HOLLAND — The organizers behind the new cultivate(MD) Capital Fund GP LLC found backers by appealing to their own global professional networks and investors with whom they had previously done business.
Many of the approximately 50 investors in the Holland-based venture capital fund are individuals who invested previously in startups spun out of Genesis Innovation Group LLC, a Holland-based developer of emerging medical device technologies whose partners formed cultivate(MD) last fall.
That approach led cultivate(MD) to close this month on the first $7.2 million toward a $10 million goal the fund aims to raise in what Managing Director Rob Ball calls a “pretty healthy” fundraising environment.
Raising capital for the fund surely was not an easy endeavor, although “it was not difficult to identify, at least within our network, folks who were interested in listening to the story and carefully considering whether it was a fit for them,” Ball told MiBiz.
“We did not have trouble identifying interested parties,” said Ball, who also serves as the CEO of Genesis Innovation Group. “This kind of investing is not for everybody. It’s a high-risk, high-reward profile, but there’s a pretty broad openness to having this type of investment as an individual’s alternative portion of their total portfolio.”
Cultivate(MD) targets early-stage health care companies with a focus on medical devices, particularly orthopedics. The fund will put up to $1 million into a startup across multiple capital rounds, Ball said.
The fund plans to seek additional investors throughout 2018 toward the $10 million goal, and Ball believes it can get there with existing investors in Genesis Innovation Group’s portfolio companies. Cultivate(MD) could make its first investment in a startup company within a couple of months, he added.
“That cash is in the bank and we are actively performing diligence on a couple deals,” Ball said. “We are just beginning to ramp up our deal-flow process.”
ROOM TO GROW
Cultivate(MD) sought investors as venture capital fundraising across the U.S. surpassed $30 billion for the fourth straight year.
The 209 funds that raised capital last year collectively netted $32 billion, according to the quarterly Venture Monitor report from Pitchbook.com. Last year was also the fifth straight with more than 200 funds raising capital.
Pitchbook counted 35 first-time funds in 2017 that raised $3.3 billion.
As cultivate(MD) scouts for deals, the health care arena offers plenty of opportunity for firms targeting early-stage medical device startups, said John Kerschen, managing director of Michigan Accelerator Fund I, a Grand Rapids-based venture capital fund that has fully deployed all of its capital.
Venture capital funds targeting the medical device sector “have tended to drift a bit later in the device space,” he said.
“I still believe there’s a significant amount of deal flow, particularly at the earlier stage,” Kerschen said. “There’s still a significant amount of innovation and entrepreneurship in that space relative to the dollars dedicated.”
Kerschen also sees a fundraising environment that remains positive, even with investors finding good returns from the stock market and with Michigan’s economy at a relatively strong position overall.
Venture capital and private equity firms are still relatively young markets in Michigan. While both areas have posted solid growth for more than a decade — and the pool of prospective investors has expanded — early investors who put money into funds “are waiting for the return or proof of returns from some of those early investments before they commit substantially more capital,” Kerschen said.
Beyond the capital investment, cultivate(MD) can bring to a startup its network of professionals at Genesis Innovation Group who have deep experience in the medical device sector, hold more than 200 patents collectively, and can help to steer the company in the right direction, Ball said.
Prime candidates for an investment are startups that “have a proven technical solution to a well-understood problem and where they can either bring a strong management team or we can leverage the team at Genesis to help drive the company to success,” Ball said.
“Health care continues to be a dynamic space, and inventors and entrepreneurs face significant risk during their development stages,” he said. “Innovators need a network of intellectual capital that will help convert their ideas and assumptions into marketable innovations. Genesis provides a nurturing environment for these health care inventors and their innovations.”
Genesis Innovation Group presently has five companies within its portfolio and a “couple more in the works,” Ball said. Existing portfolio companies include Magnesium Development Co., Shoulder Innovations Inc., and iMAGEN Orthopedics LLC, each based in Holland.
Of the $7.2 million cultivate(MD) raised, $1.2 million is for a fund to support ongoing investments in existing portfolio companies.