UM’s Brophy Says Angel Investment Creates the Bedrock for Venture-capital Financing

Michigan’s angel investors play an important role in the life cycle of start-up companies around the state, says David Brophy, professor of finance and director of the University of Michigan Center for Venture Capital and Private Equity Finance, or CVP.

“Angel investors tend to be willing to look at very early-stage deals, so they create a nice bedrock upon which to build venture-capital financing,” he says. “Venture capitalists, who invest later in the financing cycle, want to see a little more beef on the bones, in terms of a well-developed management team and some customers.”

Over the years, angel investment groups have become increasingly institutionalized. Now many angel funds operate along the same lines as VC funds. “Angels no longer fit their earlier image of Wild West cowboys who throw nickels around like manhole covers,” Brophy remarks. “Today they are very sharp about structuring term sheets and deals before they invest their money and take an ownership position in the company.”

But angel investment is not just about cutting checks. It’s also about interaction. “Angels tend to be high net worth individuals who are attracted as investors to the fields where they made their money,” Brophy explains. “In their advisory role, they create additional value at start-ups by bringing good ideas to the table and making sound rebuttals to investment theses.”

Michigan’s entrepreneurial ecosystem and economy could benefit by encouraging angel investors to increase their outreach to promising start-ups and ramp up their deal making, according to Brophy. “As we get more wealth holders and pools of wealth backing local angel and VC funds, it creates a virtuous cycle,” he says. “Their money attracts investments from out-of-state funds, which means there are more rounds of financing leading to better harvests and exits. When companies thrive, our technology is brought to market, our employment base grows and we become a well-known entrepreneurial community.”

The annual Michigan Growth Capital Symposium greases the wheels of angel and VC investment in several ways. “Everyone is welcome to bring or sponsor a company at the symposium,” Brophy says. “Many investors come to look for opportunities to invest or to meet other fund managers or University of Michigan technology-transfer staff. Almost everyone can benefit because the symposium attracts a crowd of value-creating people.”

For more information about MGCS, visit http://michigan-gcs.com/.

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