Michigan's Missing Link to Entrepreneurship (Steps-Up to Challenge)

May 19, 2013 8:00 AM

Michigan's VC activity takes biggest jump in the nation

By Tom Henderson

While venture capital activity continued to contract nationwide in 2012, it grew in Michigan, with the state climbing in the national rankings from 25th in investment activity in 2011 to 15th, according to the annual report of the Ann Arbor-based Michigan Venture Capital Association. 

The report is being released this weekin conjunction with the 32nd annual Michigan Growth Capital Symposium, which will take place Tuesday and Wednesday at the Marriott Eagle Crest in Ypsilanti.

Michigan's VC firms invested more than $242 million last year, compared to just less than $100 million in investments in 2011. 

Michigan had the biggest rise in the rankings of any state with its 10-place jump. The number of deals was also up sharply, from 33 in 2010 to 30 in 2011 to 47 last year. 

California retained its status as the No. 1 state, by far, with a total invested last year of $14.1 billion. Massachusetts was No. 2 at $3 billion, and New York third at $1.9 billion. 

Michigan ranked third in the Midwest, behind Illinois, which had $540 million in investments while falling two places to No. 7, and behind Ohio, which had $289 million while climbing seven spots to No. 12. 

"We're really excited about the growth in Michigan. It's been slow and steady and moving in the right direction," Carrie Jones, the executive director of the MVCA, said last week while attending the annual conference of the National Venture Capital Association in San Francisco. 

Jones said her mood contrasted with the mood of many at the conference. Nationwide, VC investing was off 10 percent last year to $26.5 billion, and the number of deals was off by 6 percent. 

"There's a sense of doom and gloom by some of those here, so it's fun to be out here and talking to people about everything that's going on in Michigan. We're bucking the trend and actually growing. I'm excited by all the good things happening in the state," she said. 

Since 2008, the number of investment professionals working at VC firms nationally has consistently fallen, from 7,497 to 6,125 in 2011 and 5,887 last year. The number of VC firms in that time has fallen from 882 to 841. 

The national numbers are in sharp contrast to that in Michigan. Since 2008, the number of professionals has grown from 43 to 62, and the number of firms headquartered here has gone from 15 to 20, with another nine out-of-state VC firms having opened offices here. 

Another strong metric for Michigan was the growth of money under management by VC firms here. Nationally, growth was nearly flat, from a total of $197 billion in 2011 to $199 billion. The increase was 23 percent in Michigan, up by $700 million to $3.7 billion. The amount of money available in VC funds for new investments climbed from $367 million in 2011 to $456 million last year. 

Michigan also saw record levels of investments by angel investors and those making what are called pre-seed investments, typically small but crucial investments to get companies up and running. 

A total of $12.5 million in angel and pre-seed money, up more than 100 percent in two years, was invested in 40 companies. 

The MVCA was founded in 2002 and has grown to 250 members. 

Tom Henderson: (313) 446-0337, thenderson@crain.com. Twitter: @tomhenderson2