Two New State-Backed Capital Funds Launch

Xconomy Detroit/Ann Arbor — 

Last week, the Michigan Economic Development Corporation (MEDC) announced its new Michigan Venture Match Fund, a $5 million pot of money from the Michigan Strategic Fund for early-stage companies in the state that have already gotten funding commitments from at least one venture firm. The fund just invested $2.76 million in six companies across a variety of sectors: Stik, Livio, Amplifinity, Gema Diagnostics, nanoRETE, and Tissue Regeneration Systems.

“In general, venture capital is really on the upswing in Michigan,” says Martin Dober, senior vice president of entrepreneurship and innovation for the MEDC, noting that in the face of national declines, Michigan is one of the only states that has had “tremendous” gains in venture activity.  “There are a lot more choices today.”

The Michigan Venture Match Fund works by matching the terms from the lead VC investor up to $500,000 per company, but  no less than 50 percent of what the VC firm is investing. The money comes from income generated from past 21st Century Jobs Fund investment returns.

Startups must submit a signed term sheet in order to be considered for funding. The Michigan Venture Match Fund agrees to the same equity stake as the VC firm leading the deal before matching the investment. Dober says although the companies that qualify for funding must be based in Michigan, the VC firms can be from anywhere in the nation. The entire round also need not come exclusively from VC sources—angel funding is also welcome.

One thing the Venture Match Fund does not do is play an active role on the boards of companies it invests in. “We’re more of a passive investor,” Dober notes.

Dober says the fund expects to invest in another half dozen companies before the year is over, and expects the $5 million to be renewed for 2014. Trillium Ventures verifies that the lead VC firm has done proper due dilligence on the startups being considered for funding before the Michigan Venture Match Fund signs off on the investment.

This announcement of the Michigan Venture Match Fund comes on the heels of the launch of the $180 million Michigan Growth Partners II fund, co-managed by Credit Suisse and Beringea, created as part of the InvestMichigan program. This seems to be interesting timing, considering that Credit Suisse is very close to wrapping up the sale of its Customized Fund Investment Group (GFIG), which oversees funds under the InvestMichigan program, a series of funds established by the state that aims to grow entrepreneurship in Michigan. “We expect an announcement very soon,” says Sean O’Donnell, vice president of CFIG’s Michigan operations.

Despite a looming organizational change, the creation of both the Michigan Venture Match Fund and the Michigan Growth Partners II Fund seems to validate that state officials are happy with their efforts so far to grow Michigan’s capital continuum to feed both new startups and expanding businesses.

O’Donnell reiterated what he told us a few months ago, which is that the CFIG’s  entire Michigan team will transfer to the new owner in the hopes that the funds that CFIG manages or co-manages—the $102 million 21st Century Jobs Fund, the $95 million Venture Michigan Fund, the $120 million Venture Michigan Fund II, the $185 million InvestMichigan Growth Capital Fund, the $130 million InvestMichigan Mezzanine Fund, and now the Michigan Growth Partners II fund—will continue to operate smoothly despite an ownership change.

O’Donnell says the new fund intends to repeat the success of the InvestMichigan Growth Capital Fund, which had a number of successful exits, including Accuri Cytometers, and has so far invested in 28 companies. The new Michigan Growth Partners II Fund will provide equity capital to growth-oriented companies in a variety of sectors. The capital comes from the state of Michigan’s pension fund and other institutional investors.

The goal of the Michigan Growth Partners II fund, aside from a nice return on investment, is to enhance Michigan’s entrepreneurial ecosystem, draw out-of-state capital to Michigan companies, and keep talented startups in the state.  “There are implications to the community, but the priority is to generate good returns,” agrees Charlie Rothstein, Beringea’s senior managing director.