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www.crainsdetroit.com SPRING 2007
GrowingGrowinga new economy
Crain’s guide ■ Toward a 'Third Coast' to private — and $1.5 billion in VC equity, angel investing and ■ State targets alternative venture capital energy, biotech — and talent ■ How auto suppliers are learning to love private equity CDBmagazine.qxp 4/16/2007 12:17 PM Page 1
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GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL The shift to brainpower Contents an brainpower replace Toward a ‘Third Coast’ horsepower in South- C east Michigan? Michigan has a long way to go, but its venture-cap- Actually, that shift started in the last ital industry is starting to appear on the nation- century. And it has been growing more al radar. Page 4. urgent as Michigan has tried to diversi- fy from its heavily-automotive legacy. Ironically, entrepreneurs pushed State-funded VC th Michigan into its 20 century role as the Where the Michigan-backed funds get center for what became a global automo- their money, and how they’re spending it. tive industry. Page 5. Now, the push is on to create an entre- preneur-friendly culture in Michigan to attract and support companies produc- ing innovations in More on the way everything from Why Michigan venture capital is on medical devices and biotechnology to al- the upswing. Page 7. ternate energy and new ways to power vehicles. State efforts Efforts of many, from government to The major players behind Michi- universities to pri- gan’s efforts to fund and grow vate investors and businesses. Page 8. funds, seem to be paying off. The 2007 State New Economy Index released in February ranked Michigan No. 19 in the Next challenge: Talent United States, up from 34th when the in- As funding sources take root, dex was first published in 1999. Michigan turns its attention to The index, a partnership between the Kansas City-based Kauffman Foundation attracting managerial talent. and the Information Technology and In- Page 10. novation Foundation, uses 26 indicators to rank states on how well they are trans- forming from old economies to new. Lots of money, Michigan’s image is closely tied to au- tomotive, and research and design in some trepidation that industry will remain strong in the How the auto industry is (slowly) region. But some new names are added learning to love private equity. to the familiar “Detroit 3” of General Mo- Page 12. tors Corp., Ford Motor Co. and Daimler- Chrysler. For example, Toyota Motor En- gineering & Manufacturing North 10 with deep pockets America is spending $150 million on a Heavy hitters who are scouting the auto industry for deals. Page 12. new engineering division to complement its technical center near Ann Arbor. This guide, and the complementary in- formation found at www.crainsdetroit.com, is the first of its A dearth of women kind. We suspect we will be publishing Venture capital is still a mostly male many more guides as capital finds its world, but that may be changing. Page 16. way to innovation, just as it did more than 100 years ago at the birth of the American auto industry. Mary Kramer Publisher Mary Campbell, Continued on Page 2 EDF Ventures, Page 16.
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GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL Minority deals Minority-owned companies pay off for investors. Page 16. Taking the long view Two venture-capital vets offer their views on improving Michigan’s entrepreneurial climate. Page 20. David Morse, Oracle Capital Partners Page 16 6 success stories From building a business to finding an exit strategy, com- panies that are making VC work. Page 22 and 23. Looking overseas for cash Companies weigh the pros, cons of foreign markets, investments. Page 24. Your guide to the industry Sensicore tests water Directory of VC and private-equity firms, angel-investor quality. Page 23. groups and industry supporters. Pages 26-31. Do’s and don’ts You’ve got a great product and are looking for funding. Here’s what to do — and not to do — when you finally get that face time. Page 32.
From growing beyond the startup stage to creating a marketing plan to finding capital to grow your business, Crain's has links to the resources you'll need in our entrepreneur's toolbox at www.crainsdetroit.com/vcguide.
From the cover
Credits This supplement was edited by Assistant Studying water Developing NextEnergy helps develop energy A researcher Managing Editor/Focus Michelle Martinez; medical devices sources and alternative fuels. copy-edited by Copy Editor Vic Doucette, quality at from ProNAI Sensicore. at Pioneer therapeutics. Business Lives Editor Shawn Selby and Surgical Deputy Managing Editor Michael Lee, and Technologies. designed by Graphics Editor Nancy Clark. Reporter Tom Henderson was the lead writer. Reporters Sheena Harrison, Bill Shea, Brent Cover illustration: Sylvia Kolaski Snavely and Andrew Dietderich also contributed.
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OAKLAND UNIVERSITY Where ideas, discovery and entrepreneurship meet
With access to research labs, facilities, faculty and An emerging resource in applied research students, Oakland University assists companies and Oakland University is a known leader in many disciplines including organizations in transforming ideas into new business biomedical research, manufacturing, information technology,alternative energy/power train and security/homeland defense.To foster emerging ventures, turning dreams into reality and giving discoveries, the university features several noted research centers vitality to vision. and institutes, including: • Fastening and Joining Research Institute — increases the safety of bolting systems, adhesive bonding, robotic welding and advanced riveting technology. INCubator • Product Development and Manufacturing Center — provides education, applied research and technology transfer OU to the automotive industry. OU’s SmartZone business incubator, known as OU INC, is a part • Center for Robotics and Advanced Automation — works on of the Great Lakes Interchange and provides entrepreneurial resources complex autonomous and unmanned vehicle systems, homeland and business commercialization solutions to establish new company security technology, and more. ventures and develop intellectual property.OU INC is committed to • Eye Research Institute — researchers work on preventing commercializing blindness and vision loss and exposing the underlying causes technology innovations of eye diseases. in security/ homeland defense, advanced • Center for Biomedical Research — key research includes manufacturing, eye diseases, chemical toxicology, medical physics and biological alternative energy, communication. IT and software development and life A leader in student sciences emerging from Oakland University, research opportunities businesses supported by Oakland University offers the Great Lakes students — undergraduate and Interchange and regional graduate alike — the opportunity high-technology to work with expert faculty on industries. challenging research projects. Through academic programs, OU INC and the Great Lakes Interchange programs enhance the OU students are gaining valu- rich matrix of technology and business services currently provided able experience on campus and by Oakland University, classified as one of the country’s 82 doctoral/ in the real world, as interns with research universities by the Carnegie Foundation for the international corporations. Advancement of Teaching.
To learn more about OU INC, contact: In 2002, the City of Rochester Hills, Oakland University and the David A. Spencer, Ed.D. Michigan Economic Development Corporation created the Rochester Executive Director Hills Certified Technology Park as part of the Great Lakes Interchange. OU INCubator The Great Lakes Interchange, an Automation Alley SmartZone, is a successful collaboration between Oakland County, Automation Alley, Shotwell-Gustafson Pavilion Rochester, MI 48309-4401 Lawrence Technological University, Oakland University and the cities (248) 648-4800 of Rochester Hills, Southfield and Troy that created a core of high-tech, [email protected] educational and business networks to draw new business to the tri-city www.oakland.edu/ouinc area as well as enhance growing businesses. DETROIT BUSINESS MAIN 04-23-07 B 4,5 CDB 4/18/2007 3:42 PM Page 1
GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL Toward a ‘Third Coast’ Michigan venture capital starts to show up on national radar
BY TOM HENDERSON founded the Michigan Growth CRAIN’S DETROIT BUSINESS Capital Symposium in 1979. “Now, hen Lindsay Aspegren there’s mon- and Hugo Braun decid- ey available W ed to name their fledg- and a process ling Ann Arbor-based venture- by which you capital firm North Coast can go after Technology Partners L.P. in 1999, it.” it might have seemed wishful “We’re thinking to venture capitalists inching for- on the East and West coasts, Brophy ward to where where a majority of the busi- we can be a center for knowl- ness operated. edge-based businesses.” Silicon Valley dominated the The amount of venture capi- West Coast; Route tal under manage- 128 in Massachu- ment in the state is setts was the hub of $438 million expected to grow action in the east. A from $438 million in third coast of ven- Venture capital 2005 to more than ture-capital activi- under management $1.5 billion by 2010. ty in Michigan in Michigan in 2005 That includes two seemed like an im- state-supported possible fantasy. funds totaling $204 Today, though, million that began there is reason to $1.5 billion making investments think that what Expected amount in January and were once uncon- under management in nected dots of activ- matching funds by Michigan ity — a deal here, a out-of-state venture- in 2010 small venture-capi- capital companies. tal fund there, a few Those companies get university spin-offs money from the state-backed funds and at least — is starting to gather critical vated venture-capital communi- Rothstein is on the board of five others that have been an- mass. And if Michigan has a ty, we see good technology com- the Michigan Strategic Fund, nounced or are in the planning way to go before it becomes the ing out of the universities and which oversees the 21st Century stages by state venture- capital “third coast,” it is now on the private industry, and we see a Jobs Fund, which in turn in- firms. national venture-capital radar. commitment by the state,” she cludes the 21st Century Invest- (See box, Page 7). “There are a number of said. “We view our role as not ment Fund. He is also on the The state has long been a things about Michigan that re- just putting money out the door, board of the Venture Michigan leader in manufacturing, and is ally stand out,” said Kelly but connecting the dots of the Fund. To avoid a conflict of in- home to some of the nation’s Williams, a managing director various entities in the state.” terest, Beringea has not applied best health systems and univer- of Credit Suisse and co-head of Charles Rothstein, senior for money from either fund. sities. But what’s been missing its Customized Fund Invest- managing director at Farming- is money. That, investors say, is ment Group. Credit Suisse man- Rodrigo Prudencio is a part- ton Hills-based Beringea L.L.C., changing. ages the two Michigan invest- ner in San Francisco-based Nth “You can’t just throw money ment funds, the 21st Century one of the state’s oldest VC firms Power, a venture-capital firm at things, but of all the elements Investment Fund and the $95 mil- and its largest, with $270 million that invests in energy-related we’ve needed, the No. 1 was lion Venture Michigan Fund, and under management, said the technologies, and an example of money,” said David Brophy, an similar programs in Ohio, Indi- two state-supported funds “will the types of companies the state associate professor of finance at ana and Oregon. help restore the entrepreneurial funds are targeting. It received the University of Michigan who “In Michigan we see a moti- heritage we had here.” an undisclosed investment in
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Power’s fourth fund, which is still being raised. He said SEC WHERE THEY GET IT, HOW THEY SPEND IT regulations prohibit him from disclosing details about the Two state-backed funds that invest in venture- capital and private-equity funds to spur the fund’s size until it closes but growth of technology-based companies began said the company has $350 mil- making investments this year. Here’s a lion under management in its breakdown of how each is funded and how they first three funds. It has two lo- work: cal portfolio companies, Ann The $109 million 21st Century Investment Fund Arbor-based STM Corp. Inc., a is part of the 21st Century Jobs Fund and is maker of energy-efficient en- bankrolled with tobacco-settlement money. gines for industrial use, and The $95 million Venture Michigan Fund is funded Novi-based Microposite Inc., a by a loan of $200 million from Germany-based . The majority of the money is set manufacturer of siding for Deutsche Bank aside to repay the loan. Originally, the loan was buildings. to have been guaranteed by revenue from the Prudencio said it is Michi- single-business tax, but with its demise, the gan’s traditional manufactur- program was delayed while legislation was ing strengths that make it so at- rewritten to allow withholding tax to cover tractive. “There is a shortfalls. tremendous amount of manu- Both funds invest in in-state and out-of-state facturing know-how. And it’s funds that in turn invest in individual companies. manufacturing at large scale Both are meant to generate profits that could and low cost. Those industries result in a 21st Century Investment Fund II and a are going through tremendous Venture Michigan Fund II. change and disruption, but in The 21st Century Investment Fund requires out- that disruption, we believe of-state firms to either open an office here or form a partnership with an existing entity. we’ll find opportunities.” Madison, Wis.-based Venture Investors L.L.C., John Neis, a managing direc- which was awarded up to $10 million in March, tor with Venture Investors, opened an office in Ann Arbor; San Francisco- said his Madison, Wis.-based based Nth Power, which was awarded up to $10 firm’s traditional focus on million January, formed a partnership with PHOTO ILLUSTRATION BY SYLVIA KOLASKI backing companies spun out Detroit-based NextEnergy, which will help it find from the University of Wisconsin energy-related companies to invest in and will January from the Venture made Michigan a natural share in profits. Michigan Fund and in March choice for expanding geograph- The Venture Michigan Fund has no such the 21st Century Investment ically. requirement. Fund agreed to invest up to $7.5 “How do you keep making The 21st Century Investment Fund mandates million. that model work? The answer that if its investment makes up 10 percent of a The company has formed a was obvious,” said Neis, point- fund, for example, then 10 percent of that fund partnership with Detroit-based must be invested in Michigan. The Venture ing out that both the University Michigan Fund requires only that firms make a NextEnergy to help find invest- of Wisconsin and the University of best effort to invest here, according to Ned ments in local alternative-ener- Michigan annually rank in the Staebler, director of capital markets for the gy companies. NextEnergy will top five in the amount of re- Michigan Economic Development Corp. receive an equity share of the search money spent at U.S. insti- While the funds were intended to have some investments as well as be paid tutions. “Research universities overlap — so far they have invested in the same on a retainer basis. “We’re com- in the Midwest are an untapped venture-capital funds — Venture Michigan was mitted to being there 10 or 12 source that have tremendous meant to be more seed and early-stage and the times a year, but they’ll be our potential. You look at the East 21st Century fund more later-stage, including investments in private-equity firms, according to local eyes and ears,” he said. Coast and the West Coast, and Staebler. Prudencio said the money — Tom Henderson from Michigan will go into Nth See Funding, Page 6
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GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL
lion in 2004, and Ann Arbor- Funding based Arbortext Inc. was bought THOUGHTS DIFFER ON STATE FUNDS From Page 5 for $190 million by Needham, Mass.-based Parametric Technol- Koleman Karleski, managing director of Kentucky-based Chrysalis those areas are both well mined. L.L.C., thinks the state’s hiring of Credit Suisse as its funds manager ogy Corp. in 2005. was a smart move. That’s not the case here.” “But you’re still stuck with the The state’s recent invest- “That’s another reason we’re excited about Michigan,” said Karleski, question, is it enough? Is it signif- who has applied for an investment from Michigan’s investment funds ments in Venture Investors put icant enough to change the eco- but has yet to get one. the current fund it is raising, its nomic future of the state?” Aspe- “They’re getting capital into the hands of the best managers. They’re fifth, at more than $100 million, gren said. doing a great job there with what will likely be one of the best state said Neis. Venture Investors fo- Funding programs in the country.” cuses on health care and IT. It startups is a But others in the investment community are less has taken one company public, positive step, certain. Madison-based Third Wave Tech- but getting Frank Hennessey, chairman and CEO of Huntington nologies Inc., and has registra- “nascent Woods-based Hennessey Capital L.L.C. and a tions filed for two more IPOs. companies to longtime angel investor in state companies, thinks Venture Investors has part- become ma- that venture capital should be left to the private sector and not be a function of government. “The nered with Ann Arbor-based Aspegren jor drivers of EDF Ventures on several deals, in- the state people who set up the state investment funds are Hennessey well-intentioned but misguided,” he said. cluding a very successful invest- economy,” will take time, he ment in IntraLase Corp., a UM said. Sam Valenti III, chairman and CEO of Bloomfield Hills-based private investment firm ,, founder of the spin-off that moved to California And, the state lacks entrepre- Valenti Capital Michigan Venture and former head of the state’s pension fund, said in 1998 and went public in 2004. Capital Association neurs and a business culture to out-of-state money on a large scale will flow into Michigan not based “If you were to think long- support them, said Michael on state funding but based on big successes for original investors term and look back at the last Staebler, an attorney in the De- when young companies are bought or go public. five years, progress has been troit office of Pepper Hamilton “Show me five times the (original) money, show me seven times the excellent. We’ve had major suc- L.L.P. who co-chairs the firm’s money, show me 10 times the money, and money will come from the cesses with companies like Es- national investment funds moon. We haven’t had enough show-mes,” he said. perion and Arbortext,” said As- practice. — Tom Henderson pegren. Ann Arbor-based “I always hear, ‘But these are Esperion Therapeutics Inc. was companies that are only creat- Kinnear, professor of market- tor of the business school’s Zell bought by Pfizer Inc. for $1.2 bil- ing seven to 10 jobs,’ ” said Tom ing at UM and executive direc- Lurie Institute. He is also manag-
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ing director of the Wolverine Ven- ture Fund, the school’s student- MORE ON THE WAY run VC fund, and chairman and president of the state’s Venture Local entrepreneurs, venture $101.2 million in loans minority-owned companies, and Michigan Fund. capitalists, and university and convertible to equity. MacBeedon Partners L.L.C. of government officials say there Ann Arbor, which opened an “I had breakfast today with an In January, Ann Arbor Spark are reasons to think venture began accepting applications for office in February to help very entrepreneur whose company capital activity will only increase early stage tech companies with had 21 jobs. Last year it was 10. grants of $50,000-$250,000 for in the state. They are: startups, provided they had both funding and management. Maybe next year it will be 50. Investments from the 21st matching funding sources. The Tech-transfer offices at And these are people with skills, Century Investment Fund and the $6.6 million, two-year Michigan universities around the state are who are highly paid,” he said. Venture Michigan Fund will be Pre-Seed Capital Fund program is focusing on creating more spin- “Our economy reminds me of leveraged into at least $600 funded by the 21st Century Jobs offs. Michigan State University an old joke in Ireland,” he said. million by matching investments Fund. has created a new tech from venture-capital firms who “A guy goes up to a farmer and Several angel investment commercialization program and says, ‘How do I get to Dublin get the money. New York-based Wayne State University is Credit Suisse manages both groups have sprung up in the from here?’ And the farmer says, last few years, including expected to announce a $10 funds and is expected to million seed fund to help its spin- ‘If I was going to Dublin, I would- leverage its connections to bring Bloomfield Hills-based Great n’t start here.’ You wouldn’t Lakes Angels, Grand Rapids- off companies grow to attract other investment firms to the angel or venture-capital want to start here, but we’re state. based Grand Angels, Kalamazoo- here.” based First Angels and the Ann investments. In September, the 21st In November, MSU, the And being here is getting to announced Arbor Angels. Century Jobs Fund and WSU be a better thing. that 61 companies, including 40 New venture-capital firms have University of Michigan formed the “Our activity level there (in- in Southeast Michigan — in life opened their doors, including University Research Corridor to coordinate research Michigan) has never been high- sciences, advanced automotive Detroit- based Oracle Capital materials and manufacturing, Partners L.L.C., which opened and spin-off efforts at those er,” said Koleman Karleski, man- schools. aging director of Kentucky-based homeland security or defense or last February with a target of — Tom Henderson Chrysalis L.L.C. “We have a num- alternate energy — would share raising $30 million to fund ber of things in the early stages of review. We’re seeing deal flow, public on the London Stock Ex- Transfer, said having hands-on now big boys investing,” he and that’s encouraging,” he said. change in 2006. management by Credit Suisse said. Chrysalis invested in Detroit- Ken Nisbet, executive direc- and an influx of national firms. Tom Henderson: (313) 446- based Asterand plc before it went tor of UM’s Office of Technology “The good news is: there are 0337, [email protected]
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GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL Key players
Who is behind the state’s efforts He is chairman of the Michigan Lane Advisors, helping manage Staebler is a Harvard University to fund venture capital, create Strategic Fund, which oversees its private-equity fund. graduate who got his master’s jobs and grow young businesses? the 21st Century Jobs Fund, and Managing the state’s funds from degree in Here are the key players: a director of the Venture his Southfield office meant a comparative Michigan Fund. return to the state for Payne, who politics from Mary Campbell Epolito got his undergraduate from 2001-2003 was a senior the London Co-founder and general partner degree from Michigan State managing director with Comerica School of EDF Ventures, Ann Arbor University and his master’s Capital Advisors, where he Economics. President degree in public administration managed a private-equity portfolio Staebler Michigan Venture Capital from Western Michigan University. of more than 120 funds and 25 spent eight Association, Ann Arbor direct investments. years in London trading Tom Kinnear proprietary derivative portfolios as EDF Ventures is the state’s Payne has an economics degree an associate director at Bear oldest VC firm, founded in 1987. Chairman from Dartmouth College and an Stearns International Ltd. before It has $120 million under Venture Michigan Fund, MBA from the University of joining the MEDC last year. management in three funds and Southfield Chicago’s Graduate School of has begun Business. He serves as staff for both the Kinnear has been on the board of Venture Michigan Fund and raising a numerous Ann Arbor-based fourth fund, Charles Rothstein Michigan Strategic Fund, is on startups and venture-capital Co-founder, senior managing the board of Ann Arbor-based New which, like the firms. In addition to official board others, will director Enterprise Forum and is vice appointments, he has served as Beringea L.L.C., Farmington Hills chair of Ann Arbor’s Community focus on an adviser and health care Development Executive mentor to Rothstein and partner David Committee. and infor- other area mation technology. In March, the Eberly founded Beringea’s Staebler is the son of Michael venture predecessor, Staebler, an attorney with the 21st Century Investment Fund capitalists. committed up to $7.5 million for GMA Capital, Detroit office of Pepper Hamilton EDF, and the Venture Michigan An in 1988. In L.L.P., and the grandson of Fund made an investment of an entrepreneur 2001, it longtime Democratic Party activist undisclosed amount. himself, in merged with Neil Staebler, who served in the 1990 he co-founded Network London-based U.S. House of Representatives. Campbell, a former special- Express, which was sold to ProVen education teacher with a Cabletron Systems in 1995 for Private Equity bachelor’s degree and MBA from $110 million. In 1996, he co- and has since grown to be the Kelly Williams the University of Michigan, is on founded BlueGill Technologies, a state’s largest venture-capital Managing director and group co- the board of five of EDF’s portfolio pioneer in bill payment on the firm, with about $270 million in head of the customized fund companies. She is in the first year Internet, which was sold in 2000 assets under management, investment group, Credit Suisse of a two-year term as president of to Checkfree Holdings Corp. for offices in Shanghai, London and First Boston, New York City the MVCA, serves as an advisor $250 million. Los Angeles, and more than 40 to UM’s Zell Lurie Institute for portfolio companies. Entrepreneurial Studies and its Kinnear is a professor of Williams oversees management Beringea is raising what it hopes student-run Wolverine Venture entrepreneurial studies and of both of the state’s $109 will be a $150 million fund, Fund, and is a member of the marketing at the University of million 21st Century Investment Beringea Media Partners L.P., steering committee for the Michigan Business School and Fund and its which will invest in media-content Michigan Strategic Economic executive director of the school’s $95 million companies in the U.S. and Investment and Zell Lurie Institute for Venture Europe. Commercialization Board, a Entrepreneurial Studies Michigan statewide effort to foster research He is an adviser to UM’s student- Last year, the Michigan Venture Fund as well and commercialization. run venture-capital fund, the Capital Association honored as similar Wolverine Venture Fund. He has a Rothstein with an “Above and state funds in James Epolito bachelor’s degree from Queens Beyond” award for his behind-the- Ohio, Indiana, President and CEO College, an MBA from the Harvard scenes work in helping create the New York and Oregon. Michigan Economic Business School and a doctorate 21st Century Investment Fund Williams was a magna cum laude Development Corp., Lansing from UM. and the Venture Michigan Fund. graduate of New York’s Union Rothstein, who has an MBA from College in 1986 with degrees in Epolito was named president in Robert Payne the University of Michigan, serves political science and mathematics September 2005 and was Manager, Michigan office on Gov. Jennifer Granholm’s and received her law degree from appointed to Credit Suisse Council of Economic Advisors the New York University School of Gov. Jennifer Customized and is on the board of both the Law in 1989. Granholm’s Fund Venture Michigan Fund and the cabinet that Investment Michigan Strategic Fund, which Williams joined Credit Suisse in December. Group, oversees the 21st Century Jobs 2000 when it merged with the From 1995 to Southfield Fund, which in turn includes the New York investment banking firm 2005, Epolito 21st Century Investment Fund. Donaldson, Lufkin & Jenrette, was president Payne joined where she was a director of the and CEO of Accident Fund the group last customized fund investment Insurance Co. of America, and August to manage both the 21st Ned Staebler group. Before joining Donaldson, from 1992 to 1995 was president Century Investment Fund and the Director of capital markets Lufkin, she was executive director and CEO of Blue Care Network- Venture Michigan Fund. Before development with Prudential Financial’s Health Central of Blue Cross that, he was a principal with Michigan Economic private-equity group. Blue Shield of Michigan. Philadelphia-based Hamilton Development Corp., Lansing — Tom Henderson
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Some think rely on conventional wisdom. We think customized solutions.
Michigan
$109,000,000 $95,000,000 Michigan Venture Michigan Private equity, mezzanine, Venture capital 21st Century venture capital fund investments Fund I, fund investments Investment Fund, L.P. and select co-investments Limited Partnership Fund Manager Fund Manager www.michigan21stcenturyinvestmentfund.com www.venturemichiganfund.org
The Customized Fund Investment Group Recognizing the need to transform the state's economy, Michigan is helping insure its future economic health by creating two private equity funds. These funds are devoted to developing high-tech industries, companies and high-paying jobs. Credit Suisse’s Customized Fund Investment Group was selected as Fund Manager because of its reputation for excellence and solid track record, both within and outside the state.
To learn more about these funds, contact Kelly M. Williams, Credit Suisse, New York, [email protected] 212 538 7658 or Bob Payne, Credit Suisse, Michigan, [email protected] 248 945 7373. www.credit-suisse.com
Thinking New Perspectives
Investment banking services in the United States are provided by Credit Suisse Securities (USA) LLC, an affiliate of Credit Suisse Group. ©2007 CREDIT SUISSE GROUP and/or its affiliates. All rights reserved. DETROIT BUSINESS MAIN 04-23-07 B 10,11 CDB 4/18/2007 4:22 PM Page 1
GROWING A NEW ECONOMY: CRAIN’S GUID OK, so we Now the state works to lu
BY BILL SHEA CRAIN’S DETROIT BUSINESS
ichigan’s native venture-capital funds are growing both in number M and dollars, but the state now needs to bolster its cadre of managerial tal- ent that can run new and growing compa- nies. “Talent, that’s the single biggest chal- lenge. That’s what we desperately need,” said Michael Finney, chairman and CEO of regional economic-development group Ann Arbor Spark, which has ongoing initiatives to train managers. Efforts are under way to cultivate executive talent to help retain star- tups and attract compa- nies to the state. But Finney and others be- hind those efforts say it Finney will likely take some The Bodman team. time before they pay off. In the meantime, companies are decid- Locked ing whether to seek money and leadership into leading financial markets somewhere else. The example often held up by economic- development executives to illustrate the need for both native money and talent is In- Loaded& traLase Corp. The company was co-founded with the know-how to get the deal done. by scientists from the University of Michi- gan’s Kellogg Eye Center in 1997 and received venture-capital funding from in-state firms. A year later, however, IntraLase Bodman attorneys have guided clients through more than moved to Irvine, Calif., where a pool of 45 successful capital funding rounds since 2004 skilled workers and management talent was immediately available for the compa- ny’s laser eye-surgery equipment business. Leading entrepreneurs, investors, funds and The lack of entrepreneurial manage- financial institutions trust Bodman. So can you. Contact: ment talent in the state contributed to the move, said Mary Campbell, head of the Tim Damschroder (734-930-0230 ~ [email protected]) (248-743-6078 ~ [email protected]) Michigan Venture Capital Association and Terrence Larkin founder and general partner of EDF Ven- (313-392-1055 ~ [email protected]) Laurence Deitch tures, which invested in IntraLase. “We Carrie Leahy (734-930-0120 ~ [email protected]) couldn’t have retained (IntraLase) with just money,” she said. Mobius Microsystems Inc., a maker of tiny clocking devices for the silicon-chip indus- www.bodmanllp.com try, is another example. Mobius left Detroit earlier this year for Sunnyvale, Calif., after receiving $10 million in 2005 from three Sil-
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N’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL we’ve got the capital ... to lure, keep managerial talent
on Wayne State University’s campus. Gradu- ates of the program are eligible to receive ini- tial investment of at least $25,000 from Biz- dom to start their businesses in the city, and they can receive an investment of up to $500,000 for meeting agreed-upon goals. Some companies also see opportunity in staying in the state. Michigan has pools of highly skilled scien- tists and technical workers, especially in the biotech field, said Gary Glick, CEO of Ann Arbor-based biotech startup Lycera Corp. Lycera is taking ad- vantage of the local tal- ent. It is researching drugs to treat autoim- mune diseases and can- cer, based on work Glick had done at the Universi- ty of Michigan. Glick Lycera has received venture-capital money from Michigan and out-of-state funds. Glick declined to provide details about the amounts of funding, but did say the non-Michigan funds want him to move to one of the coasts. What’s keeping him here, he said, is the talent available in Ann Arbor, especially the highly trained people available in the wake of Pfizer Inc. starting to shutter its operations in the city. BEK SHAKIROV/IMAGES.COM “It’s keeping us in Michigan for now,” he icon Valley venture-capital firms. camps” focus on business-plan preparation said of the Pfizer talent. “We’d like to stay There are no hard numbers on and connecting companies with in Michigan long-term, but there’s a lot of how many companies have left investors. The idea is to better factors.” Michigan to follow venture-capi- “Talent, that’s prepare entrepreneurs who Pioneer Surgical Technologies in Marquette tal money elsewhere, said David have an idea received out-of-state venture capital — in- Brophy, an associate professor the single or product, cluding $30.5 million in 2006 from a syndicate at the Stephen M. Ross School of but need help of four firms, led by Pharos Capital Group L.L.C. Business at the University of biggest running — but has remained in Michigan. Michigan and director of the their busi- The company, which makes spinal and school’s Center for Venture Capital challenge.” ness and orthopedic implants, instead took advantage and Private Equity Finance. finding mon- of the lack of competition for talent and es- — Michael Finney “They leave in the middle of ey, Finney Gilbert tablished internship programs with Northern the night, figuratively speak- said. Michigan University and Michigan Technological ing,” he said. But there’s anecdotal evi- Dan Gilbert, chairman and founder of University to develop even more. dence that fewer companies are leaving, he Livonia-based Quicken Loans/Rock Financial “We saw that we wouldn’t be competing said. Inc., put up $10 million of his own money to with other high-tech firms,” said founder, And groups like Ann Arbor Spark are at- start Bizdom U., a two-year entrepreneurial president and CEO Matthew Songer, who tempting to ensure that the state’s track institute that he hopes will generate De- added that being in the Upper Peninsula record continues to improve. troit’s next generation of entrepreneurs. The “hasn’t been an impediment to our funding.” Spark’s two-day “entrepreneur boot program, which began in January, is taught Bill Shea: (313) 446-1626, [email protected]
CRAIN’S DETROIT BUSINESS SFPRINGALL 20062007 Page 11 DETROIT BUSINESS MAIN 04-23-07 B 12,13 CDB 4/17/2007 4:09 PM Page 1
GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL Deeppockets,somedoubDeeppockets,somedoub How auto suppliers are learning to love private equity BY BRENT SNAVELY Ron Burkle, Yucaipa Cos. L.L.C. Wilbur Ross, W.L. Ross & Co. CRAIN’S DETROIT BUSINESS The powerful friend of former President The New York investor wants to create the idespread skepticism Clinton may soon control 70 percent of the world’s largest auto supplier. about the intentions of U.S. car-hauling business. He gobbled up a number of W private-equity and hedge- Burkle stepped into the companies in 2006 and on fund buys of automotive suppliers Chapter 11 case of Decatur, April 2 completed the trans- persists, but several auto industry Ga.-based fer of insiders argue that the funds bring Allied Hold- Lear a tough, realistic management ap- ings Inc. Corp.’s proach that’s producing successful His in- North turnaround stories — and lately, vestment American interior-trim something more. helped unit into a joint venture he Funds are becoming smarter the company avoid liquida- controls called International about the way they approach the in- tion amid labor trouble. Al- Automotive Components dustry, they say, becoming more se- lied aims to emerge from Group North America Inc. lective in their buys and building a bankruptcy by summer. deep bench of automotive veterans Burkle also owns No. 2 car Karim Samii, Pardus Capital with operational experience. hauler Performance Trans- Management The change has some believing portation Services Inc. after The New York investor, this round of private-equity pur- buying the Wayne-based spent $109 million to ac- chases could turn out differently company’s debt while it was quire 14 percent of Van Bu- than the investment roll-up efforts in bankruptcy. 10 ren Township-based Vis- of the 1990s, when companies were Yucaipa has not revealed investors teon bought, patched, and sold for a plans to merge the compa- Corp. profit within a few years. nies, but creditors suspect last year “I think what you saw back in such a deal is in the works. Looking for bargains, and win the late 1990s was a lot of roll-up a seat on strategies under Carl Icahn, Icahn Partners Vis- the theory that big players descend The billionaire New teon’s bigger is better,” York investor acquired a board. said William $200 mil- Now, Pardus owns about Diehl, CEO of on the auto industry lion 17 percent of Visteon and turnaround con- stake in 14 percent of Paris-based sulting and advi- supplier Southfield-based Valeo SA and is said to be pushing for a sale of sory firm BBK Lear Corp. last spring. In Feb- Visteon to Valeo. Diehl Ltd. Today, Diehl ruary he offered to buy said, investment firms are more se- Lear. Stephen Schwarzman, The Blackstone Group lective about the companies and Lear management sup- plants that they acquire and said ports the $5.3 billion offer but it faces sharehold- Schwarzman co-founded the firm in 1985 with they are acting faster to improve er opposition. $400,000; its private-equity, real estate and cor- manufacturing processes. Icahn also may become the largest share- porate-debt holdings now exceeds $78 billion. The Carlyle Group acquisition of holder of Southfield-based Federal-Mogul Corp. Blackstone acquired the UniBoring Co. Inc. is a good example, when the company emerges from bankruptcy. automotive operations of said Michael Benson, managing di- Livonia-based TRW Automo- rector, head of automotive and in- Ed Lampert, ESL Investments tive Holdings Corp. in 2003 af- vestment banking for Stout Risius The architect of the Sears- ter TRW Inc. was acquired Ross Advisors L.L.C. in Farmington Kmart merger is looking for by Northrup Grumman Corp. Hills. a big new investment. The Blackstone still owns 57 per- “They brought in a guy who has Wall Street Journal says he cent of TRW, according to an operations background and he has been trading in General TRW’s most recent proxy statement, but has knows the industry and he knows Motors Corp. stock. His firm been rumored to be considering a sale. how to run a company,” he said. also owns chunks of AutoNa- In recent weeks Blackstone has emerged as See Investors, Page 14 tion Inc. and AutoZone Inc. one of the lead bidders for Chrysler Group.
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Tom Stallkamp, Ripplewood Holdings The former president of Chrysler Corp. played a key role in the acquisition by Japan’s Asahi Tec Corp. of Plymouth-based metal ?FE@>D8EËJ parts supplier Metaldyne Corp. for $1.2 billion in GI@M8K< CRAIN’S DETROIT BUSINESS SFPRINGALL 20062007 Page 13 DETROIT BUSINESS MAIN 04-23-07 B 14 CDB 4/17/2007 4:08 PM Page 1 GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL private investors led by New don’t take (cost-cutting) actions Investors York City-based Harbinger Capital before they make the purchase,” ■ From Page 12 Partners bought the assets and Rodriguez business of the former Venture said. “And UniBoring filed for Chapter 11 Holdings Co. L.L.C. then they have in June 2005 and was acquired Cadence is led by automotive to take actions later that year by UC Investors veteran Jerry Mosingo, who said afterward.” Inc., which includes Washington, Harbinger is committed to a Rodriguez D.C.-based Carlyle and New long-term strategy. also said pri- York-based hedge fund JME Op- “Our management team is vate-equity portunity Partners. here. There is no one sitting in Rodriguez firms are just Carlyle changed the name of this building that doesn’t have at now realizing that they need in- “In the past, the Howell-based company to Di- least 20 years dustry veterans to steer compa- versified Machine Inc. Diversified in the indus- nies back to profitability. companies Machine’s management team in- try,” Mosingo And, at least one private-equi- cludes Chairman and CEO Bruce said from his ty executive finds the debate were merged, Swift, a former Ford Motor Co. office on 14 over whether private equity has purchasing executive and Cov- Mile Road in the right formula for the automo- isint president; and two other Troy. “They tive industry irrelevant. Richard were bought automotive industry veterans, are equity Hurwitz, vice president of Boca Stephen Bay, a former Metaldyne Mosingo owners, but Raton, Fla.-based Sun Capital Part- and sold, and Corp. executive; and Shankar they put a strategic team togeth- ners Inc., said his company’s Kiru, a former Covisint and Al- er and really set us up as a strate- standard operating procedure is the number of lied Signal executive. gic buyer.” the same for any industry. In February, Diversified Ma- Having private-equity firms as Sun looks “for small and mid- chine acquired two suspension owners also has advantages, size companies that are under- employees and plants in Bristol, Ind., and Mon- Mosingo said. performing, or that are turn- tague from Northville-based “The access to capital is there arounds. We buy them, we plants never Hayes Lemmerz International Inc. for if you can show the business design an operating plan, bring $32 million. Both Carlyle Group plan,” Mosingo said. them back to where they were decreased ... it and Diversified Machine de- On March 30 Cadence agreed and we sell them.” clined to comment for this story. to pay $68 million for nine plas- Sun Capital acquired the Troy- “In the past, companies were tic-parts plants and other assets based automotive pedal division was the wrong merged, were bought and sold, from Southfield-based Collins & Teleflex Inc. in 2005 and renamed it and the number of employees Aikman Corp., according to a doc- DriveSol Worldwide Inc. Last De- and plants were never de- strategy.” ument filed with the U.S. Securi- cember DriveSol bought the as- creased,” Benson said “(The com- ties and Exchange Commission. sets of Canton, Ohio-based Timken — Michael Benson, panies) were bought and built for The sale is still subject to court Co.’s global steering business. Stout Risius Ross future growth. And, well … the approval and a court-adminis- industry did not grow, so it was In March Sun Capital ac- Advisors tered auction that will allow oth- the wrong strategy.” quired Warren-based TI Automo- Diehl said private-equity er potential buyers to exceed the tive Ltd.’s industrial group. TI firms with the best strategies are Cadence offer. Automotive’s industrial group those that are concentrating But one former automotive ex- includes Bundy Refrigeration, Wal- their investments in one seg- ecutive who has worked for sev- bro Engine Management and Vari- ment, or product niche. eral large suppliers said times Form. He cited Dallas-based Ewing have not changed. Hurwitz said Sun Capital Management Group’s April 2001 This executive, who asked not plans to retain existing manage- acquisition of Key Plastics L.L.C. to be named for fear of jeopardiz- ment for the former TI Automo- as a success story. Key’s annual ing future career opportunities, tive divisions but plans to run sales grew from $530 million in said private-equity firms have each unit individually. 2002 to $710 million in 2005, ac- the clout to stand up to unrea- “The TI units were not under- cording to Crain’s Book of Lists. sonable pricing demands of au- performing. That was a special Another company making tomakers and tier-one customers situation,” Hurwitz said. “They progress is Cadence Innovation but are not doing so. He also said were not core to TI.” L.L.C., which received a supplier private-equity firms often fail to Hurwitz said Sun Capital of the year award from General quickly address problems after prefers to leave existing manage- Motors Corp. in January. buying troubled plants. ment in place, typically holds Jimmy McDonald, GM’s exec- Kimberly Rodriguez, princi- onto companies for three to five utive director, global purchasing pal and co-leader of Grant Thorn- years and applies the same basic for powertrain components, ton’s global automotive practice, principals to any troubled com- praised Cadence for flawlessly also said private-equity firms pany it buys. taking over GM’s assembly of in- continue to buy companies with- “We’re totally opportunistic, strument panels for GM’s mid- out doing adequate due diligence we don’t engage in any visionary size crossover vehicles in 2006. and without addressing prob- strategies,” Hurwitz said. Sterling Heights-based Ca- lems quickly enough. Brent Snavely: (313) 446-0405; dence was formed last May after “I think the problem is they [email protected] Page 14 FALL 2006 SPRING 2007 CRAIN’S DETROIT BUSINESS CDBmagazine.qxp 4/16/2007 10:44 AM Page 1 $350,000,000 IN IN TRANSACTIONS TRANSACTIONS A RECORD-SETTINGA RECORD YEAR PACE IN IN2006 2006 & 2007 Sale of interest to Sale of interest to Purchase of controlling interest Purchase of controlling strategic buyer sponsored strategic buyer sponsored from inactive shareholder interest in partnership by private equity firm by private equity firm and ESOP with industry executives March 2006 May 2006 June 2006 June 2006 Trans Metro Express Purchase of controlling PurchasePurchase of of operating controlling assets interest in partnership with interestthrough in partnership existing Huron with incumbent management incumbentCapital platform management investment April 2007 June 2006 June 2006 Purchase of controlling Sale Add-onand leaseback acquisition of Raabefor interest in partnership with CompanyQuest manufacturing platform incumbent management plant to institutional investor February 2007 June 2006 July 2006 Purchase of all outstanding Sale of IES division to Sale of interest to private Purchase of controlling interest stock through existing Huron publicly-traded strategic buyer investment group from inactive shareholders Capital platform investment in partnership with incumbent management July 2006 August 2006 December 2006 December 2006 WWE ELOOK LOOK FORWARD FORWARD TO TO INVESTING WITH WITH YOU YOU IN IN2007! 2007! HURON CAPITAL PARTNERS LLC 500 Griswold, Suite 2700 225 Ross Street, 4th Floor Detroit, Michigan 48226 www.huroncapital.com Pittsburgh, Pennsylvania 15219 Tel: 313.962.5800 Tel: 412.201.7040 Management Buyouts | Recapitalizations | Corporate Spin-Offs | Buy & Build Platforms | Family Succession Transactions DETROIT BUSINESS MAIN 04-23-07 B 16 CDB 4/17/2007 4:42 PM Page 1 GROWING A NEW ECONOMY: CRAIN’S GUIDE TO PRIVATE EQUITY, ANGEL INVESTING AND VENTURE CAPITAL AA dearthdearth ofof womenwomen Venture capital remains Minority-owned companies a mostly male world, pay off for investors About $8 billion of the $250 billion of venture capital but that may be changing invested in U.S. companies goes to minority-owned firms, said David Morris, managing director of Detroit- based Oracle Capital Partners L.L.C. At least one study BY SHEENA HARRISON ing, according to a January report suggests those investments might be CRAIN’S DETROIT BUSINESS published by the Commission on Pro- ones to watch. fessionals in Science and Technology. he top women in Michigan’s A 2003 study, the latest available, Less promising is the percent- venture-capital industry say by the Missouri-based Ewing Marion age of MBA students nationwide T that despite their successes, Kauffman Foundation on minorities who are women, which has re- there are still few women among and venture capital found that mi- mained stagnant at their ranks, or among nority-owned companies tended to about 30 percent, ac- the ranks of companies be profitable for investment firms. cording to the Executive that attract investment Morris The average return was $1.6 million MBA Council, an Or- dollars. for minority enterprises in the study, compared with ange, Calif.-based asso- Discovering the rea- an average investment of $562,000 per firm. ciation of universities sons why means track- The foundation also found that, and colleges that offer ing the pipeline back $1.6 unlike mainstream venture-capital executive MBA pro- to choices women firms, minority-oriented venture grams. million made in college, they funds do not concentrate heavily in But women earning Average say, where few women high-tech companies. That has degrees now will still return for choose hard sciences helped guard the firms from tech in- “There tend to take years to find their minority dustry volatility, the study said. or graduate business enterprises way into business, or Oracle Capital Partners’ portfolio degrees. “There tend to to climb the manage- be fewer women in the be fewer women industries focus on minority-owned ment ladder at a ven- $562,000 businesses and include industrial hard sciences, which ture-capital firm. in the hard Average and manufacturing companies, re- is often the back- According to a 2004 ground of a founding investment tail and consumer products, ser- report by the Ewing Mar- for minority entrepreneur,” said sciences, which vices, health care and technology. ion Kauffman Foundation enterprises Mary Campbell, Minority venture investments — the most recent also tend to have a better rate of re- founder of EDF Ventures is often the available — women in Ann Arbor and pres- turn than the Standard & Poor’s 500, Morris said. In represented 9 percent of Kauffman’s study, the 117 investments in minority- ident of the Michigan background of a management-track ven- Venture Capital Associa- owned firms had a rate of return of about 24 percent, ture capitalists in 2000, compared with 17 percent for the S&P 500. tion. founding down from 10 percent That may be chang- “This is a good time for a firm like ours to have that in 1995. That was de- focus to grow with these companies,” said Morris, ing. Women represent entrepreneur.” spite a 62 percent in- whose firm has $20 million under management. 56 percent of UM’s un- crease in the number of Morris said other firms are catching on. dergraduate biology — Mary Campbell, venture-capital execu- For instance, New York City-based Goldman, Sachs & students and 39 percent EDF Ventures tives during that time. Co. has set up a fund to focus solely on minority firms of undergraduate bio- The same report said and is co-investing in minority funds. Reliant Equity medical engineering that while women rep- L.L.C., a Chicago-based private-equity firm, opened a De- students, said Cinda Davis, director resent nearly 40 percent of business troit office last fall and is looking to partner with trou- of UM’s women in science and engi- owners nationwide, only 4 percent bled local minority-owned auto suppliers. neering program. Women make up to 9 percent of venture-capital deals Oracle believes it will be able to tap into a growing slightly more than 50 percent of all go to companies with women CEOs. number of local minority-owned firms that Morris said undergraduates at UM. Nation- Recent angel investment num- may not otherwise have had access to venture capital. wide, women earn half of the bache- bers seem to echo the findings. Ac- “I think there’s a great deal of support here in South- lor’s degrees, 44 percent of the mas- cording to the University of New east Michigan,” Morris said. ter’s degrees and 37 percent of the Hampshire’s Center for Venture Re- — Sheena Harrison doctorates in science and engineer- See Women, Page 18 Page 16 FALL 2006 SPRING 2007 CRAIN’S DETROIT BUSINESS