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Michigan Outpaces the Nation in Venture Capital Growth

Sunday, May 28, 2017   (0 Comments)
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Via Crain's Detroit Business

 

The venture capital community in Michigan continues to grow, particularly by the most important metric: money under management.

Twelve firms with offices in the state, eight of them headquartered here — both record numbers — are concurrently raising new funds. Four of the funds are targeted at $100 million or more, another record. Together the firms plan to raise a total of $806 million over two years.

The current total of $2.4 billion under management by VC firms based in Michigan is almost five times as much as the $520 million in available capital in 2001. The 12 firms raising funds expect to raise $369 million this year.

By many measures, activity in Michigan has outpaced venture capital nationally over the last five years. That's according to metrics gathered by Emily Heintz of the Ann Arbor-based Michigan Venture Capital Association for the organization's recently released 2017 annual report.

For example, from 2011 through 2016, the number of VC firms nationally grew by 10 percent, while growth in Michigan was 25 percent, with the number of state-based firms going from 20 to 25; total capital under management here grew by 60 percent to $2.4 billion, compared to national growth of 22 percent; average capital under management grew 28 percent to $96 million per firm, compared to 8 percent nationally; and the number of startups getting funded grew by 42 percent to 54, compared to 24 percent nationally.


Over that five-year period, the number of venture capital-backed companies in Michigan grew by 48 percent from 95 to 141; and the number of VC professionals working in the state has climbed by 41 percent, from 40 to 93.

One number that has declined is the total number of venture capital firms with offices in Michigan, falling from 38 in 2014 to 33 last year. Out-of-state firms opened offices here to get funding from the state's two VC funds: the $95 million Venture Michigan Fund I, created in 2006, and the $120 million VMF II, created in 2011.

As it became apparent in the last two years that there will be no third fund out of Lansing, some of those out-of-state firms closed their small local offices.

But they have portfolio companies here, have coinvested with state firms and will continue to look at state deals, so the hit caused by closing local offices is minimized.

Here are some other highlights of the annual report:

The amount of money invested in state companies was $191 million in 2011, a record of $282 million in 2015 and $222 million last year; the number of startups getting funded in those three years was 38, 74 and 54, respectively.


The average amount of money under management was $75 million in 2011, $88 million in 2015 and $96 million last year; the average fund size in those years was $41 million, $45 million and $50 million, respectively.


A total of 343 out-of-state VC firms have invested in Michigan companies.


For every $1 invested in a state company by a Michigan-based VC firm, $4.61 was invested by out-of-state firms.


The 141 VC-backed firms will need $504 million in followup funding over the next two years. VC firms have $424 million set aside for those companies, hence the need for fundraising for current and future portfolio companies.


42 percent of VC investment in Michigan is in life science and healthcare; 31 percent is in information technology; 7 percent is in media; 5 percent is in mobility; 3 percent is in advanced manufacturing; 3 percent is in business services; 2 percent is in consumer products and 1 percent is in alternative energy. The rest is categorized as other.

 


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