MUSKEGON — As angel investing maintains a growth trajectory in Michigan, Muskegon Angels LLC pivoted this year to keep investments close to home.
The Muskegon angel group now looks to invest in local companies that need capital or financing. Muskegon Angels will continue to invest in startups, as long they’re based in Muskegon or in a neighboring county. The investment group currently is considering for possible investments four startups that are based locally.
“We don’t want to do the startups all over the map. We want to focus on Muskegon County and we want to do deals with established businesses as well as startups,” said Eric Seifert, administrator for Muskegon Angels and the principal of Muskegon-based Left Coast Capital Resources LLC.
“We’re looking for the kind of deals where we can make an impact locally,” Seifert said. “They (members) just want to help continue the momentum here in Muskegon County and rebuild the industrial base.”
An ideal investment for Muskegon Angels is a local company going through a management buyout “that needs some extra capital to get the deal done,” and where members also can offer mentorship to the new owners and eventually exit the deal in five to seven years, Seifert said.
Muskegon Angels’ members regrouped and altered their focus this year after they “kind of took the year off” in 2018, he said.
Beyond the change in investment philosophy, Muskegon Angels also moved away from a pooled investment fund and to a standardized angel model in which individual members decide whether to invest in a prospective deal.
The 25-member Muskegon Angels started five years ago and intended to invest locally, then broadened its geographic focus after the first year and began co-investing with other angel groups across the state, such as Grand Rapids-based Grand Angels.
The change in investment philosophy essentially returns Muskegon Angels to its original roots and focus on “industries our members understand and participate in,” such as manufacturing, machining and distribution, rather than high-tech sectors such as software, Seifert said.
That focus may generate a lower return on investments, “but still a good social return in that we’re retaining and creating jobs and retaining local ownership,” he said.
“That’s more important than going for the big bangs,” Seifert said.
Muskegon Angels has invested about $3 million in 16 deals over five years, two of which did not work out. One successful investment was in Grand River Aseptic Manufacturing Inc., which in November 2017 sold a majority stake to Chevy Chase, Md.-based private equity firm Arlington Capital Partners.
Statewide, angel investors in Michigan put $52 million into 84 companies during 2018, according to a new report that details the sector’s continued statewide growth. Angel activity last year compares to the $41.8 million angel investors put in 70 companies in 2017.
The report by Michigan Angel Community and the economic development firm Ann Arbor SPARK counted 859 active angel investors in Michigan at the end of 2018, up from 797 a year earlier. Nearly 390 of the angel investors are members of one of the 10 angels groups based in Michigan.
Across West Michigan, angel investors put $12.8 million into 14 deals last year, according to the report. That compares to 17 deals totaling $11.9 million in 2017.
The Michigan Angel Community report, which is based on surveys conducted in early 2019 with existing angel groups and companies that raised capital, shows “great momentum” in the state, said Mike Flanagan, the vice president of capital programs at Ann Arbor SPARK and managing director at the 120-member Michigan Angel Fund LLC.
A “culture change” over several years in Michigan created the environment and opportunity for investors to get involved in an angel group and support startup companies, Flanagan said.
“The positive part that’s helping that (momentum) to some degree is just the entrepreneurial space has matured over the last decade in Michigan and you’ve seen a lot of really good companies come up through the ecosystem, and some big exits,” he said. “As that gains attention and headlines, it gets more people excited about the space.”
'A slow process'
Angel investing has grown since the start of 2019 with the formation of two new groups in the Detroit area: Woodward Angels, which is an affiliate of Grand Angels, and Birmingham Angels. An additional group also is in the works in Grosse Pointe, Flanagan said.
Flanagan believes angel investing can continue growing in Michigan. He sees increased opportunity in early-stage investing, as well as a greater need for angels as venture capital funds move further down the capital continuum.
Michigan Angel Community hopes to see the number of angel investors in the state grow “into the thousands,” although that will take years to accomplish, Flanagan said.
“It’s a slow process because it’s a network effect and because it’s private. It’s not exactly just going to turn on overnight,” he said.