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Sunday, 29 April 2018 15:20

Despite growth, more angel investors needed in state

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Michigan has more angel investors than ever who invest in startup companies, but Skip Simms believes that’s still not nearly enough.

Research gathered by the economic development group Ann Arbor SPARK shows almost 800 angel investors in Michigan last year were either involved in an organized group or invested on their own. That’s up by more than 200 percent from five years earlier, according Ann Arbor SPARK, which for the first time sought to gauge the overall number of angel investors in the state between organized groups and individuals.

Despite the growth and a higher number of angel investors than he expected, Simms believes there are many more people across Michigan who can become investors. Several thousand high net worth individuals live in Michigan, he said.

Even with the solid growth in angel investing in Michigan over the last decade, “we still have a long ways to go,” said Simms, the director of entrepreneurial services at Ann Arbor SPARK.

“We have a lot of opportunity to get more people engaged in that asset class and get more capital in the state for entrepreneurs,” said Simms, who is also managing director of the Michigan Angel Fund in Ann Arbor. “We believe it needs to be a lot higher.”

The 797 active angel investors in Michigan last year put more than $41 million into 37 startup companies, according to data from Ann Arbor SPARK that was included in the recent annual research report issued by the Michigan Venture Capital Association.

The amount came from angels investing with organized groups and individually, which makes year-to-year comparisons difficult. In the past, the MVCA’s annual research reported activity by organized angels groups, although that set has showed a decided upswing for years.

In 2015, the last year for which the MVCA collected data, the 10 angel groups in Michigan had 294 members and invested $16 million into startups. Two years earlier, there were nine groups with 270 members that put $9.9 million in 26 companies.

Today, a dozen angel groups are based in the state, plus a group in Windsor, Ontario is active in Michigan.

West Michigan has three angel groups — Muskegon Angels, Grand Angels based in Holland, and the affiliated Kalamazoo Angels, which came together about a year ago.

Given that research shows a larger number of angel investors in Michigan than previously counted, Grand Angels wants to form other affiliate groups in markets around the state, said President Tim Parker. Becoming part of an organized group with a professional administrative staff allows individual angels to leverage their money, spread risk, better identify and vet investment prospects, and connect and collaborate with their peers, Parker said.

“We’ll continue to use our model to look for other angels across the state and help organize their activities, too,” he said. “There are a lot of angels out there and when you start asking people you find more and more. Knowing that there are all of these individual angels out there, we are focused on helping organize and harness that capital for them. Angels end up, I think, appreciating the fact that it’s a little bit safer and more fun to operate in a group.”

Parker has been talking to prospective angels in four markets around the state about affiliating with Grand Angels, he said.

Between them, the 50-member Grand Angels and 15-member Kalamazoo Angels invested $1 million last year in eight deals. Six of the deals were follow-on investments in existing portfolio companies, and two were new deals.

A small venture capital fund run by Grand Angels also invested $1 million last year, Parker said. He expects Grand Angels to double investment activity this year. Through the first quarter, Grand Angels has invested $1 million through five follow-ons and two new deals, plus another $500,000 from the venture capital fund.

As the 13-year-old Grand Angels seeks to grow its membership base, it’s finding a great willingness among high net worth individual to look at angel investing, according to Parker.

“It’s getting easier and it’s getting more frequent,” he said of conversations with potential angel investors.

Todd Harvey, director of private banking in Michigan for Fifth Third Bank, has seen that interest grow as well.

Clients are more open today than a few years ago and want to learn about angel investing as a possible part of their investment strategy, Harvey said. 

“We’ve seen an increase in these types of conversations. We’re seeing an increase in the conversations and the number of clients coming to us asking about it,” he said. “There definitely is a greater awareness.” 

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