Michigan’s venture capital growth outpacing national trend

Monday, May 5, 2014

MVCA report cites highest-ever number of deals

LANSING, MI – Tech entrepreneurs and enterprising investors in the life sciences and information sectors will play an increasingly prominent role in the Michigan economy, according to survey results of the “early stage building” of the state’s technology ecosystem. 

In 10 years since its formal inception, Michigan’s venture capital community is showing growth in key measurable categories, outpacing the national venture capital landscape during the last five years, according to “Building Michigan’s Vibrant Future,” an annual report released today compiled by Michigan Venture Capital Association.

“The investment infrastructure and public-sector support is in place for Michigan to become a top-ten venture capital state,” said Gov. Rick Snyder. “We’re committed to maintaining the right policies, practices and programs to further cultivate venture capital investment in Michigan’s knowledge-based economy.”

Many of the tech startups are the result of research conducted at the state’s world-class universities, including Michigan State University, University of Michigan and Wayne State University, collectively referred to as the University Research Corridor (URC).

Despite a diminished national fundraising climate during the last five years in which total capital under management nationally decreased by 3.5 percent, total capital under management among Michigan-based firms increased by 45 percent, from $1.1 billion to $1.6 billion, essentially the reverse of the national trend.

Other key survey findings in Michigan’s venture capital growth from 2009-2013 include:

  • 44 percent increase in number of venture capital firms in Michigan, compared to a 6 percent increase nationally.
  • Nearly a doubling in the number of venture capital professionals in Michigan, compared to a net 13 percent decrease nationally.
  • Investments into firms specializing in women’s health and medical research yielded a significant research impact. For instance, new companies developed an imaging model for breast exams, a novel genetic fetal screening, and, an original approach to targeting DNA to fight cancer and bone regeneration.“

Building an entrepreneurial economy takes time, and MVCA’s data shows growth in the momentum in Michigan in both successful startups and investments,” said Carrie Jones, executive director, MVCA. “The right pieces are in place, from capital for early stage startups through to second stage and growth stage companies as well as a robust pipeline of activity.”

Specific developments in 2013 cited in MVCA’s report include:

  • Michigan recorded $120 million in venture capital investments in 40 companies, the highest number of deals since MVCA began tracking.
  • Total venture capital funds under management of Michigan-headquartered firms was $1.65 billion, an increase of 12 percent from 2012.
  • Angel investors showed strong support for early stage companies, investing $9.9 million.
  • Three new venture firms were launched, and two national firms – Baird Capital and Cultivian Sandbox – opened offices in Michigan.
  • Venture-backed Esperion Therapeutics held an Initial Public Offering (IPO) and was added to NASDAQ Biotechnology Index, which raised approximately $70 million.
  • Esperion is a biopharmaceutical company focusing on research, development and commercialization of therapies for treatment of elevated levels of low-density lipoprotein cholesterol and other risk factors. The company received support from the Michigan Economic Development Corporation through the 21st Century Investment Fund administered by Arboretum Ventures.

“We truly value our partnership with the venture capital community and feel we’re in lock step in continuing to build Michigan’s tech economy,” said Paula Sorrell, vice president of entrepreneurship, innovation and venture capital at MEDC.

Venture programs at MEDC improve the climate for investment and entrepreneurial activity in Michigan, said Sorrell. Supporting growth of venture capital and private equity in Michigan, MEDC has developed a range of programs to invest in early stage companies, commercialized breakthrough technologies, along with Michigan-based companies creating new business and jobs in the life sciences, information technology, advanced manufacturing and homeland security. 

Nationally, $29.5 billion was invested in 4,041 venture capital projects in 2013. That marks an 8 percent increase in the amount invested, and a 5 percent increase in number of deals compared to the previous year. Nearly half of all U.S. venture capital investment dollars occurred in California in what accounts for about 40 percent of all nationwide deals. The figures are based on the MoneyTree Report, compiled by PricewaterhouseCoopers LLP, National Venture Capital Association, and Thomson Reuters.

Of the record number of investments in Michigan’s venture capital community last year, according to the MVCA report, 45 percent of the venture funds was in life science/healthcare companies, primarily composed of pharmaceutical and medical device businesses, and, 40 percent in information technology companies. In addition, of total capital managed by sectors, 41 percent was invested in life sciences/healthcare, and 33 percent in information technologies.

Funding stages include seed, start-up, expansion, and mezzanine. Most deals take 7 to 10 years before profitable.

“We’re committed to building Michigan’s entrepreneurial ecosystem, and are working with venture capital firms to help attract exceptional talent to their firms and portfolio companies,” said Snyder. “The Michigan entrepreneurial spirit is igniting a reimagining of the state’s economy.”

Venture-backed companies accounted for 11.87 million jobs in 2011, according to Venture Impact, a study by IHS Global Insight. The job figure translates to about 11 percent of private-sector employment.

About Michigan Economic Development Corporation (MEDC)

The Michigan Economic Development Corporation is the state’s marketing arm and lead advocate for business development, job awareness and community development with the focus on growing Michigan’s economy. For more information on the MEDC and our initiatives, visit www.MichiganBusiness.org. For Pure Michigan® tourism information, your trip begins at www.michigan.org. Join the conversation on: Facebook Instagram LinkedIn, and Twitter.