By Larry O’Connor
The state of venture capital in Michigan is better than it was five years ago, and there are at least 300 million reasons why that is so.
Those 300 million reasons are dollars from Michigan’s pension fund, earmarked for the “Invest Michigan!” program that seeks to infuse growing companies with venture capital over the next three years.
The aggressive move is intended to help jumpstart a sluggish economy.
Three professional investment management firms - Beringea, Credit Suisse and Glencoe Capital - will determine what companies are bankable.
Similar programs have proven successful in Ohio, California and New York.
Targeted in this speculative cash infusion are research-driven, knowledge-based operations whose work is transforming their respective industries. Specifically, the program is seeking firms specializing in life sciences, alternative energy, high tech and homeland security.
Ned Staebler, director of capital markets development at the Michigan Economic Development Corp., says Invest Michigan! is definitely not a government handout.
“It’s more like ‘let’s look at your business; let’s try to decide if more investment would be good for you and good for investors,'” says Staebler. “It’s not a grant. It is an investment, and in these cases, it’s usually an equity investment.”
While the 21st Century Jobs Fund and Venture Michigan Fund have injected $100 million in an effort to restore economic stability through business start-ups, Invest Michigan! differs in that it is intended for existing companies looking to expand.
While the state serves as a catalyst at the top, other groups continue to spur investment at the grassroots level.
One is the Ann Arbor-based Michigan Venture Capital Association, which received a $2.1 million MDEC grant to help draw venture capital professionals to the state and create new funds. The trade association is also researching the venture capital climate statewide.
“We want to see more successful venture-backed companies in Michigan,” says LeAnn Auer, Michigan Venture Capital Association’s executive director. “Those ingredients are what will help make for a more vibrant venture capital climate.”
The Great Lakes Entrepreneur’s Quest, a nonprofit also based in Ann Arbor, prepares fledgling companies to seek venture capital through annual competitions and mentoring.
State programs - especially those with hefty dollar amounts - only go so far in helping advance the entrepreneurial spirit.
“You need that eyeball popping number to bring people forward,” says Diane Durance, Great Lakes Entrepreneur’s Quest executive director.
“We get them to come forward to compete for this $30 million, but we’re not really doing anything to help them prepare to compete.”
Through the MDEC and state’s Small Business Association, the Michigan Small Business Technology and Development Center also helps entrepreneurs with business plans, executive summaries and milestones - all of which potential investors typically key in on. The center, based at Grand Valley State University, has regional outlets as well.
In terms of venture capital’s potential, MEDC’s Staebler need only point to his own agency. From 1996, MDEC invested $11.4 million in four funds and has already seen a $11.6 million return.
In doing so, the investment helped fund 29 Michigan-based companies, which attracted a combined half-billion dollars in venture capital, Staebler says. Upwards of 500 jobs were also created.
“And we made money,” he says. “Did I mention that?”