On Labor Day, the Renaissance Venture Capital Fund announced the final close of its fund, bringing the total raised to just under $50 million. The Ann Arbor-based Renaissance is a fund of funds: instead of investing money directly into startups, it invests in other venture funds, thereby hedging its bets in one sense, but also widening its influence in another. Renaissance only invests in venture funds that invest in Michigan startups.
Since its formation and first close in late 2008, Renaissance has invested about nearly $6 million in six venture firms, three in Michigan and three outside it (a seventh investment, in Florida-based Arsenal Ventures, has been announced but not yet made). These firms, in turn, have invested in 12 Michigan startups, most in life sciences and healthcare, but others in digital media and software. A list of the venture firms and the startups that have been publicly announced can be found here.
Renaissance is run by Chris Rizik, who serves as CEO and fund manager. Rizik, who’s also an Xconomist, was once an attorney at Dickinson Wright, running the law firm’s small business practice. After 13 years there he was recruited by former Gateway Computer president (later chairman and interim CEO) and now Michigan gubernatorial candidate Rick Snyder to be his partner in Snyder’s first venture fund, Avalon Investments. Venture capital was a pretty nascent field in Michigan when Avalon got started in late 1997; three years later Snyder, Rizik, and colleagues raised a second fund, Ardesta.
Beginning in late 2007, with Ardesta fully committed other than follow-on rounds in existing portfolio companies, they began to investigate raising a third fund. Rizik says they received a number of notable commitments from investors. But for a variety of reasons, including the overall investment climate, the difficulty raising as much as they wanted to, and Snyder’s gubernatorial ambitions, they decided to give up the idea. What Snyder did next is history, as they say. Meanwhile, Rizik joined the developing Renaissance effort, forming the fund as its inaugural CEO in late 2008. The firm held its first close that December, on its way to what it hoped would be a $100 million fund. After the final close last week, albeit at half the initial target, we spoke with Rizik to learn more about the fund, its goals, and what they say about the future of Michigan startups and innovation.
Here are edited highlights from our conversation:
Chris Rizik: The philosophy was that we’re believers that venture capital can help drive a more entrepreneurial economy here. There’s always been great technology base in the state—Michigan is regularly a top 5 state for R&D—but other than in automotive we haven’t always capitalized on it.
With an increase in venture capital, the feeling was we could increase the number of startup and emerging companies with potential to achieve clusters of excellence and real size in several areas. It would help us to diversify into less of an automotive-centric economy, into a more balanced one.
By doing this through a fund of funds you can spread capital into several areas [by investing in] the best venture capital funds—both resident venture funds in the state and venture funds outside the state who could play an important role in the state.
The newest element here is our connection with Business Leaders for Michigan. Having 75 of Michigan’s largest companies behind us is incredibly important and can increase the likelihood of success of our fund and the state. By connecting venture capital funds and startup companies with Michigan’s major corporations, we can create customer, strategic partner, and even beta test site relationships that can mean the difference between failure and success for many young companies. It also creates a “win-win” scenario, because these connections will also help our corporate investors to have visibility into important new R&D and technology developments that could help their businesses.
X: You raised $50 million, which is a real accomplishment in this economy. But the original target was $100 million. How will that affect what you hope to achieve, and the impact you hope to have?
CR: In retrospect, it is amazing that we were able to raise $50 million at a time when there were almost no new venture funds being formed. The result will be that we will make fewer investments than we would have if we were $100 million, and the investments we make will be a bit smaller, but we think still impactful. Importantly, our goal of using the fund to connect established Michigan businesses with the venture capital and start-up community will still be a key. And as we raise future funds, the overall power of what we’re doing should increase.
X: When you invest in a venture fund, is the money Renaissance invests only going to Michigan deals, or to the general pool of deals?
CR: When the RVCF invests in venture capital funds, the money we invest is not earmarked toward any specific deals, as that is a short-sighted approach that can increase risk and hurt performance. We share in the overall performance of every venture fund in which we invest, but our expectation is that each fund will be active in Michigan. Thus far, those funds have exceeded our expectations and have invested into Michigan about four times the dollar amount we invested in them.
X: The Michigan investments made by the funds in which Renaissance has invested so far seem heavy on the life sciences. Is that because of a specific investment philosophy you are pursuing?
CR: The initial investments have been heavy on the life sciences, and that reflects where much of the new company activity is in Michigan. But I think we’ll see over time that it will change and there will be a greater mix of IT, advanced energy, and cleantech companies. Our earliest investments were in [venture] firms that specialize in life sciences, but some of our more recent investments were DFJ Mercury and MK Capital, and soon Arsenal Ventures. Those firms will increase the number of IT, advanced materials and energy-related companies.
X: What does this planned spectrum of investment say about Michigan’s economy? Is it getting more diverse?
CR: If you look at the past several years, we’re getting a greater amount of deal flow in the state. We appear to be having more successful venture deals happening. Very few are auto related, so that’s a good sign that we’re getting more diverse. But in order to claim success with it, you need more years of it than we’ve had.
X: Is the entrepreneurial culture of Michigan changing, then?
CR: It is. We certainly had a problem, in that the success of our major industry created largely a couple generations of employees, not entrepreneurs. But there’s been recognition over the last few years of the need for increased entrepreneurialism as a key to growth.
Organizations like Ann Arbor Spark, Automation Alley, and TechTown have been created to help make that transition. But it’s going to take time, innovative approaches, and a lot of mentorship. We do have some successful entrepreneurs, and they’re going to play a role in training other entrepreneurs. A great example is Esperion, which is one of the great venture capital success in the state. If you look at Esperion, it was not only successful in its own right but it also created a family tree of success. I can think of seven companies that were founded by former Esperion employees. That’s what happens in California and Massachusetts. But as we begin to have more and more success here, we can create those family trees where one company that is successful trains a number of future CEOs. They then form companies, and you begin to create geometric growth.
X: It seems like Michigan might also be getting more attractive to outside venture funds.
CR: In the last 18 months we’ve had around 60 venture capital funds approach the Renaissance Fund for investment. That is real progress, to have so many venture capital funds express a strong interest in working in Michigan. The state’s successes over the past few years, such as HandyLab, HealthMedia, and Sircon, have helped to create a growing reputation for Michigan as a good place to invest. And our business model at Renaissance, where we also promote the connection of the venture funds with Michigan’s most important businesses, has also been a great help.
Consequently, we see a very high quality group of funds, and that’s good for Michigan. And they’re interested for market reasons—quite honestly, they see the potential for them to make money investing in this state. That’s a great sign, and probably wouldn’t have happened in Michigan a few years ago.
X: If you had to look ahead 5 years, 10 years, and 20 years, what do you see for the Michigan economy?
CR: Michigan should certainly be a Top Ten state for venture capital investing and new company establishment. Right now, Michigan has almost all the elements. We don’t have enough capital—which is what we and others are working on—and right now we also don’t have enough entrepreneurial CEOs. But those issues are easier to address than it would be to try to create an R&D hub where there wasn’t one, and that’s where we have a built-in advantage.
I believe you’ll see certain industries that will grow pretty dramatically here. The energy area, particularly where it involves energy-related manufacturing, should grow well over the next 10 years. We should also be capitalizing on the legacy here of drug development, with more pharma-related companies here.
I believe we’re going to see a cultural change, where we become a more entrepreneurial people. In some ways, we’re sort of forced into it by the reality around us. But there is much more of an openness to it now than we saw a couple years ago, and I think that will continue to grow as students graduate from college with a much different mindset than their parents did. When I graduated from college, the unstated goal of the vast majority of students was to get a “safe” job in a large company. That is no longer the case.
And from the standpoint of the state, my hope is that the state government and the way the state approaches economic development will be increasingly oriented toward entrepreneurship and innovation, and creating an overall environment that helps them expand.
X: Is that the twenty-year answer or the five-year view?
CR: (Laughs). I think it’s between five and 20. We’ll see progress toward that over five years, but this stuff takes a lot longer. This isn’t a stimulus plan. This is long-term planting and growing. We already have this strong R&D base. It’s a matter of capturing that and turning it into innovative and growing new companies.
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