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Primed for investment: New study benchmarks VC activity in West Michigan

BY Sunday, August 20, 2017 10:13am

The number of venture capital-backed startup companies based in West Michigan grew 20 percent over the last three years.

That’s one indication of the vibrancy identified in the Michigan Venture Capital Association’s inaugural West Michigan Entrepreneurial Study, which found that one-fifth of the venture capital-backed startups in the state are based in the region that extends from Grand Rapids and Holland to Kalamazoo.

The study credited West Michigan’s “close-knit community, research institutions, world-renowned beaches, and lively downtown scene” with “creating an ideal environment for entrepreneurs to work and play.”

“The quality of life in West Michigan makes the area a natural landing spot for high-tech companies and entrepreneurs who are adding to the vibrancy of the region and the state of Michigan,” according to the MVCA report.

The region is home to 28 active venture capital-backed startups that are split relatively evenly between the seed, startup/early, and growth/expansion stages. The diversity of VC-backed startups across the three stages “sends a strong message that West Michigan is open for business for entrepreneurs at all levels,” said MVCA Executive Director Maureen Miller Brosnan.

Six of the 33 venture capital firms operating in the state are either based in West Michigan or have an office in the region. Meanwhile, half of venture capital firms in the state hold active investments in West Michigan-based startups, according to the MVCA study.

“That means that venture capitalists throughout Michigan are turning to the west side of the state to see what kind of ideas are coming out of the universities there, coming out of accelerators, and coming out of creative minds,” Miller Brosnan said. “It’s a very vibrant community.”

The 2017 MVCA West Michigan Entrepreneurial Study provides a benchmark to measure the annual progress of activity in the region.

The increase in the number of startups in West Michigan from 2014 to 2016 results from a combination of factors, Miller Brosnan said. They include an economy on the upswing after the 2008-2010 recession, a competitive cost of living and cost of doing business, an increase in available capital and investors, plenty of people with innovations to build a business around, and a strong base of support for entrepreneurs, she said.

In the last year alone, 13 startup companies in the region received a collective $58 million in VC investments, according to the MVCA.

Half of the venture capital invested in West Michigan startups went to the life sciences sector and 29 percent was put toward information technology firms. The remaining 21 percent was split between consumer products, business services, media and other sectors.

Despite the progress noted in the MVCA study, Miller Brosnan and the head of the economic development organization for the Holland-Zeeland area say more needs to occur to maintain and increase the gains of recent years.

“We’ve had great strides forward as it relates to companies that have been able to leverage venture capital investments,” said Lakeshore Advantage President Jennifer Owens. “There has been great growth in venture capital in Michigan and there is an array of resources and support organizations to help early-stage entrepreneurs get to the point of venture capital funding. However, there’s more work to be done in terms of getting early-stage startups ready for venture capital investments.”

From a public policy perspective, the state needs to maintain support for entrepreneurism and venture capital in Michigan, Owens said. The VC industry has grown both in terms of the number of firms based in Michigan and those with an office here, as well as in the flow of capital into the state from the outside.

Any pullback in Lansing of support for the Michigan Economic Development Corp., for example, could send the wrong signal as the state begins to stake out a position as a place for entrepreneurism, innovation and investment, she said.

“There is much work to be done in engaging the existing VC community and to ensure they continue to invest in our state. They have all sorts of different opportunities across the U.S.” Owens said. “Michigan now has the eyes of the VC community opened. However, if we take a step back and pull back on that investment and that support, those eyes will quickly move to another state or another country to put that venture capital to work.”

Years ago, the state created two so-called fund-to-funds that invested in new VC funds in Michigan. That public-private partnership was largely credited with triggering growth in the industry.

For the last few years, state legislators and Gov. Rick Snyder have opposed creating a third Venture Michigan fund. However, the MEDC created two small seed funds for entrepreneurs and university researchers with innovations that they want to commercialize.

Miller Brosnan said the state support for entrepreneurism “needs to be broader” than the $1 million University Early Stage Proof of Concept Fund and the $4.2 million First Capital Fund, the latter of which was created with $2 million in public money and funding raised by Invest Detroit.

“Some of that early-stage funding and those types of programs, we really could use some more assistance,” she said. “Michigan needs to remain committed to entrepreneurism.”

Read 4618 times Last modified on Wednesday, 23 August 2017 13:01