Group hopes to raise $10 million, target life science/tech startups
GRAND RAPIDS — The newest investment fund in West Michigan offers a new model for individual investors to take their first steps into the world of venture capital.
Charter Capital Partners in Grand Rapids formed the Henrickson Nauta Venture Fund 1 LP on behalf of Belmont-based wealth management firm Henrickson Nauta Wealth Advisors Inc.
According to executives, the new fund serves two purposes in diversifying Henrickson Nauta Wealth Advisors’ product offering and creating a direct link to the higher returns possible with venture capital investing compared to the public equities market.
“We are open to looking at alternative investments and alternative investing in general,” said Jeff Nauta, a principal and chief compliance officer at Henrickson Nauta Wealth Advisors.
The firm has high net worth clients, generally retirees, who are “looking at and growing more and more comfortable with the idea of alternative investments,” Nauta said.
“Clients have an appetite for this,” he told MiBiz. “We see a growing trend, especially among business owners who’ve had a liquidity event. They know business and they like to maybe maintain that cadence as far as reviewing the financials and understanding what’s going on in the business.”
Henrickson Nauta Venture Fund 1 closed late last month on its first fundraising round. The fund netted $1.13 million from 13 investors and seeks to raise $10 million in total, according to a July filing with federal securities regulators. The fund requires a minimum investment of $50,000 from individual investors.
Charter Capital Partners approached Henrickson Nauta Wealth Advisors about a year and a half ago with the idea of a venture capital fund for interested wealth management clients, Nauta said. The firm was open to the idea and decided to “dig into the weeds” with Charter Capital to determine how a fund would operate, he said.
Subsequent discussions led to Charter Capital forming the new fund this year for Henrickson Nauta.
Prior to formation of the new fund, Henrickson Nauta “didn’t have a lot of options within venture (capital),” Nauta said. Many venture capital firms require a much larger minimum investment to become involved in a fund.
The Henrickson Nauta Venture Fund I was designed with wealth advisers in mind, according to Nauta. That’s a sentiment echoed by Dale Grogan, managing director at Charter Capital Partners, the group also behind the Michigan Accelerator Fund.
Directly accessing a venture capital fund through wealth managers is a rarity, Grogan said, noting wealth managers typically refer interested clients elsewhere. The new Henrickson Nauta Venture Fund I turns the model “upside down” by having the wealth manager act “as the onramp into alternative investments,” he said.
“Historically, there’s just been no onramp for these individuals to get into this part of the market. It’s historically been the domain of institutions, so here’s now a method for individuals to put their toe in the water,” Grogan said.
Under the model, a person’s investments, including the allocation of their funds to venture capital investing, remain under the control of a wealth adviser, who’s also involved in the fund’s investment decisions.
“It really helps the client and the wealth manager because you’re managing an entire portfolio. You have visibility as the manager as to where all of the investments are,” Grogan said. “There’s a percentage in stock, there’s a percentage in public equities, there’s a percentage in bonds, and then there’s a percentage in alternatives. Being able to manage all that in real time seems to make a whole bunch of sense.”
The Henrickson Nauta fund will invest up to $2 million in later-stage rounds for life sciences and technology companies that brought an innovation to market, are generating revenue and moving toward an exit, Grogan said. He expects the fund to invest in a half-dozen or so companies.
Charter Capital Partners envisions a series of annual or biannual funds in which wealth managers have access and input into investment decisions, Grogan said. Charter Capital Partners manages the new fund on behalf of Henrickson Nauta Wealth Advisors, which has a representative on the investment review committee, he said.
“We’re of the mind here at Charter that there are probably many instances where this is applicable for wealth managers or investment advisory firms,” Grogan said. “The expectation is we continue to do this and add to the corpus. My expectation is we’ll probably do another one in 12, 18 months or something like that. The idea is that each one gets larger and more sophisticated, but not so large that it becomes inaccessible to folks.”
The fund’s first investment was in Trice Medical Inc., a Malvern, Pa.-based company that developed a diagnostic orthopedic device equipped with a camera. The device enables a doctor to diagnose a knee or shoulder injury quicker, rather than rely on an MRI, Grogan said.
Trice Medical’s device already has been used in about 6,000 procedures and is on track to generate $8 million in revenue this year, he said.
Henrickson Nauta Venture Fund 1 co-invested in Trice Medical with other venture capital funds and was introduced to the company by colleagues at Petoskey-based BioStar Ventures LLC, an earlier investor. The fund presently is “looking at several local deals,” Grogan said.