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Friday, 06 July 2012 16:41

Illinois venture capital fund plants roots in Kalamazoo

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KALAMAZOO — They've done business together for five years and each was looking at its next step.

So the Kalamazoo-based Southwest Michigan Life Science Venture Fund and an Illinois venture fund decided to work together even closer.

Under a deal that took effect in May, Open Prairie Ventures will oversee the investments of the $65 million, 10-year Southwest Michigan Life Science Venture Fund, which formed in 2005 and is now beginning to wind down.

Open Prairie will advise the Kalamazoo venture capital fund as it seeks to exit its six remaining portfolio companies.

The Effingham, Illinois-based Open Prairie also opened a full-time office in Kalamazoo to scout for deals in Michigan as it prepares to form a new $75 million venture fund.

"It's putting a more solid stamp and planting a flag in the ground in Kalamazoo," Open Prairie founder and CEO Jim Schultz said of the management agreement.

The agreement came together as both organizations last year began looking at forming new funds and discussing how they could work more together. They decided to build on their past business ties. The two have made investments together, and Open Prairie served as a consultant to Southwest Michigan on a number of past deals.

"We thought, 'We see the world the same way. Let's join forces,'" said Pat Morand, managing partner of the Southwest Michigan Life Science Venture Fund.

Morand joined Open Prairie as president and leads the new Kalamazoo office.

The arrangement brings new capital to Michigan and provides a deeper bench to help vet potential deals in the state and make investment decisions, Morand said.

"It brings more organic depth to our fund. It's a good accountability measure and it's always good to have a team thinking things through," Morand said. "And this will help us invest in more companies."

Open Prairie, which invests in early-stage agriculture technology and life science companies in the Midwest, plans to begin forming a new $75 million Fund III later this year. The venture firm recently had two successful exits, including an initial public offering in April for network control automation company Infoblox Inc.

Through the management agreement with the Southwest Michigan Life Science Venture Fund, and by bringing Morand aboard, Open Prairie gains a solid presence in Michigan with an experienced investment professional in a market that Schultz sees as ripe for investments. Schultz cites the research work occurring in agriculture technology at Michigan State University, for example, that can spin out companies and represent potential investment opportunities in the future.

"As we look at Michigan, we think there are some great opportunities that are not well served and where we can bring a lot of value," he said. "We intend to spend a great deal of time in Michigan."

The Southwest Michigan Life Science Venture Fund invested in 12 companies. About 75 percent of its capital has been deployed and the remaining was set aside for follow-on investments in portfolio companies.

Founded in 1999, Open Prairie presently operates two venture funds of $30 million and $40 million each. It makes two to four investments a year and typically puts $4 million to $6 million into the companies it holds.

Open Prairie is the latest out-of-state venture fund to establish a full-time presence in Michigan.

As of 2011, seven venture funds based elsewhere had $1.5 billion under management, up from $1.4 billion in 2010 and $900 million five years ago, according to the Michigan Venture Capital Association.

MiBiz in May reported on the growth of the venture capital industry in Michigan.

Michigan is now home to 20 venture-capital firms, up from 15 just three years earlier, plus the seven firms that are based elsewhere and have an office in the state, according to the MVCA's annual report.

As of 2011, Michigan-based firms had $1.5 billion in venture capital under management, a 25 percent increase from the $1.2 billion as of 2010 and 50 percent over 2008's $1.0 billion. When combined with the out-of-state firms, there was $3.0 billion in capital under management in Michigan in 2011, up from $2.6 billion in 2010.

Bringing more capital to the region is a key goal of economic development group Southwest Michigan First.

"Where capital is available, great ideas follow and new companies will be formed. This investment cycle is crucial to growing the regional economy," said CEO Ron Kitchens, who's also a general partner in the Southwest Michigan Life Science Venture Fund. "We anticipate great performance from the investment team at (OpenPrairie.)"

Read 1972 times Last modified on Saturday, 28 July 2012 18:40

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