investments than we would have if we were $100 million, and the investments we make will be a bit smaller, but we think still impactful. Importantly, our goal of using the fund to connect established Michigan businesses with the venture capital and start-up community will still be a key. And as we raise future funds, the overall power of what we’re doing should increase.
X: When you invest in a venture fund, is the money Renaissance invests only going to Michigan deals, or to the general pool of deals?
CR: When the RVCF invests in venture capital funds, the money we invest is not earmarked toward any specific deals, as that is a short-sighted approach that can increase risk and hurt performance. We share in the overall performance of every venture fund in which we invest, but our expectation is that each fund will be active in Michigan. Thus far, those funds have exceeded our expectations and have invested into Michigan about four times the dollar amount we invested in them.
X: The Michigan investments made by the funds in which Renaissance has invested so far seem heavy on the life sciences. Is that because of a specific investment philosophy you are pursuing?
CR: The initial investments have been heavy on the life sciences, and that reflects where much of the new company activity is in Michigan. But I think we’ll see over time that it will change and there will be a greater mix of IT, advanced energy, and cleantech companies. Our earliest investments were in [venture] firms that specialize in life sciences, but some of our more recent investments were DFJ Mercury and MK Capital, and soon Arsenal Ventures. Those firms will increase the number of IT, advanced materials and energy-related companies.
X: What does this planned spectrum of investment say about Michigan’s economy? Is it getting more diverse?
CR: If you look at the past several years, we’re getting a greater amount of deal flow in the state. We appear to be having more successful venture deals happening. Very few are auto related, so that’s a good sign that we’re getting more diverse. But in order to claim success with it, you need more years of it than we’ve had.
X: Is the entrepreneurial culture of Michigan changing, then?
CR: It is. We certainly had a problem, in that the success of our major industry created largely a couple generations of employees, not entrepreneurs. But there’s been recognition over the last few years of the need for increased entrepreneurialism as a key to growth.
Organizations like Ann Arbor Spark, Automation Alley, and TechTown have been created to help make that transition. But it’s going to take time, innovative approaches, and a lot of mentorship. We do have some successful entrepreneurs, and they’re going to play a role in training other entrepreneurs. A great example is Esperion, which is one of the great venture capital success in the state. If you look at Esperion, it was not only successful in its own right but it also created a family tree of success. I can think of seven companies that were founded by former Esperion employees. That’s what happens in California and Massachusetts. But as we begin to have more and more success here, we can create those family trees where one company that is successful trains a number of future CEOs. They then form companies, and you begin to create geometric growth.
X: It seems like Michigan might also be getting more attractive to outside venture funds.
CR: In the last 18 months we’ve had around 60 venture capital funds approach the Renaissance Fund for investment. That is real progress, to have so many venture capital funds express a strong interest in working in Michigan. The state’s successes over the past few years, such as HandyLab, HealthMedia, and Sircon, have helped to create a growing reputation for Michigan as a good place to invest. And our business model at Renaissance, where we also promote the connection of the venture funds with Michigan’s most important businesses, has also been a great help.
Consequently, we see a very high quality group of funds, and that’s good for Michigan. And they’re interested for market reasons—quite honestly, they see the potential for them to make money investing in this state. That’s a great sign, and probably wouldn’t have happened in Michigan a few years ago.
X: If you had to look ahead 5 years, 10 years, and 20 years, what do you see for the Michigan economy?
CR: Michigan should certainly be a Top Ten state for venture capital investing and new company establishment. Right now, Michigan has almost all the elements. We don’t have enough capital—which is what we and others are working on—and right now we also don’t have enough entrepreneurial CEOs. But those issues are easier to address than it would be to try to create an R&D hub where there wasn’t one, and that’s where we have a built-in advantage.
I believe you’ll see certain industries that will grow pretty dramatically here. The energy area, particularly where it involves energy-related manufacturing, should grow well over the next 10 years. We should also be capitalizing on the legacy here of drug development, with more pharma-related companies here.
I believe we’re going to see a cultural change, where we become a more entrepreneurial people. In some ways, we’re sort of forced into it by the reality around us. But there is much more of an openness to it now than we saw a couple years ago, and I think that will continue to grow as students graduate from college with a much different mindset than their parents did. When I graduated from college, the unstated goal of the vast majority of students was to get a “safe” job in a large company. That is no longer the case.
And from the standpoint of the state, my hope is that the state government and the way the state approaches economic development will be increasingly oriented toward entrepreneurship and innovation, and creating an overall environment that helps them expand.
X: Is that the twenty-year answer or the five-year view?
CR: (Laughs). I think it’s between five and 20. We’ll see progress toward that over five years, but this stuff takes a lot longer. This isn’t a stimulus plan. This is long-term planting and growing. We already have this strong R&D base. It’s a matter of capturing that and turning it into innovative and growing new companies.
