VC Leader: Michigan Investment Outlook Sunny
YPSILANTI — The woman in charge of $30 billion in custom venture capital funds apparently has a special place for the $600 million of it that’s under management in Michigan.
Kelly Williams, who leads Credit Suisse’s Customized Fund Investment Group, said that Michigan — long a venture capital wasteland — now has significant advantages over both coasts that make it a compelling market for VC investing.
Williams was the opening keynoter for the 32nd annual Michigan Growth Capital Symposium, the Midwest’s largest university venture capital conference, in Ypsilanti Tuesday.
Williams said the advantages of the Midwest in general and Michigan in particular include stuff you’ve probably heard people brag about before — strong universities and research centers, a lower cost of living, more reasonable costs for talent and real estate. But she also mentioned some things as strengths that people used to mention as Michigan weaknesses, including a culture accepting of risk, a strong network of angel investors, and a network of veterans of earlier venture-backed businesses to serve as mentors and board members of new venture-backed companies.
Williams said Michigan’s former weaknesses have become strengths over the past decade, for a variety of reasons — generational changes, the pounding the state’s economy took in the 2000s forcing a change in thinking, the example of successful entrepreneurs in the state, and state government’s efforts to move more venture capital in Michigan.
Williams was effusive in her praise for the state’s efforts to boost venture investment here since the late 1990s, saying those efforts are a rare example of working bipartisanship — they were born under the Republican Engler administration, greatly expanded under the Democratic Granholm administration, reached their fruition under the Republican Snyder administration, and were approved by state legislatures controlled by both parties.
Since 2001, 13 Michigan-based venture funds have been established with $1 billion in assets, and nine firms based elsewhere have opened Michigan offices. And more than a dozen new venture firms are currently forming in the state.
Michigan is also a rare state in that it has a governor and state treasurer, Rick Snyder and Andy Dillon, who are both veterans of the venture capital industry, as are many staffers at the Michigan Economic Development Corp.
And Michigan is a rare state in that its VC industry is growing, doing 47 deals in 2012, up from 30 in 2011, in a year when most states saw a decline in deals.
Michigan is also unique, Williams said, in that its venture programs cover the full investment spectrum, from early investigation of tech concepts to seed stage investment to development and early stage investing to investing for mature companies.
And, she said, Michigan has a “unique collection of individuals who are willing to fund at the early stage, like Dan Gilbert.”
Williams said that if anything, Michigan needs to brag more about its VC success.
“It’s not a Midwest attribute to brag on ourselves, but we really need to,” she said.
Major state initiatives in venture capital over the past 10 years were as follows:
2006: Venture Michigan Fund I, a $95 million fund that in turn invested in 11 venture funds that invest in Michigan companies, and the Michigan 21st Century Investment Fund, which took $109 million in tobacco settlement money and turned it into science and technology investments.
2007: Renaissance Venture Capital Fund I, a $50 million fund established by what is now Business Leaders for Michigan that invested in nine venture funds.
2008: Invest Michigan Growth Capital Fund, a $185 million fund that made 28 investments in Michigan companies.
2011: Invest Michigan Mezzanine Fund, a $130 million fund to make mezzanine ‘middle risk’ investments, and the Venture Michigan Fund II, a $120 million fund that invests like its predecessor in other venture funds
2012: Invest Michigan Growth Capital Fund II, a $180 million fund that is just starting up and so far has made two investments, and Renaissance Venture Capital Fund II, a $65 million fund of funds that also has recently launched.
Williams also told the conference that last year’s presidential campaign focused on the worst parts of the private equity industry — vulture funds that “buy companies to lay people off.” She said the industry is a lot bigger than that, with a lot more positive impact — venture capital annual investment is only 0.2 percent of the U.S. GDP, yet VC-backed companies represent 11 percent of U.S. private sector employment.
“We are the growth engine,” she said. “We are the driving force for the economy.”
She said the private equity industry needs to focus more on its heroes. She noted that the founder of the blog site Tumblr, recently sold to Yahoo for $1.1 billion, was “a high school dropout. Everybody knows that. But do we know about the venture capital people who met with this guy and believed in him and invested with him?” Probably not, she noted.