Michigan’s angel and venture capital community continued to build momentum and spur economic development in the state, according to a recent research report by the Michigan Venture Capital Association.
Speaking Wednesday at the Michigan Growth Capital Symposium, Jim Adox, chairman of the MVCA, reported 129 venture-backed companies are currently active in Michigan, a 70 percent increase over the past five years, and 37 venture funds maintain an office or headquarters in the state, a 48 percent increase during that period. To date, total capital under management has risen to $4.8 billion, an 86 percent increase over a five-year span.
Despite these gains, a serious shortfall in venture capital funding looms in the future, according to Adox. The MVCA’s survey of venture capital investors in Michigan found that their Michigan-based portfolio companies will require at least $1.3 billion in coming years. Yet, the firms have approximately $108 million available for follow-on investments. “This is a serious gap in funding,” Adox stated.
A handful from seasoned venture investors from Chicago, Madison, Salt Lake City, Denver and Detroit made a 360-degree evaluation of Michigan’s and the Midwest’s venture capital investment landscape and weighed in on its strengths and weaknesses during a panel discussion.
Sean Kearney, managing director of Three Leaf Ventures in Denver, gave the Midwest and Michigan, in particular, high marks for its strong regional investment community, outstanding research universities and collaborative approach to entrepreneurship and venture capital investment. “The elbows are less sharp, and people are more collegial and less competitive here,” he remarked. “Midwestern research universities are epicenters for innovation, and their offices of technology transfer are willing to work with entrepreneurs and venture investors.” On the downside, Kearney said, the Midwest lacks sufficient marketing and commercialization talent and is weak in the business-to-consumer arena. Business-to-business models tend to be much more prevalent in the region, he noted.
Greg Robinson, managing director of 4490 Ventures, noted that the level of entrepreneurial enthusiasm and activity runs high in places such as his hometown of Madison and Ann Arbor. However, he said, the Midwest as a whole lacks the entrepreneurial culture and market maturity needed to move the needle on venture capital investment. “Entrepreneurs need to be bold, think big and embrace failure,” Robinson explained. “Midwesterners focus more on working hard and making it right. There is not a native ecosystem of entrepreneurial companies in this region, so people struggle to find executives and mentors.” The Midwest also is short on co-investors, capital and big hits, and it needs additional time to grow and mature, Robinson added.
Carl Ledbetter, managing director of Pelion Venture Partners in Salt Lake City, said the Midwest’s strongest attributes are its research universities and big industrial companies that can be the first customers for innovative products and services. Despite high skill levels, the Midwest still needs to develop familiarity with the language and conventions of venture investment, according to Ledbetter. The region also is afflicted with so-called founder’s disease, the tendency for a founder to stay at the company helm too long or to sell the company too early at a lower price and valuation level. “The people who are the right ones to start a company are not necessary the right ones to grow it,” Ledbetter explained. “Founders get upset. They think the company is their baby.”