The formation of a $180 million fund to invest in state companies looking to grow is expected to be formally announced today.
The Michigan Growth Capital Partners II LP will be co-managed by Farmington Hills-based Beringea LLC, the state’s largest venture capital firm, with $490 million under management, and Credit Suisse’s New York City-based Customized Fund Investment Group.
The $180 million is from the state of Michigan’s retirement system and follows an investment of $150 million that the retirement system committed in 2008 to the first Michigan Growth Capital Fund, also co-managed by Beringea and Credit Suisse.
Officials at Beringea and Credit Suisse say they hope to boost the size of the second fund in coming months by bringing in other limited-partner investors.
Charles Rothstein, senior managing director at Beringea, said the fund would consider companies across a broad range of industries.
“We’re pretty agnostic on industries, but we do expect to do a fair amount of deals in areas that Michigan has a focus on, including advanced manufacturing, health care and clean tech,” he said. The fund also will look at retail companies.
Rothstein said a typical investment would range between $3 million and $12 million. He said companies interested in getting capital to grow should contact him at (248) 489-9000 or at email@example.com or Sean O’Donnell, a principal in the Birmingham office of Credit Suisse, at (248) 792-6671 or sean.o’firstname.lastname@example.org.
“We’re very collaborative, and we’re all on deal-flow alert,” Rothstein said.
“This is very significant for a couple of reasons,” said Chris Rizik, fund manager and president of the Ann Arbor-based Renaissance Venture Capital Fund, which raised its second fund of $65 million last year.
“First, for a long time, there was a perception that there wasn’t enough deal flow in Michigan. With their first fund, they disproved that,” he said.
“Second, the fact they raised this (new fund) is part of a number of real good things that have happened in the last year. While nationally, the number of venture capital funds has gone down by 10 percent, and states surrounding Michigan have seen a decline, we had our best year in a decade. You see a pathway for Michigan to continue moving up the rankings nationally.”
According to the Arlington, Va.-based National Venture Capital Association, venture capital investing nationally shrunk by 10 percent in dollar volume in 2012 and by 6 percent in the number of deals, but it grew in Michigan.
In 2011, Michigan ranked No. 31 nationally in VC investing, with $84.8 million going into 36 deals. In 2012, it ranked 23rd, with $232.3 million going into 47 deals.
“The venture world has been consolidating over the last three to five years, so it’s harder for companies to find capital to fund later investment rounds as they grow. So this fills a hole,” said Jan Garfinkle, managing director of Ann Arbor-based Arboretum Ventures LLC, generally regarded as the state’s most successful VC firm in recent years, with such major exits as the sales of Accuri Cytometers Inc., HandyLab Inc. andHealthMedia Inc.
Arboretum, which raised its third and largest fund of $140 million in 2011, is a co-investor with Credit Suisse and Beringea in Delphinus Medical Technologies Inc., a Plymouth Township-based maker of a device that uses ultrasound to detect early-stage breast cancer.
The Michigan Growth Capital Partners II follows the early successful returns of the $185 million Michigan Growth Capital Fund that Beringea and Credit Suisse also co-managed. That fund was launched in 2008 as part of the $300 million InvestMichigan! program.
Funding for InvestMichigan! also came from the state pension fund. Half of the $300 million went to theMichigan Opportunities Fund, managed by Glencoe Capital Michigan LLC, a Birmingham-based private equity firm. The other half went to Beringea and Credit Suisse, with other partners investing an additional $35 million.
Beringea and Credit Suisse invested in 28 companies from the first fund. According to O’Donnell, the first fund has had five exits, including Accuri Cytometers Inc., an Ann Arbor-based medical device company that was sold in 2011 to New Jersey-based Becton, Dickinson and Co. for $205 million.
While he declined to disclose dollar totals, O’Donnell said the five companies that were sold returned more than twice their original investments for an annualized return of more than 40 percent, a level of return that led to the state’s retirement system approving an investment of $180 million in the second fund.
Glencoe Capital Michigan isn’t quite ready to start raising a new fund, but it should be soon, thanks to a busy 2012, especially late in the year, when in December alone, it bought two companies, merged two together and did a refinancing for another.
Managing director Jason Duzan said the current fund has enough left to make three more acquisitions this year at about $10 million each, with some money left for additional investments into current portfolio companies.
Fundraising for a new fund could start later this year or early next.
Tom Henderson, Crain’s Detroit Business.