Venture capital firms invested a record amount into Michigan-based companies in 2019, led by a Plymouth-based automotive technology company that accounted for three-quarters of the total.
The $1.55 billion investment in Rivian LLC lifted total venture capital investments in Michigan to $2.06 billion across 71 deals last year, according to an annual research report released today by the Michigan Venture Capital Association.
Minus the Rivian deal, which involved investors from outside of Michigan, VC investments across the state totaled $514 million through 70 deals, which is still a record amount and more than 150 percent higher than five years earlier.
Whether the VC industry can continue that momentum through 2020 remains uncertain. The COVID-19 crisis will surely affect deal flow and the amount invested, “hopefully, not horribly severe, but we’ll see,” said Ara Topouzian, executive director of the Ann Arbor-based MVCA.
“A challenging economic climate doesn’t dampen the determined entrepreneurial ethos reflected in this report, one (that) makes Michigan a desirable destination for venture-backed investments, especially in the life science and technology sectors,” Topouzian said. “Our goal is to work closely with our partners and our members, especially during these uncertain times, to ensure that we continue to build upon our success and support entrepreneurial growth.”
Despite the economic harm now occurring, Topouzian sees VC deal flow and investment continuing as firms focus on helping their portfolio companies navigate the crisis, although probably on a limited basis, Topouzian said.
“The end result is going to be (based) on how long this crisis lasts. If we come out of this crisis in a shorter term, I think our impact overall will, hopefully, not be as great,” said Topouzian.
He echoes other voices in the industry who believe VC investors will find new opportunities through entrepreneurs offering an innovative product or service that meets an emerging market demand resulting from the pandemic.
“The deals will still happen and we will see some innovation come out of this crisis for the positive,” he said.
The association’s annual research report offers a detailed look at the state of the venture capital industry in Michigan.
The report shows that in addition to a record amount invested in deals, the total amount of capital under management grew in 2019 for the first time since 2015. VC firms based in Michigan and from out of state collectively had $4.26 billion in capital under management at the end of 2019, an increase of 14.2 percent from 2018 and up 52 percent from five years earlier.
Capital under management by Michigan-based firms grew nearly 21 percent in 2019 to $2.66 billion from the $2.20 billion at the end of 2018, according to the MVCA report. That’s the largest amount of capital under management for Michigan-based firms since the MVCA began issuing an annual research report in 2005. The increase also reversed a two-year decline and the amount surpassed the prior record of $2.40 billion in 2016 for Michigan-based VC firms.
The MVCA reports also details the persistent gap between the amount of capital VC firms have set aside for follow-on investments in portfolio companies and what’s needed to support their continued development and growth. VC firms at the end of 2019 had $396 million available for follow-on investments, a third of the $1.2 billion that’s presently needed.
“Our entrepreneurs and investors have achieved much, but we must all consider what we as a community can do to continue promoting the strength, vibrancy, and progress of our state,” Michael Gross, chairman of the MCVA board and managing director of Farmington Hills-based venture capital firm Beringea LLC, wrote in the 2020 research report.
At the end of 2019, Michigan was home to 144 companies backed by venture capital. There were 26 VC firms active in Michigan last year, 20 of which are based in the state. The others are based elsewhere but have an office in Michigan.