The amount raised by the two-year-old Michigan Accelerator Fund I is 50-percent more than originally targeted, an indication of growing awareness among high-net worth individuals and institutional investors on the viability of venture investing in the marketplace, the fund’s Co-Managing Director Dale Grogan said.
“There is an unmet need there,” Grogan said. “We’ve just seen in the last two years where the level of education and understanding has gone up substantially as it relates to venture investing and access to capital.”
The greater understanding among current and prospective investors, the greater the chances of getting support for the eventual formation of a second venture fund, provided Fund I generates successful exits and returns, Grogan said.
“Once you close that cycle, then people understand how venture (funding) works. They say, ‘Oh, we should do more of this,’” he said.
Funding for the $15.1 million Michigan Accelerator Fund I (MAF-1) came from 70 individual and institutional investors including Van Andel Institute, the Michigan State University Foundation, Grand Valley State University and Davenport University, Grogan said.
The fund formally closed on fundraising in late July, but waited until this month to publicize the amount because it was hoping for additional funding from the state’s $120 million Venture Michigan Fund II. The state-sponsored fund, which is managed by Credit Suisse, chose not to invest at this time because the two-year old MAF-1 has not had any exits from investments in portfolio companies, Grogan said.
“It was kind of a longshot at best,” Grogan said.
Formed in late 2010 with $6 million in state seed money, Michigan Accelerator Fund I primarily targets life sciences startups in Michigan. It has invested $4.8 million in six companies and may do three more deals by the end of 2012, Grogan said.
“There are companies in the pipeline we like,” he said.
To help scout for deals, the fund recently added Linda Chamberlain as a venture capital fellow to evaluate and recommend investment opportunities.
Chamberlain joined the fund after leading global strategy and product development for Global Forex Trading in Ada. She previously served as executive director of Grand Valley State University’s Center for Entrepreneurship and Innovation and before that led the West Michigan Science & Technology Initiative. Chamberlain also owns the consulting firm InnoValuation LLC.
Her “wide scope of senior-level experience in nonprofit, public and private sectors makes her uniquely qualified to provide valuable advocacy and insights as we continue to build out the MAF-1 portfolio,” Co-Managing Director John Kerschen said.
Kerschen and Grogan are principals in Grand Rapids-based M&A advisory firm The Charter Group, where Chamberlain will also serve as vice president of business and transaction management.
Michigan Accelerator Fund could make another four or five deals in 2013, Grogan said. The fund would then focus the next two years on making follow-on investments in portfolio companies as they mature and require additional capital.
In scouting for deals, Michigan Accelerator Fund I will examine 450 to 500 business plans this year from startup companies, Grogan said.
Exceeding the initial $10 million fundraising goal by $5.1 million enables the venture fund to get a look at better prospects and to do more syndicating with other venture funds, Grogan said.
“It just means we can be more effective,” he said. “It really gives us a better chance at success.”
The first exit of a portfolio company could come as early as 2013, Grogan said. Successful exits for Fund I that generate a return for investors will enable Grogan and Kerschen to begin talking to prospective investors about the future formation of a second, larger venture fund.
“We have to get the exits. We have to be able to tell the story sustainably,” he said. “We have to be able to prove our investments in companies and we have the results.”