Venture Capital

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As described in our last segment, the Michigan Pre-Seed Capital Fund matches equity investments by venture capitalists, angels, and others in early stage ventures. In this segement Skip Simms, the fund's manager, describes the state of venture capital in Michigan...

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Filed under: Ann Arbor Spark | Ann Arbor, MI | Financing Innovation | Skip Simms | Venture Capital

Skip makes three points:

• On a national scale, Michigan falls in the mid to lower mid tier of states when venture capital activity is measured in number of firms or assets under management. The state is attempting to improve its position with the Venture Michigan and Twenty-First Century Jobs funds.
• If a Michigan company seeks venture capital and wishes to stay in Michigan, they will most likely work with a local Michigan venture capital firm. Even if the company gets funding from out-of-state venture capitalists, those venture capitalists will want someone with local presence as an investment partner.
• Michigan venture capitalists, like venture capitalists in the rest of the country, invest incrementally, waiting to see the extent to which the initial investment is succeeding before investing more. Over the 10 year life of an investment fund, they seek to provide a return of two to four times to their limited partner investors.

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The Michigan Pre-Seed Capital Fund is targeted at early stage technology companies that need in the hundreds of thousands of dollars. Skip Simms, fund manager, explains the criteria for applying and the reason for the fund's existence.

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Filed under: Angel Investing | Ann Arbor Spark | Ann Arbor, MI | Financing Innovation | Friends and Family | Skip Simms | Venture Capital

The Michigan Pre-Seed Capital Fund is targeted at early stage technology companies that need in the hundreds of thousands of dollars. As Skip Simms, the fund's manager, explains:

• The maximum investment the fund will make is $250,000.
• The fund is a matching fund. Its contributions will always be less than or equal to those of outside investors. These investors might include angels, venture capitalists, or friends and family.
• The motivation for creating the fund came after the collapse of the first Internet bubble when angels and venture capitalists demonstrated hesitancy to invest in early stage ventures that were still trying to prove their business concept.
• People interested in the fund should apply through the nearest Michigan SmartZone where it is first reviewed. The application then goes to Skip Simms who presents it to the fund review board consisting of angels, venture capitalists, and service providers.

Additional links

• One reason that venture capitalists might be hesitant to invest in early stage companies is pressure from their own investors seeking high rates of return over a fixed time horizon.

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We discuss KeyBank's services to small and medium sized businesses in Michigan. Key offers both traditional bank loans and venture and growth equity. KeyBank approaches equity both by making its own investments and by acting as an agent for groups of investors.

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Filed under: Ann Arbor, MI | Bill Koehler | Financing Innovation | KeyBank | Tim Gretkierewicz | Venture Capital | Working Capital

 In this segment, Bill Koehler and Tim Gretkierewicz of KeyBank detail the services KeyBank offers to small and medium sized businesses. These businesses may range in sales from just starting up to $20 million.

Often, while potential clients are aware of their own financial needs, they do not really understand how the bank might view their situation. For instance, would the bank issue a line of credit against accounts receivable or seek a mortgage on a piece of property. Essentially, banks are risk averse and make sure there are adequate assets to secure any loan.

Equity tends to be a less risk averse form of finance. KeyBank has the capability to make equity investments through its venture capital branch. It can also act as an agent, putting together groups of investors.

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Early stage outside equity investors are angels and venture capitalists. Venture capitalists tend to come in later on deals, and angels seem to prefer more hands-on involvement with less initial investment. The SBTDC's Charlie Penner provides an overview of how these types of financing work in Michigan.

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Filed under: Angel Investing | Charlie Penner | Financing Innovation | Small Business & Technology Development Center | Venture Capital | Ypsilanti, MI

 As Charlie Penner, Regional Director of the SBTDC, mentioned in his first segment, the first choice an entrepreneur has to make is between debt and equity, and most entrepreneurs receive their first financing from friends and family. In this segment, Charlie discusses outside equity. There are two types:

• Venture capitalists have focused interests. Firms tend to focus on one field to the exclusion of others. In Michigan, venture capitalists tend like to target business to business opportunities with proven markets.
• Angel investors range from sophisticated groups to high net worth individuals. As echoed by Terry Cross, angels bet on the individual entrepreneur and typically make investments under $1 MM.

Both sets of investors look for outsize returns which typically come from risky investments. However, in Michigan, angels and venture capitalists have begun to hedge their bets a bit by focusing on companies that are already demonstrating some market traction.

Additional Links:

• This link gives good tips on getting funding from friends and family which often precedes outside equity investment.
• Angels tend to invest locally because they like to be involved in the businesses they invest in.