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Sunday, 01 February 2015 22:00

Statewide VC investments double in 2014 as deal volume falls by a third

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Venture capital investors put almost twice the amount of money into Michigan companies in 2014 as they did the year before, continuing the industry’s momentum.

Fifty Michigan companies collectively received $218.9 million in venture investments last year, according to the quarterly MoneyTree report from the National Venture Capital Association and PricewaterhouseCoopers.

That compares to a record 74 deals in 2013 for $111.0 million, according to the MoneyTree report, which is based on data from Thomson Reuters.

The number of deals funded in 2014 and the amount of the investments were the fourth-highest in the state since the NVCA began tracking and reporting data in 1995.

The MoneyTree report shows that for the full year, Michigan in 2014 further built on the progress it made over more than a decade to grow the availability of venture capital in the state through public and private investments, said Michigan Venture Capital Association Executive Director Maureen Miller Brosnan.

“We’re seeing the momentum definitely continue,” Miller Brosnan said. “We’re seeing obviously there are more startups out there in need of funding, and funding is available.”

One West Michigan venture capital investor sees the 2014 data as an indication of a maturation of the industry and the startup companies it’s backed.

More startup companies seeking capital today are further along the commercialization process and require larger investments, said Dale Grogan, co-managing director for the Grand Rapids-based Michigan Accelerator Fund I. That trend is leading to bigger investment rounds.

“It seems to me that companies are maturing and the stronger ones are progressing down the spectrum from seed to early-stage to now growth-stage companies,” Grogan told MiBiz. “And as the companies expand, so too does the capital need.”

Research from the MoneyTree report for 2014 does show a year-to-year migration of venture capital toward later-stage deals. Twenty of the 50 deals last year, or 42 percent, were for “expansion” or “later” stage companies. That compares to 20 out of 74 deals in 2013, or 27 percent.

Grogan specifically cites the $59.5 million deal in 2014 for ProNAi Therapeutics Inc., a Kalamazoo- and Plymouth-based company that’s using the funding for Phase II clinical studies involving patients with non-Hodgkin’s lymphoma and its main candidate for an anti-cancer drug. The ProNAi investment was the largest venture capital deal ever made in Michigan.

Other VC deals of note in 2014 included $14.0 million for Kalamazoo-based Vestaron Corp., a company developing spider venom-based biopesticides, and $9.8 million for Grand River Aseptic Manufacturing in Grand Rapids, which produces sterilized injectable drugs under contract for pharmaceutical companies.

Ablative Solutions Inc. in Kalamazoo was involved in two deals in 2014, one for $9.2 million and another valued at $4.7 million, to support clinical studies in the U.S. and Europe for a catheter system it developed to treat severe hypertension.

As startup companies that were funded a number of years ago mature and have larger capital needs, venture funds formed in the last decade are growing up as well and nearing the end of the capital deployment, Grogan said. They’re directing more money into companies that may have a shorter commercialization process or are further along the pathway and require larger investments, he said.

“VC funds are tending to pay more attention to their fund’s life cycle. Several funds are in the latter stages of their investment periods. That means that there is additional pressure to choose investments that not only have potentially promising exit values, but can also deliver the goods in a shorter period to time,” Grogan said. “Translation: Fewer early-stage deals are getting funded. Expect this trend to reverse as new funds come online with fresh capital and time.”

In the fourth quarter alone, Michigan had 16 venture deals for $47.9 million, versus 27 deals for $57.5 million in the same period a year earlier. West Michigan had two deals in the fourth quarter, including the $4.7 million Ablative Solutions investment and $100,000 for Flip Learning LLC in Kalamazoo, a startup digital publishing company for game-based, interactive education.

Further data and details on the state of the venture capital industry in Michigan will come in late March when the MVCA releases its annual research report on the industry.

Despite the continued progress for VC in Michigan and a “great year” in 2014 — and the higher interest seen in the last few years from funds outside of the state — Michigan largely remains in the “flyover zone” nationally, said Paula Sorrell, vice president of entrepreneurship, innovation and venture capital for the Michigan Economic Development Corp.

While that’s changing, the state needs to continue to maintain efforts to recruit more venture capital into the state and leverage private investments, Sorrell said.

“We’ve come a long way,” Sorrell said. “We’re better than most states and a lot of similarly-sized states are envious of the position that we’re in drawing venture capital in, but we have a long ways to go to compete.”

Still, the number of venture funds in Michigan has grown from a handful a decade ago to 35 today and “we’re continuing to get interest from other venture firms that are interested in setting up shop here and are already raising funds,” she said.

“2015 will be an interesting year,” Sorrell said.

Across economic sectors, biotechology received the most money with seven deals for $85.2 million, much of it going to ProNAi Therapeutics. Media and entertainment companies received the second-largest amount of venture capital in the state with eight deals for $30.9 million, followed by medical devices and equipment at seven deals for $30.4 million.

Most of the deals in Michigan last year — 30 out of 50 — were concentrated in Ann Arbor and Detroit, according to the MoneyTree report. Just seven of the deals were for companies in Kalamazoo or Grand Rapids.

The comparatively fewer deals in West Michigan versus Southeast Michigan reflects the presence of the University of Michigan in Ann Arbor and the federal research funding it attracts. Southeast Michigan also has been involved longer in venture capital than the west side of the state, Sorrell said.

“It was a dry market, I would say, in Grand Rapids. It wasn’t very robust over the last few years,” she said. “They have some catching up to do, but I see them making some really good paces to catch up.”

Nationally, venture capital investing totaled $48.3 billion in 2014 through 4,356 deals. The amount invested last year increased 61 percent from 2013 and deal volume increased 4 percent.

Read 3946 times Last modified on Sunday, 01 February 2015 22:51

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