Michigan’s Renaissance “Fund of Funds” Closes at Nearly $50M, Ready to Make Connections Between VCs and Entrepreneurs
To Chris Rizik, one of the best things about yesterday’s announced final close of nearly $50 million in investment funds for the Renaissance Venture Capital Fund is that the money comes with no government strings attached.
“There’s not one government dollar in this,” says Rizik, CEO of the Detroit and Ann Arbor, MI-based “fund of funds.” Renaissance makes investments in other VC funds that invest in Michigan companies, an experiment that Rizik says has been tried in other areas to increase the amount of VC investment and activity in a region—but usually with government strings attached.
“You end up creating programs that may look better in the short run, but every time you make a decision that is based on politics, you are hurting what is ultimately a market-based return on investment,” Rizik says. “And so government programs tend to have lots of checklists of things that have to happen, and they’re political checklists. They’re not checklists that relate to making that venture capital successful.”
That is why Rizik is proudly calling the Renaissance fund the “largest privately funded regional VC fund of funds in the nation.” Now in its second year, Renaissance has so far invested nearly $6 million in six venture capital funds. Those funds, in turn, have put more than $23 million into 12 Michigan companies that have raised nearly $146 million in total and created over 200 new Michigan jobs, according to Renaissance’s tally. Rizik says he hasn’t gotten permission to release the names of all 12 companies, but the 10 he can identify include:
Accord Biomaterials (Ann Arbor)
Accuri Cytometers (Ann Arbor)
Delphinus Medical Technologies (Detroit)
Esperion Therapeutics (Plymouth)
Handylab (Ann Arbor—acquired by BD Medical in November 2009 for $275 million)
Life Magnetics (Ann Arbor)
Arbor Photonics (Ann Arbor)
Kabongo (this firm now appears to be based in Emeryville, CA)
Outside Hub (Southfield)
Swift Biosciences (Ann Arbor)
These firms (the links are to Xconomy stories) are heavily concentrated in Ann Arbor, and mostly focused on the biotech and biomedical arenas—but not exclusively. Kabongo makes online educational games. Outside Hub is an online media company targeting outdoor enthusiasts.
Of the funds Renaissance has invested in, three are based in Michigan: Arboretum Ventures and RPM Ventures, both of Ann Arbor, and T-Gap Ventures of Kalmazoo. However, two other firms, Illinois-based MK Capital and Florida’s Arsenal Ventures, plan to open Michigan offices on the heels of Renaissance’s investments (Renaissance has not yet transferred funds to Arsenal, so the Florida venture firm is not one of the six referred to above). The remaining funds Renaissance has put money into include San Francisco-based 5AM Ventures and Houston’s DFJ Mercury Ventures.
Renaissance’s formation and funding was led by Business Leaders for Michigan, a pro-business advocacy group, and was supported by various regional economic development organizations and several large Michigan corporations, according to the press release. When I spoke to Rizik a few months ago, he told me how frustrating it was to get institutional investors onboard in a Michigan fund. With the $50 million close finally behind him—about $40 million had closed previously, with the latest and final close announced yesterday bringing the remainder—Rizik seems more optimistic.
“There are some organizations that I would say really stepped up to the plate,” Rizik told me. “They kind of bought into the vision of what we’re trying to do and even in pretty difficult economic times saw the value of it and got behind it.”
But to understand the true value that Rizik is talking about, it is first important to point out why, exactly, an investor would give to a “fund of funds” rather than directly to a regular VC firm. An institution can invest, say, $5 million in a single venture fund and get access to that funds’ 12 to 15 investments. Put that same $5 million in Renaissance and they’re going to get access to 12 to 15 funds and ultimately about 150 investments. “The volume of things, the breadth of things they’re going to see is going to be wider,” Rizik says.
Beyond its focus on venture firms that invest in Michigan, the Renaissance vision involves three main goals. The first two you would expect from any VC company: to provide solid returns to investors and to put dollars in the hands of young companies that can help create new industries. The third goal, Rizik says, is something that only a “fund of funds” can achieve and is “extremely unique” to Renaissance: being a kind of glue that connects Michigan’s industrial and commercial business base with new, innovative technology companies, including those coming out of the universities.
Business Leaders for Michigan, comprising 75 of the state’s top companies, created Renaissance because group members recognized that they needed to make those connections to get better access to new technologies. Startups also can point the way to new customers, test sites, or strategic partners.
Rizik is looking forward to October, when the fund will hold the first formal meeting of its investors and other supporters and the venture funds Renaissance has backed. “We’ve had several informal meetings and connections, but this is organized as an event to increase these relationships,” Rizik says.
He expects some wide-ranging talks. For example, a venture fund that knows DTE Energy is going to be at the table might introduce them to a couple of interesting energy companies. Another fund might have health care IT companies that they’d like Blue Cross and Blue Shield of Michigan to meet. “Our investors are going to get a pretty good, broad-range view of what’s going on in technologies that are applicable to them much more than they can get by just investing in a single fund,” Rizik says.
Next up, Rizik says, is simply to focus Renaissance’s energy on making investments rather than raising money, as it has been for the past 20 months.