Ann Arbor's venture capital leaders envision vibrant recovery
More than $200 million in government funds allocated to Michigan-based venture capital investors in recent years will enable Ann Arbor’s VC sector to prevent the financial crisis from becoming a crippling blow, local experts said.
National observers have notably predicted that the financial crisis would liquidate one out of every three venture capitalists. But local VC proponents say many Michigan investors have positioned themselves to survive the crisis.
“We have just as much of a chance to survive as other states,” said LeAnn Auer, executive director of the Ann Arbor-based Michigan Venture Capital Association. “That’s because we have a lot of the infrastructure built - we have a great entrepreneurial economy that’s been plugging along and improving within the last few years.”
That’s not to suggest the venture capital community will avoid scarring. The fundraising atmosphere is still brutal, but Michigan investors have been dealing with similar conditions for years.
Investors also face a stiff global funding environment, particularly because institutional players like university endowments and pension funds have pulled back on venture spending due to contraction in their portfolios.
That, experts said, increases the importance of collaborative venture initiatives like Detroit Renaissance’s Renaissance Venture Capital Fund, run by Ann Arbor investor Chris Rizik, and the Michigan Economic Development Corp.’s VC efforts.
Global investment giant Credit Suisse, which managed the $95 million Venture Michigan Fund and the $110 million 21st Century Investment Fund, has allocated all the money from those two initiatives, while Credit Suisse and Beringea are now investing $75 million apiece from the InvestMichigan! Growth Capital Fund.
Funding from those state-backed initiatives is not subject to global economic forces - so firms that have received state money can count their blessings.
Several Ann Arbor firms have received backing from the Credit Suisse-managed funds - including Arboretum Ventures and Venture Investors, for example. Arboretum has funded Ann Arbor area companies like Accuri Cytometers and Roger Newton-led Esperion Therapeutics. Venture Investors recently funded University of Michigan startup NanoBio Corp.
Most of the millions allocated to venture investors have not been spent, which means cash-starved Michigan-based tech companies may soon begin to reap the benefits of those programs.
“The funds that are here now are pretty well capitalized,” said Ned Staebler, MEDC’s vice president for capital markets. “One would expect them to be active through their lifecycle. Many of them are just starting their investment cycles right now.”
Simms said Ann Arbor’s venture capital industry wouldn’t suffer worse than venture investors elsewhere.
“We will definitely not lag behind the rest of the country relative to venture capital getting out of this melee,” he said. “I think there’s a good possibility, maybe even a probability, that we’ll be ahead of many states. Millions going into several Michigan VC firms is giving them the actual ability now to make investments at a time when most VC firms are actually withdrawing or holding back.”
Jan Garfinkle, managing director of Ann Arbor-based Arboretum, agreed that the state’s programs and the Detroit Renaissance initiative would provide critical ammunition for the state’s investors. Arboretum, which invests in health care technology companies, recently finished fundraising on a $73.4 million investment fund.
“Those programs will be providing, if you a will, a cushion to the venture funds in Michigan,” she said. “Venture funds that have cash right now are really sitting in a good place because they’re able to participate in funding rounds for these companies and will have a really good price and really good returns.”