million in funding from Rocket Ventures, Millstream Angels Group and several individual angel investors.

“Our investors were the ones who urged us to attend the Michigan Growth Capital Symposium in June because it would offer a great opportunity to interface with future investors,” Baker says. “We got help on refining our pitch from MGCS volunteers that was very valuable, and we incorporated their suggestions into our final presentation to investors. The symposium was very productive because we were able to meet with funds and get matched up with people who are interested in our business.” Although no financing deals have been finalized yet, Blue Water Satellite has progressed through the due diligence process with four potential investors. “I’m confident that one of the four will become an investor in our company,” Baker adds.

New industry trends, including the launch of a series of ultra-low-cost satellites in the near future, will expand global satellite coverage and improve the frequency of data collection and transmission. This bodes well for Blue Water Satellite. “We anticipate we will hit $3 million to $4 million in sales by the end of 2015,” Baker says. “Based on that growth track, we plan to return to the MGCS next year to update people on our progress and to see if other investors are interested in our company.”

SciTech Development Seeks Venture Capital to Commercialize its Promising Cancer Drug and Novel Drug Delivery System

Serial entrepreneur Earle Holsapple III, the CEO of SciTech Development, faces a problem common to many start-ups, especially those focused on drug development. His Detroit-based biopharmaceutical company is pursuing the commercialization of a well-known anticancer agent, fenretinide, and a novel intravenous drug delivery system that uses nanoparticles to transport the drug to cancerous tumors safely and in the proper doses without unwanted previously existing side effects.

Initially, the anticancer agent/IV nanoparticulate delivery system, known as ST-001, is being developed for the treatment of T cell lymphoma cancer, because the drug already has cured several patients with this disease. But in the future, it could be used to treat prostate, lung, ovarian, pancreatic and other deadly forms of cancer. Also in the company’s pipeline is a fenretinide topical chemotherapy for curing precancerous and cancerous skin lesions. “The potential for saving lives is immense,” Holsapple says. “The reward for investors is very promising.”

The dilemma facing SciTech Development since it was spun off from the Karmanos Cancer Institute and Wayne State University in 2001 is that venture capital funding has been hard to come by. “We’ve been pushing a snowball uphill,” Holsapple says. “Drug development is an area where not too many people are succeeding. Big pharmaceutical companies want clinical proof first, and then they are willing to pay a big price. But they don’t want to fund the initial drug development phases.”

Bad luck and unfortunate timing have plagued the company’s fundraising efforts and development path. Local venture capitalists showed interest in SciTech after the company presented at the Michigan Growth Capital Symposium in 2007, but no VCs made a financing commitment. The company had a term sheet and deal with a private equity investor ready to go, but the financier backed out at the last minute due to misconceptions about the prospects for SciTech’s patent approvals. A “valley of death” bridge funding application to the National Cancer Institute fell through when, at the last minute, the venture capital firm that pledged matching funds ran short of money.

Despite this hard-scrapple beginning, Holsapple is more determined than ever to restart fundraising after the company’s patents cleared the approval process earlier this year. In June, he presented to venture investors at the 2014 MGCS in an effort to raise Series A through C rounds of financing of $8 or $9 million. Coaching and support from the MGCS and the Michigan Small Business and Technology Development Center helped Holsapple prepare and deliver an effective fundraising message. The Series A round would be used to finish preclinical testing work while the Series B and C rounds would fund Phases I and II clinical trials on the use of ST-001 for the treatment of T cell lymphoma cancer; funding also would support Phase II clinical trials to investigate the drug’s use in the treatment of other cancers. If separate topical and IV Phases I and II go well and the FDA fast-tracks its approval of ST-001, Holsapple estimates the topical version of fenretinide could be on the market in one year and the intravenous version in two or three years.

“Because of strong supporting data, there is broad consensus among researchers and clinicians who say this drug will work if delivered in adequate quantities without delivery-system side effects ─ and we have created a delivery system made from ingredients that are known to be safe and cause no such side effects,” he explains. “We’re ready to try to get this product back into use on humans in its new form and to provide an effective treatment for numerous cancers.”

Holsapple has a personal, as well as professional, reason for wanting to move ST-001 to market as quickly as possible. Several months ago, his newborn granddaughter was diagnosed with neuroblastoma and underwent traditional chemotherapy treatment that could adversely affect her neurological development. “Imagine how I felt, recognizing that without all the delays, this drug free of side effects possibly could have been available for my own granddaughter,” he says. “Obviously, I’m very motivated.”

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Meet Samantha Kelman, BBA ’10: Fitness Guru and Entrepreneur

Samantha Kelman, BBA ’10, has always dreamed of owning her own business. “Entrepreneurship is at my core,” she said. She started her first business when she was in high school, selling apparel to raise money for breast cancer awareness—a cause she still supports today.

After graduating from the University of Michigan in 2010, Sam didn’t rush into opening her own shop. “I wanted to learn more about running a business properly and to make sure it was something I was really passionate about,” she said.

So she moved to New York City, where she took a marketing position first with American Express and then with RWL Water. While there, during her time off, Sam explored everything New York had to offer for her other great passion – fitness. An athlete her entire life, Sam hopped from gym to gym and class to class, gradually falling in love with the boutique gym concept—especially gyms that offered rowing or spinning classes. “You have to stay in shape when you’re working in an office all day long,” she said. “But you don’t have to go to a big box gym to get a great workout.”

Sam and her mom, Karen, had always talked about opening their own studio someday. While Sam conducted hands-on market research in the largest market in the country, Karen, a personal trainer, worked on building up her client base back home in Michigan.

With the unlikely combination of rowing and cycling, Sam and Karen had hit on a style of exercise that could suit the entire community. “It’s a full body workout, very high intensity but low impact,” Sam said. That combination means it’s suitable for anyone with back or knee injuries, or anyone who’s out of shape or a little older, but it also appeals to the tough athlete and workout-a-holic.

“It was a no-brainer to come back to my hometown to open Cycle & Row,” Sam said. Karen had already built a client base there, and it’s much less expensive to open a business there than New York. Plus, as an alumna, Sam had the University of Michigan network in her backyard. “The alumni network has been hugely helpful,” Sam said. Cycle & Row has also benefited from a steady stream of U-M alumni clientele—and from the advice and connections of Zell Lurie Institute professor Len Middleton, with whom Sam has kept in touch since she took an entrepreneur class with him as an undergrad.

Cycle & Row’s Grand Opening weekend was held Friday, February 27, and Sam is already looking ahead. “We’re hoping to keep filling up classes and working out the kinks and fine-tuning the concept,” she said. “When we get to the point where we don’t need the founders in here every day, we’ll expand into the greater Detroit area, and hopefully beyond.”

Cycle & Row is also a testament to the benefits and stresses of working with those closest to you – family. Sam and Karen run Cycle & Row with Sam’s fiancé and Karen’s husband. Knowing your business partners better than anyone else can be hugely beneficial when it comes to making decisions and understanding each other’s strengths and weaknesses.  “We just have to be careful not to bring work tensions home,” Sam said. “Working with family can create a challenging dynamic, but I couldn’t imagine trusting anyone like I can trust them.”

Overall, opening her own brick-and-mortar business has been a learning experience. “One thing that’s been really interesting is that you can go in with a business plan and think you know everything you need to know, think you know the path,” Sam said. “But you can’t be afraid when that path veers off. It’s good to keep an open mind and listen to your customers and not be afraid to change. A lot of learning happens after the doors are open.”

Vote for the University of Michigan in the Rice Business Plan Competition!

As announced earlier this week, Elegus Technologies has been invited to represent the University of Michigan to compete in the 2015 Rice Business Plan Competition for more than $1 million in prizes at Rice University in Houston, TX on April 16-18, 2015.

In addition to merit prizes, Elegus Technologies is also competing for the $5,000 People’s Choice Award. Click here to enter your vote for the University of Michigan team. The winner will be announced Saturday, April 18.  (Note: The link will take you to Facebook. Scroll down to Elegus Technologies, scroll to the bottom and hit ‘submit’.)

The Elegus Technologies team is comprised of Master of Entrepreneurship 2014 alumni Daniel VanderLey, Long Qian and John Hennessy.

MVCA Chairman Jim Adox Recaps Highlights of 2014

At the start of 2014 when Jim Adox began his two-year term as chairman of the Michigan Venture Capital Association, he outlined three broad initiatives to strengthen Michigan’s entrepreneurial and venture capital community. Now a little over halfway through his term, we asked Adox, who is managing director of Venture Investors, how these initiatives played out over the past year and what other events made 2014 significant for the MVCA and Michigan investors.

MGCS: Your first initiative involved the launch of a new state-funded fund of funds that would invest in VC funds located in Michigan.

Adox: The new fund of funds has not launched, but there was a lot of activity focused on examining different structures for the fund. Early in 2014, we worked with state legislators, who were in favor of continuing to support venture capital in Michigan, given all the excellent results. The Michigan Economic Development Corporation (MEDC) has been working on the fund of funds initiative quite a bit. It is a very important goal, and one that certainly will roll over to next year. In fact, it will be the first goal for the MVCA in 2015, because it’s so vital to maintain the momentum of venture capital and to fund entrepreneurs in Michigan. Now that the elections are over, we can make some progress toward this goal.

MGCS: Your second initiative was to foster professional-development programs that enhance venture capital and entrepreneurial talent in our state.

Adox: Those programs have gone well. Earlier this year, the MEDC awarded grant funding to the MVCA so we could continue our Venture Fellows program, which enables venture funds to bring new, younger people into their firms as analysts or associates. This is the second session of this program. In the past, the venture funds and the Fellows have liked the program and felt it was beneficial. This is a potential route for Michigan MBAs to get involved in venture capital and become part of a VC team. We also have a new program, Executive Connect, which builds and curates a list of talented C-level executives and CEOs, both current and retired, in Michigan who want to continue contributing to the state’s economy and entrepreneurial companies at a board level. These individuals would serve as board members for Michigan start-up and early stage companies. It’s an innovative program that fulfills a great need and desire by start-ups to attract more seasoned board members. These executives have been working in big companies during their careers and have been involved in different networks. This program combines the two networks of the entrepreneurs and the executives, and brings these two groups together. We have received an MEDC grant award, and this year we’ll launch the program and start to fill the pipeline.

MGCS: Your third initiative was to bolster marketing and communications efforts to raise the visibility of Michigan’s venture capital community.

Adox: We’ve focused on increasing our visibility outside Michigan, and two events in 2014 were noteworthy in that regard. We staged our first meeting and networking session for Michigan VCs and local VCs in the Bay Area in conjunction with the National Venture Capital Association’s annual meeting, VentureScape, in San Francisco in May. Our networking session attracted more than 100 people, and really got the word out. In the fall, MVCA Associate Director Emily Heintz made a presentation to the NVCA board detailing Michigan’s success in growing venture capital in the state during a time when venture investment was declining elsewhere. She outlined what we’ve accomplished with our programming, marketing, fund of funds and other initiatives. The NVCA board members are prominent venture capitalists from around the country. Informing them about Michigan is beneficial, because when they go back to their firms to do their day jobs as venture capitalists, they think more highly of our state and recognize the level of venture investment activity going on here.

MGCS: Are there other MVCA activities you’d like to highlight?

Adox: We supported the Accelerate Michigan Innovation Competition, as well as the Michigan Growth Capital Symposium. A number of MVCA members attended this year’s Detroit Venture Partners’ DVP Demo Day. And we held an MVCA town hall meeting in August to update our membership on new initiatives and to get their feedback.

MGCS: Overall, how well did Michigan’s venture capital sector perform in 2014?

Adox: Venture capital continues to do well in Michigan. During the first three quarters of 2014, according to the PwC Moneytree Report, Michigan companies received $167 million in funding from in-state and out-of-state venture capitalists. That figure represents a 150% increase over last year’s total venture capital investments in Michigan companies. In the final analysis, the amount of venture capital going into financing these companies is one of the key external metrics of how well our talent and entrepreneurial programs are working. We’re successfully preparing our entrepreneurs and their start-ups, and making outside investors aware of Michigan companies.

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