Arboretum Ventures’ Petersen on VC in MI, What the Future Holds
The Michigan Venture Capital Association (MVCA) held its annual awards dinner last week, where it honored the VCs and deals of the year, so we thought it would be a good time to catch up with Arboretum Ventures‘ Tim Petersen, who also serves as the MVCA’s board chair.
Petersen says the most interesting thing about VC in Michigan is how it’s growing even as national trends show the number of VC firms are shrinking. “Michigan has grown,” he explains. “It hasn’t grown off the charts, but we’ve grown. There is 50 percent more capital under management than there was four or five years ago, and that’s pretty startling when you put it into the context of the national figures.”
He considers Northern California, specifically Silicon Valley, to be the “Mt. Everest” of venture capital, but says Michigan is steadily gaining esteem in the eyes of national investors. “Ten years ago, we were at sea level. Now we’re up a couple of thousand feet. There’s still a lot of work to be done, but we’re headed in a positive direction.”
Petersen says a major factor in Michigan’s growing success in the VC realm is the increase in the quality of homegrown companies over the past 10 years. He points out that Arboretum Ventures’ best-performing companies have all been Michigan-based: HealthMedia, HandyLab, and Accuri Cytometers. “Those were three very successful exits that were a crucial piece of fundraising success,” he says.
He’s optimistic about the future of VC in Michigan thanks in part to serial entrepreneurs like Accuri’s Jeff Williams and Xconomist Jen Baird deciding to stay in Michigan to launch their next startups. “The CFO of Accuri was recruited from Austin, TX, to Ann Arbor,” Petersen adds. “After Accuri sold, he moved over to Delphinus. That’s starting to happen more and more, and not just with CEOs but people one level down. That’s something that only happens in a few areas of the country.”
Petersen says Michigan’s other strengths are a talented base of engineers nurtured by big companies and a cost of living that pales in comparison to cities like Boston and San Francisco. But perhaps what’s most unique, he says, is the relentless local work ethic. “We find a way to get it done, and companies in other geographies don’t quite do that.”
One of biggest challenges Petersen sees is the state suffering “in some twisted way” under the weight of the success of local behemoths like Ford and General Motors. “It’s taken a little while, but seeing the difficulties of those companies has made us realize that we need strong entrepreneurs. People recognize that the days of not needing an education to work at the plant are sort of gone.”
Another issue that Petersen plans to focus on during his tenure as board chair is Michigan’s reputation, and getting the word out about the state’s successes and “what’s really going on here.” He loves the story of Flagship Ventures, a Boston-based VC firm, which came in as part of a syndicate investing in Accuri. One of Flagship’s partners was so impressed with the VCs here—as good as anybody in Boston, he told Petersen—that he decided to open a Flagship office in Ann Arbor. “That’s a very telling example,” Peterson notes. “That’s a fund that invests everywhere, sits in Boston, and they’re putting genuine effort into looking for opportunities here with a big return.”
In addition to spreading the work about Michigan’s VC successes, Petersen says he also expects conversations to begin soon on creating a third Venture Michigan Fund. The state government-created Venture Michigan Fund and Venture Michigan Fund II, with more than $200 million combined capital under management, have long been a talking point for politicians who point to the value of the state increasing access to capital to spur the entrepreneurial ecosystem. “We need those fund of funds to keep things moving,” Petersen adds. “My honest guess is that the next Venture Michigan Fund won’t be legislated, and raising money for it is what we need to work on.”
As for the meeting, this year 200 people attended—quite an increase from 10 years ago, when Petersen says people questioned if there even needed to be a Michigan organization dedicated to venture capital. Cytopherx, an Ann Arbor medical device company focused on inflammation-based diseases, was honored with the Venture Financing of the Year for raising $34 million from a large syndicate of investors toward finishing its clinical trial. Mophie, which began as a startup housed in a garage in Kalamazoo, MI, and grew to be a provider of electronic accessories for mobile phones with offices in Michigan, California, and China, was honored with the 100 Award for earning $100 million in revenue. Don Walker, founding partner of Arbor Partners, was honored for his continued support of Michigan’s venture community.