Michigan Venture Capital Report Highlights 2013 Successes and Growth

Xconomy Detroit/Ann Arbor — 

On Tuesday night, the University of Michigan’s Office of Technology Transfer held its semi-annual Entrepreneurs Engage event, an “unconference” that brings together entrepreneurs, investors, and innovators for networking and small-group discussions. It’s always a fun and thought-provoking event, and this time around, discussion topics ranged from understanding the MILE Act and angel investing to bridging the gap between the startup ecosystems of Detroit and Ann Arbor (a perennial discussion topic at Entrepreneurs Engage) and retaining the young talent graduating from the university.

At the beginning of the event, Carrie Jones, executive director of the Michigan Venture Capital Association (MVCA), gave a brief presentation about her organization’s annual report ahead of next week’s Growth Capital Symposium—and it contains plenty of cause for excitement.

During the past five years, the number of venture-capital professionals in Michigan has increased by 84 percent, compared to a 13 percent decline nationally, she said. There are a total of 103 active VC-backed companies in the state, a 66 percent increase over the past five years. Though the VC activity is concentrated in Southeast Michigan and West Michigan, companies from around the state (and even the Upper Peninsula) scored VC investments. Angel investment activity is also on the rise, with 36 companies receiving more than $9.9 million in angel funding in 2013.

More from the report: Michigan has a total of $4 billion in venture capital under management, with $1.6 billion of that going to Michigan-based companies. In 2013 alone, 40 companies in the state received more than $120 million in VC funding. According to the MVCA data, Michigan also vastly outpaced Indiana, Minnesota, and Wisconsin when it came to the number of venture-backed deals brokered in 2013.

While Michigan-based venture funds are investing in an array of sectors, the life science industry continues to receive the lion’s share of venture capital deployment at 41 percent. The IT sector is catching up, though, representing 33 percent of total VC managed in 2013, up from 15 percent in 2012. Software companies accounted for nearly 70 percent of all investments made in the IT sector.

While the statistics point to Michigan’s continued VC growth, national investors are also increasingly bullish about Michigan startups, said Paula Sorrell, vice president of entrepreneurship and innovation at the Michigan Economic Development Corporation (MEDC). I talked to her a few weeks ago after she had just returned home from a trip to meet with investors in Silicon Valley.

Sorrell said, “It’s nice, 10 to 12 years after the state implemented strategies like the 21st Century Jobs Fund, to have VCs hold up a mirror and say Michigan did so much right. Some states fund parts, but Michigan did the entire ecosystem. Michigan is really invested in university tech transfer, early funding, and fund-of-funds. I’m not saying we’re done, but there’s a big difference between then and now in terms of the number of companies and the number of deals.”

Sorrell noted that there are now 35 VC firms in Michigan, and 20 of them are “homegrown.” She also said that a lot of the Silicon Valley investors her team met with expressed interest in Michigan companies and their ability to leverage state funding to attract private investment.

“MEDC has spent the last couple of years focusing on [filling the] pipeline, and I think we’ll see a lot of interesting companies and technology come out of that,” Sorrell said. “The next couple of years, we’ll focus on getting companies funded and making sure there are no gaps, so they can fully develop in Michigan.”