Kelly Williams, the global head of Credit Suisse’s Customized Fund Investment Group, or CFIG, had good news for venture capital investors and entrepreneurs seeking venture funding at this year’s Michigan Growth Capital Symposium. “We are now in an environment where things are looking better,” she told a crowd of 400 during her keynote remarks on Tuesday.
While the venture capital industry has experienced a retrenchment in the size of VC funds and continued weakness, overall performance at the national level has improved somewhat, and investors are now receiving distributions, Williams reported. A few years ago, she said, venture capital returns on a 10-year rolling average were negative. More recently, average venture capital returns were 7.5% over one year and 12.2% over three years. In 2012, venture-backed IPOs raised $21.5 billion from 49 listings, including the Facebook IPO, making their strongest showing in years.
The VC industry’s biggest success story on a regional and local level, Williams said, has been here in Michigan. Since 2001, the state has added 13 Michigan-based VC firms, nine satellite offices established by out-of-state VC firms and $1 billion in assets under management. More than 100 venture-backed companies are now operating in Michigan, and additional startups are entering the pipeline. “It’s pretty staggering,” Williams remarked. “Since 2008, the state has really come to the forefront.” The surge in VC growth, assets and deals has catapulted Michigan from 25th place to 15th place in national standings. “In every category, Michigan has outperformed,” Williams said. “Michigan is attracting more capital, creating more companies and getting more deals done. It’s a testament to the fact that investors are recognizing good opportunities in the state.”
A number of things have contributed to Michigan’s emergence as an attractive place for putting venture capital to work. The state has made great strides in developing its talent network, entrepreneurial resources and capital support programs. Michigan is now a leader in innovative capital investment programs and ranks No. 1 in capital invested per GDP. “Michigan has found a number of creative ways to fund initiatives and is leading its peers around the country,” said Williams. “This is the only state that covers the full capital spectrum − from pre-seed funds and smart zones to 21st-century commercialization programs and angel tax incentives to funding for early development, growth and maturity.”
Since 1999 when Williams launched CFIG, the group has been heavily involved with venture capital and private equity investing in Michigan. It currently manages six funds − including the Venture Michigan Fund and the Michigan 21st Century Investment Fund − and more than $600 million of capital dedicated to Michigan. The innovative structuring of these investment programs and their returns-driven focus has led to a sustainable investment model that has promoted job creation, diversification and new economic opportunities.
Another reason why Michigan and the Midwest represent a huge investment opportunity, Williams noted, is the presence of a strong research infrastructure led by top-tier universities and abundant technical expertise, coupled with a capital gap compared to more-competitive regions. While Michigan’s innovative focus has traditionally been on the life sciences, VC funds are now coming into the state and making investments in the IT sector. Another unique feature that distinguishes Michigan and the Midwest from Silicon Valley is the high level of collaboration among investors and between the public and private sectors. The ability to invest at attractive valuations also is a draw for venture capitalists seeking to maximize their investment dollars.
To maintain momentum in the future, Williams said, Michigan must continue to support entrepreneurial talent development and capital programs that address the full growth spectrum. The state also must work harder to increase its visibility and to get the word out to the broader VC community about the promising investment opportunities Michigan offers.
“Michigan ranks as one of the most proactive and most admired states, in terms of what has been done with a relatively small amount of capital,” said Williams, adding that the Michigan Growth Capital Symposium, now in its 32nd year, epitomizes the unique collaborative atmosphere and supportive entrepreneurial environment that has contributed to the state’s success.
For our readers: Where do we go from here? Will Michigan continue on its current trajectory or experience the slowdown in venture capital investing that has impacted other states?