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Posted on Fri, Jan 14, 2011 : 6 a.m.

Investment company moves to Ann Arbor to provide funding for University of Michigan student entrepreneurs

By Tom Perkins

Ben Rye believes Michigan’s highest concentration of brainpower is in Ann Arbor. He also sees the potential that lies in working with students at the University of Michigan to fund their business ideas.

For those reasons, the 2008 U-M business school graduate and his dad, Jon Rye, are returning to Ann Arbor next month to grow their private equity firm, Greenfield Partners, which will specialize in both turnarounds and start ups.

Rye says the plan is to scout the engineering and medical schools for entrepreneurs who might have ideas but not know where to seek funding. Instead of working with the professors or mature businesses like Ann Arbor SPARK or U-M's Tech Transfer, Greenfield will go directly to the students.

“We’re interested in ideas started by students in the engineering and medical programs and really leveraging their ideas … because it's difficult for students to know where to go in starting to look for assistance,” Rye said.

The first project in which Greenfield is involved is providing a $10,000 grant to the winner of a tech contest through Techarb, a student-led business incubator. After that, their typical investment in a start up could range anywhere from $10,000 to $150,000.

Rye sees a disconnect among the different entrepreneurial groups at the university. He says schools like MIT already have a developed infrastructure that coordinates students with firms like Greenfield Partners, but such a network has yet to be established here.

“Look at the number of companies started at MIT compared to U-M, and it's apparent they have a head start,” Rye says. “They have a program to take the companies through the starting stage and help raise funds."

The potential at U-M is high, he added. "There are a lot of unique things going on.”

Rye says he would like to see Greenfield help increase communication among  the various schools and entrepreneurial groups, though their primary interest is searching out investment opportunities.

“We see the future of Michigan being in Ann Arbor,” he says. “If you’re going to be any place in the state, Ann Arbor has the most brain power and the likelihood of producing some really fantastic start up opportunities. So for a business like our, it’s the perfect place to be.”

Doug Neal is the managing director for the U-M Center for Entrepreneurship. He said there are smaller early stage funding opportunities on campus through the Frankel Fund, Techarb, Wolverine Fund or Social Entrepreneurship Initiative. Those don't typically exceed $10,000. Beyond that, he says, the next level of funding is only available through angel funds or traditional venture capitalism, but not a lot of opportunity in the $100,000 to $500,000 range.

“That might be is a really good niche that Ben’s company might be able to solve for us,” Neal said.

Most of the interest in student start ups has not been traditionally been in the Midwest, he added.

“Silicon Valley and Boston have a lot more of an early stage investment community built up around their schools, but we’re starting to see that shift,” he said. “We’re getting interest form some firms that want to get more involved with the University of Michigan.”

Student startups are more attractive now than they were 10 years ago, Rye said, because the cost of developing their products has dropped off.

“In the past it would have been much more expensive to have a portfolio of these very early stage investments, but now you can get in at that earlier stage at a much lower cost,” he explained.

Beyond funding students’ start ups, Greenfield Partners is also interested in middle market companies they could purchase and turn around, for which typical investments would run between $2 million to $10 million. While Ben Rye is relatively new at the game, Jon Rye, his father, has 30 years experience, though Jon says he’s more in an assisting role.

Jon Rye originally launched Greenfield Partners and accumulated 25 businesses in its portfolio. In 1995 he retired and launched Greenfield Capital, which suffered as the economy nose-dived in 2008.

Ben Rye graduated from U-M right around that time, so father and son teamed up, reactivated Greenfield Partners and acquired two companies. The first, Veritas, is a high end asset search and background check company they acquired to demonstrate to their banks that they did their due diligence.

The second company, Senex Services, purchases medical receivables. All three companies were profitable within a year, and Veritas has been sold off while Senex continues to grow, the Ryes said.

“I’ve been doing this for 30 years, so Ben is kind of putting his own stamp on it and taking it to the next level,” Jon Rye said. “We’re trying to help the next generation establish businesses in Michigan.”