Last month, the Michigan Economic Development Corporation (MEDC) announced it was accepting applications for the newly created Pure Michigan Venture Fund (PMVF). The fund, which has $5 million to invest and will seek an additional $4 million from the legislature, is targeting first- and second-generation venture capital firms that have raised at least $1 million from three unrelated investors, but not more than $25 million. “We’re looking for firms that will be helped by a big anchor investment,” says Mike Flanagan, the MEDC’s manager of equity capital programs. Credit Suisse has volunteered to review applicants to the PMVF; after a 90-day process, they’ll recommend finalists to the state.
Flanagan says the state is hoping to duplicate the results it had when it made investments in four VC funds ten years ago as part of the Michigan Life Sciences Corridor program, which took $1 billion of the tobacco settlement money that Michigan got and used it to invest in research institutions like the University of Michigan. The program also invested in companies, and VC firms like Arboretum Ventures, which closed its third fund valued at $140 million in September. “We’re hoping to grow VC in Michigan again and mimic the success we had 10 years ago.”
The state has tweaked the way it carries out its economic development strategy since Gov. Rick Snyder was elected in 2010. Snyder, a former venture capitalist, co-founded two Ann Arbor-based firms: Avalon (with Ted Waitt, the co-founder of Gateway) and Ardesta. During the previous era, when Gov. Jennifer Granholm was in charge, certain market sectors like life sciences and alternative energy were favored.
Snyder, Flanagan says, has moved away from being sector- and region-specific with the state’s investments. “We want the cream to rise to the top, wherever that may be,” he adds. “The governor having a venture capital background is huge. He understands the VC piece and the value to the state’s economy.” He’s also cut MEDC programs, like the Brownfield redevelopment tax credits, that weren’t getting a big enough return on investment.
Flanagan says the VC industry has grown significantly since the state first made it a priority 10 years ago. “In 2002, we had seven funds and 15 venture professionals,” he explains. “Now we have 35 funds and 100 venture professionals.” The state has invested a total of $600 million in beefing up venture capital so far, and Flanagan hopes it will continue to do so until Michigan hits critical mass. “We’re still trailing Minnesota and Illinois,” he points out.
Flanagan says the ultimate goal is to prevent newly formed companies from leaving the state in search of capital infusions. After all, between the auto industry and its universities, Michigan has top-shelf research and development, earning the fifth highest number of patents in the nation. “VC is really the only form of risk capital for early-stage companies,” he says. “The sector has come a long way, and I think the PMVF will continue to help grow the industry.”
