Invest Michigan, an investment fund supported by the state-backed Michigan Strategic Fund, hit a major milestone at the end of 2018: it invested in its fiftieth company in four years.
Ann Arbor’s Spellbound, which has developed a therapeutic tool to help kids cope with illness and engage in treatment through augmented reality technology, received the funding. (The amount was not disclosed.)
Invest Michigan, which does early-stage investing and manages the Michigan Pre-Seed Fund II, has made a total of 93 investments since 2014 in those 50 companies, including follow-on funding.
“I believe the quality of early stage companies is better now than in 2014,” says Charlie Moret, CEO of Invest Michigan. “Companies seem to have more innovative approaches and technologies.”
In the years since the fund began, Moret says angel, private, and foundation capital have helped to create a more robust entrepreneurial sector locally. “Much of the investments and ecosystem participation are driven much more by early-stage companies,” he says.
When he moved to Michigan five years ago from Connecticut, he says there was more startup activity in Michigan than his home state, and that trend has continued. “Usually, you see more startups when the economy is down as an alternative [career path]. We’ve had a good economy now for eight years, yet we’re still seeing startup growth. That’s really good news for the regional ecosystem and network.”
As far as geographical trends taking hold during his tenure, Moret says he’s seen an uptick in activity in West Michigan, although he feels the majority of the entrepreneurial action is in Southeast Michigan. Seven Invest Michigan companies have exited the fund over the past few years, including SPLT, Banza, and Brio Device.
According to Moret, one major generator of tech startup activity in Detroit is the Techstars Mobility program, an accelerator for transportation tech that attracts companies from all over the world.
“Techstars is leading, but some of the other activity in Detroit has waned,” he adds. “Bizdom closed up shop and Detroit Venture Partners hasn’t been as active.” However, he feels encouraged by the early-stage financial technology companies and incubation programs that have landed in the Motor City over the past year. “Detroit’s auto finance sector is huge, we have a mortgage giant with Quicken Loans, and now fintech.” Those three things can be drivers of future growth, he says.
Moret sees a few challenges on the horizon as well. Michigan’s venture capital community was kickstarted by government funds about a decade ago. Most of that money has now been allocated, meaning the state is not able to serve as a co-investor on early-stage deals the way it once was. He worries that with the majority of state investment capital deployed, some out-of-state firms may begin to close up shop in Michigan.
Moret calls the gap between the number of local startups and the amount of investment they’ll need to keep operating in the near term one of the biggest issues facing the state’s VC industry.
“If there was enough deal flow, they’d stick it out, but the state is not priming the pump anymore,” he says. “We’ll see what happens with the new administration. From the brief conversations I’ve had with Governor [Gretchen] Whitmer, it sounds like she has an interest in the entrepreneurial sector as part of her economic plan.”
In 2019, Moret says Invest Michigan will continue its active approach. The fund recently received additional capital from the Michigan Strategic Fund, and Moret says “we’re very well-positioned to invest, and we plan to do a lot of follow-on activity. Our backlog is very robust.”