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Friday, 17 February 2012 11:22

Unmet local needs drive VC fund success: Statewide VC investment plunges 46%

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GRAND RAPIDS — A Grand Rapids venture fund exceeded its first-year goals, both in funds raised from investors and investments made.

Michigan Accelerator Fund I netted $9 million in commitments from investors during its first year, lifting the total capital that it will have available to $15 million. Launched in January 2011 with $6 million in state seed funding, the venture fund expected to raise $4 million from private investors.

Dale GroganThe fundraising success in exceeding that initial goal reflects the need for a venture fund in Grand Rapids to support startup businesses, said Dale Grogan, co-managing director of Michigan Accelerator Fund I.

“There was an unmet need, both in terms of investors wanting to invest and entities needing capital,” Grogan said. “We were positive there was a gap in the funding continuum in West Michigan, and we proved that out.”

Grogan expects the venture fund to close on its fundraising by early summer. The commitments came from about 40 individual investors, some of whom are from eastern Michigan.

Drawing investors from outside of West Michigan makes Michigan Accelerator Fund I a “bona fide Michigan venture fund,” Grogan said.

“It sort of transcends West Michigan,” he said. “It was surprising. We didn’t anticipate that would happen, but we are thrilled.”

The venture fund invested $1.8 million in five life sciences companies during 2011. It initially planned to make three or four investments in its first year.

All of the 2011 deals were co-investments made with other venture funds in the state, including Grand Rapids-based Hopen Life Sciences. Michigan Accelerator Fund I joined with Hopen, Farmington Hills-based Beringea and Chrysalis Ventures, a Louisville, Ky.-based venture fund with an office in Ann Arbor, to put $7.2 million into Intervention Insights. A Grand Rapids company spun out of the Van Andel Institute, Intervention Insights offers genetic tests that are designed to match cancer patients with the drugs that work the best on their tumor.

Other investments went to:

  • Metabolic Solutions Development Co., a Kalamazoo firm developing a new drug to treat Type 2 diabetes
  • nanoRETE Inc., a company spun out of Michigan State University using nanotechnology for food safety
  • TransCorp Spine, a Grand Rapids company developing products and less-invasive procedures to treat herniated disks
  • Abletiva Solutions, a Kalamazoo startup developing a new technology to treat high blood pressure.

GraphGrogan said he and co-managing director John Kerschen have found plenty of investment prospects across the state. They vetted 243 companies in 2011, investing in five, and Grogan expects they will look at up to 250 in 2012.

A high demand from startup companies and a shortage of venture capital in Michigan has generated a good pool of prospects for the venture fund, Grogan said. He was worried about finding enough Michigan-based companies that had reached the stage where they were ready for venture funding and originally anticipated investing in a dozen companies over four years.

“It turns out there’s far more than that, so we’ve been a little more selective in terms of scope and space,” Grogan said. “It’s kind of an investors’ market right now.”

Michigan Accelerator Fund I has focused primarily on the life science sector. Although it also targets alternative energy, advanced manufacturing, homeland security, information technology and agriculture, 75 percent of the fund will go toward life sciences, a field Grogan and Kerschen know best.

“We can’t be all things to all people. We have to realize there are certain things more comfortable for us,” he said.

Grogan expects that Michigan Accelerator Fund I will make investments over four to five years and earmark half to two-thirds of its capital for follow-up investments in companies.

The investments come at a time when VC funding in Michigan is at its lowest point in 15 years, according to the recent quarterly MoneyTree report from the National Venture Capital Association and PricewaterhouseCoopers. Across Michigan in 2011, venture firms invested $82.6 million in 31 deals, according to the report. VC investment plummeted 46 percent in 2011 versus 2010.

Nationally, venture investing totaled $28.4 billion for 3,673 deals, the NVCA recently reported.

Michigan Accelerator Fund I’s ability to raise money came as the economy steadily improved during the last year in West Michigan and across the state, as well as nationwide.

Read 1561 times Last modified on Sunday, 12 August 2012 18:02

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