Michigan venture capitalists have more than $200 million for new startup investments

Posted on May 2, 2011

Michigan-based venture capital firms have $1.2 billion in assets under management, including more than $200 million in fresh capital that is ready to be distributed to startup companies, according to a new report.

A study released today by the Ann Arbor-based Michigan Venture Capital Associationindicates that venture capitalists of all types invested $215 million in 27 Michigan companies during 2010.

That contradicts a report by PricewaterhouseCoopers and the National Venture Capital Association, which recently reported that venture investors plunged $151.5 million into 33 Michigan companies in 2010.

But the MVCA said its report was more complete.

Venture capitalists typically invest in promising early-stage companies that need a big influx of cash to develop their technology and get it to the market. If an investment reaches an “exit” — that is, a sale of the company or an initial public offering — the investors can reap big returns for themselves and their own investors.

Local companies that have benefited from venture capital include firms like Accuri Cytometers, Sakti3, Cerenis Therapeutics, Lycera, ForeSee Results and HealthMedia.

The MVCA report indicated that Michigan has 80 companies that are backed by venture capital. Those companies employ more than 1,200 workers, according to the report.

“This activity validates how venture capital is an important economic development tool, creating many high-paying jobs and helping to revitalize Michigan’s economy,” the report stated.

Michigan-based venture capital firms have $206 million available to invest in startup companies. That’s up from $168 million in 2009, down from $330 million in 2008 and down up $100 million in 2007.

But a slowdown in venture capital nationally has also taken its toll on the state as institutional investors have pulled cash from VC firms in favor of short-term, more conservative investments. Venture capital firms that aren’t based in Michigan but have an office here have $134 million to invest, according to the MVCA report. That’s down from $177 million in 2009, $200 million in 2008 and $300 million in 2007.

Also, the state’s venture capital firms are still much smaller than those in startup hotbeds like Silicon Valley and Boston. Michigan’s average fund size is a third of the national average, according to the report.

“As Michigan’s indigenous venture capital industry grows, we will come closer to national averages in these categories,” the report concluded.

U.S. VC firms raised $11.6 billion in 2010, down 14 percent from 2009, according to an independent report by Dow Jones LP Source.

There are 19 venture capital firms based in Michigan with an average of $74 million in capital under management, according to the MVCA report.That’s up from 15 in 2007 with an average of $69 million to invest. Another six VC firms have offices here but aren’t based here.

The report comes as the Venture Michigan Fund’s second investment fund, VMF 2, is now making investments in Michigan venture capital firms. The new $120 million fund is being managed by global financial firm Credit Suisse’s Customized Fund Investment Group, will distribute dollars to firms with a presence in Michigan.

But a new rule imposed by the group’s board dictates that firms that receive funds must invest as least as much as they’ve received into Michigan-based companies.

“The Venture Michigan Fund Board asked us to tighten up the provision so that it is now an absolute requirement and not best efforts” to invest as much money in Michigan as the funds receive from VMF, Bob Payne of Credit Suisse said in an email.

By Nathan Bomey, AnnArbor.com