Published in Finance

Additional scale positions Grand Angels for larger deals

BY Sunday, November 24, 2019 05:30pm

GRAND RAPIDS — The $1.4 million investment in Portage-based Micro Laser Assisted Machining Technologies LLC represents the largest single investment ever for Grand Angels and its affiliated angel groups and venture capital fund.

As well, the deal demonstrates the benefit of building a broader statewide investment network  that can participate in larger capital rounds for growing portfolio companies. 

Tim Parker COURTESY PHOTO

“We’re building the scale now with our network that we can write larger checks so we can really be involved with these companies and make a big difference,” said Tim Parker, the president of Grand Angels, a Grand Rapids-based angel investment fund that, along with affiliates in Kalamazoo and Detroit, led the most recent capital round in Micro-LAM.

“We’re able to stick with these companies until they get to an inflection point,” Parker said.

Grand Angels further added to its scale with the recent formation of an affiliate in Flint.

Formed by the Michigan Capital Network, an umbrella organization for Grand Angels and affiliates Ka-Zoo Angels and Woodward Angels, the new Flint Angels group began with 10 members in the Flint area and continues to recruit more investors, Parker said. He hopes to enlist up to another 10 investors to join Flint Angels by the end of the year.

“I can see us having a 20-member group this year, pretty realistically,” Parker said. “I would be delighted with 20 members in the first year.”

The formation of Flint Angels is somewhat personal for Parker. He grew up in the Flint area and “always had a desire to help my home community, knowing that it’s since been through the wringer with the automotive industry and other things.”

Parker had been getting to know Phil Hagerman, the co-founder and retired CEO of Flint-based Diplomat Pharmacy Inc., and David Ollila, who runs Ferris Wheel Innovation Center, a Flint-based business incubator.

They got together in September and started talking about the gaps in entrepreneurial support in the Flint area. Early-stage capital “is definitely a gap that they see and so we saw a good way to be able to help them” with a new angel investor group, Parker said.

“We saw this as another community that can use that support,” he said, calling the new affiliate a “little bit of my personal interests in combination with a good business need there.”

Flint Angels is the third affiliate that Grand Angels formed in the last two years through Michigan Capital Network, which is pursuing additional alliances with existing angel groups in the state that could benefit from its back-office administrative support, such as scouting for deals and performing due diligence.

The Michigan Capital Network also looks to form affiliates in new markets, although that will wait until Flint Angels is fully up and running.

“We’ll give it a few months to make sure we’re giving it the attention it needs to be successful,” Parker said. “There’s plenty of opportunity left in Michigan to help tighten up the ecosystem and make the investment process better and more productive for entrepreneurs.”

In looking for new markets for affiliates, Parker’s goal “is not to step on anybody’s territory” or compete with existing angel groups around the state where Grand Angels has strong relationships and partnerships.

“We all work well together and we all need each other,” he said.

Opportunity knocks

Grand Angels and its affiliates, along with the venture capital fund Grand Angels Venture Fund III LLC, have invested $3.6 million in 13 deals so far in 2019. Another $825,000 came from investors who are not members of the angel network but participated in deals, Parker said.

Part of building scale with affiliates and its venture capital fund is the greater ability to pursue an investment strategy that’s “Michigan focused and regionally opportunistic,” Parker said. Michigan remains the primary focus for Grand Angels, “but if we see a good deal that’s in the Midwest, we’re not against investing in a company outside of Michigan.”

That investment would come with a requirement that the startup companies receiving the investment relocate to Michigan, where manufacturing costs are lower than on the coasts, Parker said.

“The size that we’re getting now, we’re bringing some scale where now we can look for deals outside of Michigan and as part of the deal we’ll have them move to Michigan. That’s really exciting and really good for our economy here in Michigan,” he said. “We’ll be looking in the next year for maybe one or two companies that have great protected technologies that can scale and we’ll negotiate a financing where part of the deal requires them to move here. That’s something we’re starting to think about now.”

Angel investors across Michigan invested $52 million into 84 startup companies in 2018, up from $41 million that angels invested into 37 startups in the prior year, according to the most recent research report published by the Michigan Venture Capital Association.

Michigan had 11 active angels groups at the time of the 2019 report. Three more groups — Woodward Angels, Birmingham Angels and Flint Angels — have since formed this year. The number of angel investors in the state grew to 859 individuals at the end of 2018, up from fewer than 800 people a year earlier and more than double the number from five years ago. Grand Angels and its affiliates have 100 members.

Staying in Michigan

At Micro-LAM, the $1.4 million from Grand Angels was part of a broader capital raise. Micro-LAM has so far netted $2.4 million of a $4 million target the company seeks to raise through an equity offering, according to a recent filing to the U.S. Securities and Exchange Commission.

Grand Angels was an early investor in Micro-LAM, which sells in 15 countries and is now opening a new division in the United Kingdom, Parker said.

Mirco-LAM is “a good example for how the Michigan Capital Network can help the company with their growth strategies and help them execute, but also be there to bring capital that they need to scale without having to go outside of the state,” Parker said.

“They don’t have to go nationally to raise that kind of capital,” he said.

A “good number” of the members of Grand Angels and its affiliates also recently participated in a capital round for Grand Rapids-based VNN Inc., which provides hundreds of high schools across the country with its web-based Varsity News Network platform to distribute content on sports programs. Grand Angels also was an early investor in VNN.

VNN recently reported to federal regulators that it closed on $3.5 million raised from investors in a $5 million equity offering. 

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