Credit Suisse on Supporting (And Increasing) MI’s Capital Continuum
In 2005, as Michigan continued limping along in an economic slump that had begun early in the decade, the state government decided to try something different. It passed legislation that allocated $1 billion from Michigan’s share of the settlement from a national lawsuit against tobacco companies and established the 21st Century Jobs Fund, a 10-year initiative to diversify the state’s manufacturing-dominated economy. As a provision of the Jobs Fund, the $109 million 21st Century Investment Fund was also created to get capital flowing to early-stage Michigan startups and jumpstart the state’s entrepreneurial ecosystem.
The 21st Century Investment Fund is a fund-of-funds that invests in qualified private equity, mezzanine, and venture capital funds and makes co-investments alongside those funds. The state hired global investment bank Credit Suisse’s Customized Fund Investment Group (CFIG) to manage it.
Today, in addition to directing the 21st Century Investment Fund, CFIG manages the $95 million Venture Michigan Fund and the $120 million Venture Michigan Fund II (also fund-to-funds), the $185 million InvestMichigan Growth Capital Fund with Beringea, and the $130 million InvestMichigan Mezzanine Fund. All told, Credit Suisse manages more than $500 million of Michigan investment initiatives, making it one of the largest pools of private equity capital in Michigan and an economic growth engine that the Michigan Economic Development Corporation’s (MEDC) Paul Brown says has had a “hugely positive effect” on Michigan’s entrepreneurial ecosystem.
According to Sean O’Donnell, vice president of CFIG’s Michigan operations, the Michigan 21st Century Investment Fund managers have invested $98.2 million into 24 Michigan-based portfolio companies. O’Donnell says that $568.8 million of equity—five times the amount put in by fund managers—has been invested into the 21st Century Investment Fund’s 24 companies by all syndicate partners, many of whom are out-of-state investors. Brown says the presence of CFIG in these deals lends confidence to coastal investors, and those numbers prove it.
That confidence also leads to announcements like the one made in February by Cambridge, MA-based Flagship Ventures, which has already found success in local companies like Accuri Cytometers. Flagship announced it would open a Michigan office, probably in Ann Arbor, after a $15 million investment from Venture Michigan Fund II.
“At Credit Suisse, our job is to funnel capital to the fund managers that are out there,” O’Donnell says, noting that its primary directive is to invest money in firms that are in turn investing in Michigan’s early-stage startups, often attracting money from the East and West coasts that otherwise wouldn’t find its way to the state. “We’re one piece of the [economic development] puzzle.”
Brown goes a step further, saying that Credit Suisse is doing more to beef up the state’s entrepreneurial ecosystem than anyone except state government. Just this week, the Michigan Strategic Fund approved the new Pure Michigan Venture Development Fund, a $9 million effort to create four new VC funds in the state. “The ability to vet applicants that have not run a fund before is very difficult,” Brown notes. “Credit Suisse will be our peer reviewer and they’re doing it for free, which will save the state thousands of dollars.”
CFIG is headquartered in New York City and employs 140 people working in offices across the country. Michigan is one of its oldest and largest clients, O’Donnell says, adding that it also manages investments for the state’s pension fund. “Michigan is a special place for us,” he says.
Though Michigan is bucking the national trend of shrinking investment capital, with the number of VCs here actually on the rise, O’Donnell says it remains a “very challenging” fundraising environment. “It’s harder to start a VC firm today than it was even three or four years ago, because any money would likely go to existing firms.”
Despite the relative immaturity of Michigan’s capital contiuum, O’Donnell says, the number of serial entrepreneurs here is increasing, and the entrepreneurial ecosystem is getting more robust—which is exactly what the state government sought to do when it established the 21st Century Jobs Fund in 2005. “It’s important to all of us at Credit Suisse to help Michigan’s entrepreneurs succeed, because Michigan is one of the states that really needs it,” he adds. “Pound for pound, I don’t see any other state doing more to bolster capital. The more of that grassroots activity there is in Michigan, the better the ecosystem will be.”