OT: Venture Capital & startups in A2/Michigan

Although I currently work in finance I am trying to take the jump into starting my own company and also getting involved in angel investing.  I have always been surprised why this has not taken off more strongly in Ann Arbor since I believe that this is the best way for Michigan to reinvent itself, be competitive and start to grow.  With an very strong engineering and business school (as well as other programs) its never made sense to me why A2 is not yet one of the leaders in this area (aside from Silicon Valley, places like Boulder, Austin and a few others have done a much better job so far than A2).

I finally read a pretty encouraging newsletter about the Michigan VC/startup community today which I think is a good read for those interested. I could not find a link as I received the piece via e-mail so I am just going to paste it (by Howard Lovy):

 

Randal Charlton, executive director of the TechTown business incubator in Detroit, is a gambling man. And, no, I am not referring to the gleaming downtown casinos that prey on Detroit’s jobless with false hopes of instant riches. I am talking about the kind of gambling that just might provide real rescue to the Motor City.

Charlton says that when TechTown takes in a would-be entrepreneur and provides office space, training, funding, and other services, he is placing a bet. Odds are, most of the 200-plus companies he’s incubating near the Detroit campus of Wayne State University will fail. But, unlike at the casinos downtown, the failures are not total losses. They are creating a culture of entrepreneurship in Detroit, something that nearly everybody agrees has been lacking in this historically one-industry town.

TechTown was originally created in 2003 by the state as a so-called “SmartZone” set aside for entrepreneurship training and company incubation. It wasn’t until May 2009, however, that TechTown truly got off the ground. That was when a Detroit philanthropic partnership called the New Economy Initiative and the Kauffman Foundation together took a gamble in the form of a $9.25 million grant to TechTown to encourage entrepreneurship and create 1,200 startup companies in three years.

The next step, say local VCs, is to get institutional investors to see the logic of taking these kinds of gambles on Detroit.

In other states, says Chris Rizik, CEO of Renaissance Venture Fund, with offices in Detroit and Ann Arbor, MI, institutions have taken more risk by investing in local funds that are still early stage. In Michigan, though, it is largely only the state government that has been willing to place that bet, via state-created funds like the $120 million Michigan 21st Century Investment Fund or the $95 million Michigan Venture Fund.

Such state programs are helping create a new generation of Michigan VC firms by funding the likes of Arboretum Ventures and RPM Ventures, both of Ann Arbor, MI. But they can only go so far. Often, they offer one-time-only deals. Venture firms prefer to have an investor base that is committed to investing in each successive fund.

“The Michigan-based funds generally do not have that,” Rizik says. “So, in a way, it’s like each time they raise they’re starting, if not from scratch, then close to scratch, and it’s tough to build up size when you don’t have that institutional investor base behind you.”

It's easy to feel overwhelmed by such odds. But I am inspired by the investors and entrepreneurs who keep placing their bets—and occasionally see them pay off.

I especially like the story of Jake Sigal, who bootstrapped his company out of his guest bedroom in Ferndale, MI, about 2 1/2 years ago—tinkering around with the idea of a stand-alone Internet radio. Sigal’s company, Livio Radio, gained an undisclosed amount of backing from Beringea, one of Michigan’s largest venture capital firms, and aims to provide users access to Pandora, NPR, and more than 44,000 Internet radio streams.

Or take Tom Kinnear, managing director of the University of Michigan’s Wolverine Venture Fund, what he calls the country’s first student-led venture capital fund. He and his charges at U-M’s business school are not playing what he calls “theoretical golf.” They are actually taking a swing and gambling... I mean, investing... real money in real companies.

One of Wolverine’s investments is in Delphinus Medical Technologies, a medical imaging spinout of Detroit’s Karmanos Cancer Institute. It was an all-Michigan VC deal, co-led by Beringea of Farmington Hills, MI, through its InvestMichigan! Growth Capital Fund, which provides expansion capital to promising Michigan businesses. Also leading the Delphinus investment was Ann Arbor's Arboretum Ventures. And joining them was North Coast Technology Investors, with offices in Ann Arbor and Midland, MI.

There even are some encouraging signs emerging from what on the surface looked like disastrous news when Pfizer, the world’s largest drugmaker, eliminated 2,400 jobs in 2007 when it closed its Ann Arbor research center. A group of 17 small contract research organizations (CROs) have sprouted up, many of them populated by Pfizer veterans, to provide specialized services to biotech and pharma companies in Michigan. The list we compiled of these organizations can be seen on Xconomy Detroit today.

These Detroit successs storiesinspire not because of the amount of money involved---folks in Boston or Silicon Valley might scoff at the comparatively low numbers---but because they show that, despite the worst economy in generations, record numbers of jobless, factory closings, home foreclosures, and entire communities devastated by the economy, the spirit of entrepreneurship is indeed growing in Michigan.

 We’re not gambling here in Michigan. We’re fighting for survival. And based on the determination I hear from VCs and see from our entrepreneurs, I think it might be worth it if more institutional investors took a gamble on Michigan. I think it will pay off.

 

// Btw, if anyone is involved in these areas as well (startup or venture capital/angel) let me know, would be cool to know some that share a similar interest from the MGoCommunity