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Thomas Cronkright, CEO of CertifID. Thomas Cronkright, CEO of CertifID. Courtesy Photo

VC investors warm up to tech sector entrepreneurs

BY Sunday, April 15, 2018 08:43pm

GRAND RAPIDS — The $1.7 million in capital CertifID LLC raised earlier this year perhaps typifies how investors view the tech sector these days.

After connecting with Grand Rapids-based venture capital firm Wakestream Ventures LLC, CertifID raised the funding from angel investors in just a few days. The company’s raise was even oversubscribed.

For CertifID co-founder and CEO Thomas Cronkright, that success illustrates investors’ greater willingness today to put their money into the tech sector as innovations advance and offer solutions to marketplace problems.

“We’re finally beginning this journey down a new path of technological capabilities, and I think that’s driving a lot of new capital in the market as well,” said Cronkright, who credits the partnership with Wakestream Ventures with generating quick results in the capital raise.

CertifID developed the company’s software to protect money wire transfers in real estate transactions. Cronkright and business partner Lawrence Duthler formed CertifID after their other venture, Sun Title Agency LLC, fell victim to a sophisticated fraud in a 2015 transaction.

The investment enabled CertifID to add the staff needed to further develop the software, which aims to provide protection from a type of fraud the FBI estimates costs the real estate industry $1 billion annually, Cronkright said.

“This is a must-have in the industry right now,” he said. “We’re solving a problem that is occurring every single day.”

CertifID was one of a number of tech-based companies that secured venture capital investment in the first quarter of 2018. Four of the top 10 venture capital investments in Michigan were for software firms, according to a quarterly report from Pitchbook.com and the National Venture Capital Association. The period also saw two financial technology companies, a cybersecurity firm, and a robotics and drone company close venture deals in Michigan, according to Pitchbook.

Among the tech companies funded in West Michigan was Grand Rapids-based VNN Inc., which provides hundreds of high schools across the country with a web-based platform to distribute content on sports programs. VNN closed in February on nearly $6.9 million in later-stage capital.

Another local tech company, Holland-based MaxOne LLC, closed in mid-March on a $500,000 investment, according to a filing with the U.S. Securities and Exchange Commission. The company, formerly known as JMBP Ventures LLC, developed an app for high school and college coaches to train athletes.

Nationally, statistics show VC investors putting far more money into tech firms over the last decade, especially for software companies.

In 2017, the software sector alone saw 3,324 venture capital investments collectively totaling nearly $29.6 billion, according to Pitchbook. That compares to 1,367 deals for $9.36 billion a decade earlier.

However, investment totals and deal flow for software tailed off in the last two years after peaking at 4,166 investments for $31.5 billion in 2015. Deal flow nationally for software companies in the first quarter of this year reached $11.7 billion through 670 investments, according to Pitchbook’s quarterly Venture Monitor report.

GAINING ATTENTION

The greater attention the sector gets today from venture capital investors stems from the lower risk and cost and shorter product development cycle software offers over sectors such as biotechnology, where companies can take several years to get an innovation to market and have greater risk and regulatory hurdles to overcome.

“There are certainly more investors locally that are taking a look at tech companies,” said Joe Lampen, the finance director and a portfolio manager at Wakestream Ventures, the venture capital firm created by Amway scion Rick DeVos. 

The Grand Rapids-based Wakestream led the investment in CertifID and has invested in several technology companies.

“We look at it from an investability standpoint — that investing in tech is more scalable and a much more rapidly deployable business model,” Lampen said. “There are a lot more opportunities for more rapid actual revenue growth and business growth and potential opportunities in tech investing.”

In a recent MiBiz roundtable discussion with West Michigan tech entrepreneurs, participants said they’ve noticed investors’ growing interest in the sector.

“There’s an unbelievable amount of money to grow (and that’s sitting) on the sideline for the right idea and the right people,” said Larry Andrus, the CEO of Grandville-based Trivalent Group Inc. who recently sold to Troy-based accounting and consulting firm Rehmann LLC.

“I get five or six calls a week for different funds and lots of money, and it wasn’t always the same one. I mean, there’s an incredible amount of money in technology and in this industry and in West Michigan specifically. Being in Grand Rapids, having our headquarters here was never an obstacle in those discussions,” Andrus said.

LEVERAGING NETWORKS

Yet the greater interest investors have in the sector doesn’t mean raising capital is an easy endeavor, according to Lampen.

In leading the capital round for CertifID, Wakestream Ventures saw an opportunity to support a startup company formed by two experienced entrepreneurs with a successful track record who had developed their product and were bringing it to market to solve an “acute problem,” Lampen said.

Investors liked the deep expertise and professional networks Cronkright and Duthler have in their industry and how that worked to CertifID’s advantage in the marketplace, he said.

“They’ve built a good business in the past and we think they have a lot of the attributes that will help them build a good business here,” Lampen said.

Early startup tech companies at the “back of the napkin type of idea” stage are “a little bit more challenged right now” for capital, although that’s improving as well, he said. Initiatives in Grand Rapids such as 5x5 Night provide opportunities for entrepreneurs to get started and secure seed funding.

“Capital raising is hard, but it’s hard at every stage,” Lampen said. “For an early entrepreneur who’s looking to raise a little bit of what we call ‘friends and family’ capital, if it’s hard, that’s good because it’s not going to get any easier.” 

MiBiz Staff Writer Nick Manes contributed to this report.

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