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Innovating Michigan investment opportunities. Attracting billions in investment capital. Credit Suisse Customized Fund Investment Group Since 2000, the Credit Suisse’ Customized Fund Investment Group (CFIG) has been part of Michigan’s growing private equity, venture capital and entrepreneurial ecosystem. CFIG manages over $625 million of capital dedicated to Michigan, including: • Invest Michigan Growth Capital Fund • Invest Michigan Mezzanine Fund • Venture Michigan Fund • Michigan 21st Century Investment Fund These unique and innovative programs have already helped attract over $2.5 billion of investment capital to the State and impacted over 6,000 Michigan jobs by investing directly into growing Michigan businesses. For further information contact: Michael Kell, CFA, Principal, (248) 792-5152 [email protected] or Sean O’Donnell, CFA, Principal, (248) 792-6671 sean.o’[email protected] 260 E. Brown Street Suite 317 Birmingham, Michigan 48009 credit-suisse.com ©2013 CREDIT SUISSE GROUP AG and/or its afﬁliates. All rights reserved. 20130311-SUPP--0001-NAT-CCI-CD_-- 3/6/2013 4:54 PM Page 1

The reshaping of the state’s tax system has Dear readers: helped make Michigan more business friendly, as have other policies and programs promoted s Michigan goes, so does the rest of the by the governor, who happens to be a former not go. country venture capitalist. For much of the past decade, that state- Some banks and credit unions are lending ment rang true on many levels as the Mit- money again, companies have rightsized and ten’s economy sputtered, unemployment rebuilt their balance sheets, and outside in- spiked and two of its largest companies nearly vestors are beginning to understand that the went bankrupt. Even before the Great Reces- entire state is not about cars and Detroit. sion, Michigan was riding an eight-year streak And a greater understanding of statewide ini- of job losses and stagnant growth. tiatives brought this special publication togeth- So it might be a surprise that the saying er, as well. above is actually a compliment made very re- ’s “The New Michigan Deal” is a collaboration National Venture Capital Association and Grand cently by the between Crain’s Detroit Business current president, who also used the word “mir- Rapids-based MiBiz. Editors and writers from acle” to describe what’s going on in Michigan. both publications worked on stories covering Venture capital activity is up — way up, actu- the entire state. ally — in Michigan, bucking a national trend Michigan is now a destination, not a flyover that saw venture investing slide by nearly 10 state, for more and more funds looking for op- percent last year. The value of deals here nearly portunities to invest. tripled in 2012 over the previous year, and the Just ask Harry Wilcox, COO and general Flagship Ven- number of deals and VC shops based in the partner at Cambridge, Mass.-based state continued to grow at a healthy clip. tures. His firm opened its only non-Boston-area Not to mention, private equity investing in office in Ann Arbor, he said in Gary Angle- Michigan companies is up — by more than brandt’s story on Page 3. 50 percent last year, according to research. So is “It’s not just that things cost less, because I merger-and-acquisition activity, spurred by a don’t think that’s the difference,” he said. “It’s resurgent manufacturing sector, an aging own- just that people are very entrepreneurial. ... ership class, out-of-state PE firms with billions There are not as many venture dollars around, in dry powder, and in-state strategic buyers so they view them as more precious.” looking to add capacity, capabilities and mar- The other factors that are driving deals in the ket share. state? You’ll find them the stories and profiles To summarize: VC, PE and M&A are all up in in the following pages, as you read about the Michigan. That prompts the question: Why? new Michigan deal. The following pages provide answers — and there are many of them — to what’s driving growth in Michigan’s climate for deal-making. Some of the growth can be attributed to state- funded and university-driven programs that have been decades in the making. Some comes from new wealth generated by successful exits Daniel Duggan Brian Edwards by entrepreneurs; other growth comes from Deputy Managing Editor Editor and publisher “old money” being deployed in new ways by Crain’s Detroit Business MiBiz some familiar families’ next generations.

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ABOUT THE WRITERS Gary Anglebrandt is a Detroit-based writer and editor with more than 10 years of combined experi- ABOUT THIS ISSUE: Michigan’s funding isn’t a one-size-fits-all story. From startups to mature companies, there’s a ence in journalism, universe of early-stage, midstage and late-stage deals across the state. corporate communications and English education. A native of Venture capital Private equity Michigan, he lived in State’s VC sector grows against the trend Michigan ranked 12th nationally South Korea for five of a national slowdown | Page 3 for private equity deal volume | Page 5 years, editing Eng- lish-language news VIDEO: Snyder talks about for Korean media Up close with VC governor venture capital and the state’s outlets and covering Q&A: Rick Snyder recalls his days as one creation of a culture for investors: the Korean automo- of the state’s early venture capitalists | Page 7 crainsdetroit.com/snydervc tive industry for Auto- motive News. Since returning to Michigan in 2009, he has worked as an editor and freelancer for Crain’s Detroit Busi- Good time Round Two Seller’s market ness and as a public to be a startup Early-stage companies that After 2012 selling frenzy, 2013 likely relations consultant. survived startup look to larger to keep up the momentum | Page 30 Mike Brennan is Programs, funding and a little investors | Page 17 founder of the Michi- cachet add to a startup culture Aspen Surgical gan News Network in Michigan | Page 9 Tangent Medical and serves as editor Surgical supply company sold for and publisher of Michigan Accelerator Fund: Filling the $4.5 million in funding shows just $400 million 13 years after it was early-stage funding gap | Page 9 MITechNews.com. how close-knit the VC community founded | Page 31 Brennan has worked Angel investors is | Page 18 since 1980 as a tech- Perrigo nology and business take flight Plex Two M&A deals open a new market writer at newspapers Ten major angel funds in Michigan top Systems for drug company | Page 32 in New York City, Seattle, Memphis, the lone fund in existence a decade Manufacturing, fi- ago | Page 10 Poof-Slinky Detroit and San José, nance and Calif. In Seattle, he technology: A good recipe for Selling a mature toy company not all Amplifinity fun and games | Page 33 co-founded and funding | Page 19 served as managing Marketing and branding firm has been Dealmakers editor of Pacific Rim a target of local investors | Page 11 Relume Technologies News Service, which Inc. Back from L.A., Martin Stein looks to developed a network Mophie grow companies | Page 34 of more than 100 Tech company with Outdoor LED maker draws invest- freelance journalists ments as it grows | Page 20 Leader of Honigman’s Kalamazoo $115 million office brings buyers and sellers in 17 Asia-Pacific in revenue operates together Page 35 countries. He now from a small XG Sciences Inc. lives in the Grand winery | Page 12 Lansing firm gets funding from Rapids area. South Korea | Page 20 Mark Sanchez is Dealmaker Deals from a senior writer at Start Garden’s micro-VC program Dealmaker around the state MiBiz, covering the gives $5,000 to For companies business of health Major venture capital, private equity care, life sciences, business needing $25 million and M&A deals from across Michigan ideas | Page 13 to $50 million, Ar- finance and small covered by Crain’s Detroit Business business. He has 25 boretum is on a very and MiBiz. | Page 36 short list. | Page 21 years of experience in Business plan West Michigan and The list does an every-other- competitions week business seg- Venture capital and private equity ment on public radio Firms active in Michigan | Page 24 Pitch your business, win a prize — station WGVU in from $5,000 to $500,000 — at one Grand Rapids. The of the many business plan Royal Oak native and competitions | Page 40 Grand Haven resi- dent also has worked for the Grand Rapids List research Design Copy editing Production Business Journal and Michelle Muñoz Jeff Johnston Bob Allen, Joe Boomgaard, Wendy Kobylarz The Holland Sentinel. Jeff Johnston and Gary Piatek Page 2 FALL 2006 20130311-SUPP--0003-NAT-CCI-CD_-- 3/6/2013 3:09 PM Page 1

Venture Capital: A ‘Michigan Miracle’

By Gary Anglebrandt up shop, with eight now using a Michigan office. here are plenty of words that “Firms in Boston and Chicago rou- one might expect the head of a tinely are making sure they have their national investment group to ear to the ground and know what’s go- use when describing Michigan, ing on in Michigan,” said Harry Wilcox, but “miracle” isn’t one of them. COO and general partner at Cambridge, Yet while meeting with local venture Mass.-based Flagship Ventures, which capital investors, Mark Heesen, presi- opened an office in Ann Arbor, the base dent of the Arlington, Va.-based Nation- of the state’s venture capital industry. al Venture Capital Association, used the Flagship has been active in Michi- term “the Michigan Miracle.” gan for 15 years and was part of one of As national investing has slowed, the state’s biggest recent exits — the Michigan has gone in the opposite di- $205 million sale of Ann Arbor-based rection, adding firms and VC dollars Accuri Cytometers in 2011. invested in businesses, he said. Wilcox sees potential in Michigan for “I really think it’s interesting,” investments in medical devices and al- Heesen said in an interview. “As ternative energy. He said he has been Michigan goes, so does the rest of the impressed by the cost savings and effec- country not go. While you see a de- tiveness of dollars spent in Michigan. cline in the number of investments Wilcox estimates it costs 20 percent and deals in the rest of the country, less to get things done in Michigan you see the opposite in Michigan.” than on the coasts but is quick to point Last year, while the amount of ven- out it’s not just thrift that draws venture capital invested around the coun- ture capitalists who used to view try dropped 10 percent to $26.5 billion, Michigan as a flyover state. Michigan’s share nearly tripled, to $232 “It’s not just that things cost less, million from $85 million, according to because I don’t think that’s the differ- the most recent MoneyTree Report by ence,” he said. “It’s just that people PricewaterhouseCoopers and the NVCA. are very entrepreneurial. ... There are There were 47 venture-backed deals not as many venture dollars around, in Michigan last year, compared with so they view them as more precious.” 36 in 2011, according to the MoneyTree SCOTT EISEN The Michigan office is Flagship’s Michigan “should get credit for doing the right things to report. support entrepreneurs,” said COO Harry Wilcox of Cambridge, first branch outside its Cambridge It’s not just the funding that has Mass.-based Flagship Ventures. Flagship opened an office in home. The firm chose Michigan be- grown — it’s the number of funders, as Ann Arbor in response to the potential for investments in cause of the technology being devel- well. medical devices and alternative energy, combined with oped at universities in the state and a Since 2008, five Michigan-based ven- entrepreneurial people and relatively low cost. base of entrepreneurs coming out of ture funds have opened, bringing the MoneyTree report. Investments in Califor- companies in the pharmaceutical in- total of homegrown funds to 21. In 2001, nia-based companies totaled $14 billion. dustry and software development, Wilcox there were only seven. Still, what is happening in Michigan has said. He also praises the support from Many have received investments from caught the attention of VCs around the U.S. Lansing. the state’s two funds of funds: Renaissance “The rest of the country is seeing declines “The state should get credit for doing the Venture Capital Fund and Michigan Venture in the number of venture capital firms and right things to support entrepreneurs,” Fund, which collectively have raised nearly venture capital professionals ... everywhere, Wilcox said. $325 million to invest in VC firms that sup- except for Michigan,” Heesen said. “You real- Although Michigan’s venture world is port Michigan companies. ly have something to be proud of.” growing, it’s still small, making for a less It’s important not to overstate the case: competitive environment. In Cambridge, Michigan remains a small player compared by comparison, “I look out my window and with the investment hotbeds of California, Setting up in Michigan see offices of maybe 25 venture capitalists,” Massachusetts and New York. California Wilcox said. had 1,521 venture-backed deals last year Outside players have taken notice, too. and Massachusetts 410, according to the Firms based elsewhere continue setting SEE VENTURE CAPITAL, PAGE 38 SPRING 2013 Page 3 FALL 2006 WF Page_NEW-AWpageAD.qxd 3/6/2013 3:56 PM Page 1

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Money at home Private equity deals on rise in state – and future looks bright

By Gary Anglebrandt and Joe Boomgaard

rivate equity deals may not grab as many headlines as venture capital transactions in Michigan, but it’s not for a lack of activity. Managers of private equity funds — most of them based out of state — have been busy doing deals in Michigan, despite a dearth of state-sponsored support for the private equity sector. Between 2000 and 2010, private equity managers invested $40 billion in 415 deals in Michigan, which ranked 12th nationally for deal volume and 14th in dollars invested, according to data shared at a recent panel dis- cussion of Michigan’s private equity sector sponsored by the West Michigan chapter of the Association for Corporate Growth. Fund managers and other industry insiders see deal activity in Michigan continu- ing to rise, especially as the state and its financial industry continue to pay attention to activity in the sector. “We’re sort of at an inflection point with just the general positive momentum we ARA HOWRANI While there’s growth in private equity deals, Scott Reilly, president of Peninsula Capital Partners have over the next five years,” said Doug LLC in Detroit, said it’s probably good we’re not seeing levels similar to record highs in 2006 or Kearney, principal of the $153 million 2007 — levels he said were unsustainable. Michigan Opportunities Fund at Glencoe Capital, a in Michigan companies totaled $687 million private equity firms headquartered in Chicago-based private in 106 deals in 2012, up from $429 million and Michigan, and the state has about 332 pri- equity firm with an office 82 deals in the previous year. vate equity-backed companies that employ in Birmingham. “It’s The 60 percent jump in funding probably more than 25,600 workers. shaping up to be a very underestimates the strength in Michigan’s But a preponderance of the capital being active private equity and private equity investments last year, as the invested in Michigan has to be “imported” venture capital market report does not include activity from De- from private equity funds based outside of in Michigan. cember, when many merger transactions the state. Nearly 85 percent of the deals re- “We’ve been very closed in anticipation of an increase in the ported in the ACG data involved out-of- pleasantly surprised on capital gains tax rate. state private equity firms and capital. Kearney the diversity and quality The report, going back to 2004, shows the That has state officials and fund man- of businesses, and the opportunities that 2004-07 period as having annual invest- agers such as Michael Kell, principal of the we have been presented with.” ments totaling an average of $340.5 million, Credit Suisse Customized Fund Investment The Michigan Opportunities Fund has with an average deal volume of 66 per Group and manager of the InvestMichigan! invested $110 million into eight in-state year. The number jumped to $471 million Mezzanine Fund, pushing for more state sup- companies since it launched in 2008. in 2008, at 106 total deals. It then dropped port for so-called “indigenous” funds, those While national activity in the notorious- to $324 million and 83 deals in 2009 and based in Michigan and investing in Michi- ly difficult-to-track private equity business lurched to $1 billion and 93 deals in 2010 gan companies. declined in 2012, according to a report from and more than $1.1 billion in 2011-12. They would like to see Michigan’s private Chicago-based PMCF Mergers & Acquisitions, equity sector mirror the rise of the state’s fund managers remained active in Michi- venture capital industry, which has seen gan. Supporting homegrown funds growth in the amount of capital invested and An internal report from Credit Suisse, based in the number of firms starting up or locat- on data from Venture Economics, confirms this. According to the national Private Equity The report shows private equity investments Growth Capital Council, there are about 36 SEE PRIVATE EQUITY, PAGE 39 SPRING 2013 Page 5 FALL 2006 20130311-SUPP--0006-NAT-CCI-CD_-- 3/6/2013 4:22 PM Page 1

Gov. Rick Snyder was one of Michigan’s first venture capitalists, starting Avalon Investments Inc. in 1998.

NATHAN SKID/CRAIN’S DETROIT BUSINESS ‘How far we’ve come’ Governor reflects on pioneering VC in Michigan

hese days, Michigan Gov. Rick Sny- Snyder’s early investments included Es- development organization. Henderson, who der is synonymous with cutting the perion Therapeutics Inc., a drug company joined Crain’s in 2005, recently interviewed state’s budget, evaluating Detroit’s that was sold in 2003 to Pfizer Inc. for $1.3 Snyder about his decision to go into ven- need for an emergency manager and billion; and HandyLab Inc., a medical device ture capital, what the climate was like for shepherding the new right- company that was sold in 2009 for VC in Michigan in the 1990s and how far the to-work legislation. $275 million. industry has come locally since then. But before all of that, long be- In 2000, Snyder hired Henderson fore he was governor, Snyder was to work for his second venture capi- Were you 40 yet when you retired from Gate- among the earliest venture capital- Q&A tal company, Ann Arbor-based way? ists in Michigan. Taking a look Ardesta LLC, to help launch a web- I was in my late 30s. back at the evolution of the state’s growing site, smalltimes.com, and a print magazine, industry with Snyder is Crain’s reporter Small Times Magazine, both devoted to mi- Why did you want to quit and come back Tom Henderson. cro- and nanotechnologies. here? Henderson first met Snyder in 1997 at a Later, Snyder was the first chairman of We wanted to come home, to come back breakfast meeting of the Southeastern Michi- the Michigan Economic Development Corp. and and do good things in Michigan and be gan Venture Group, an angel group that later co-founded Ann Arbor Spark, the economic with family. It was a great opportunity. morphed into the Great Lakes Angels. Sny- And it was a challenge because I made der had just quit as president of Gateway ONLINE EXCLUSIVE the decision to go into venture capital, and Inc. and moved back to Michigan to start a there wasn’t a lot of venture capital in Watch Tom Henderson interview Gov. venture capital firm named Avalon Invest- Rick Snyder at crainsdetroit.com/snydervc. ments Inc. SEE GOVERNOR, NEXT PAGE

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GOVERNOR, FROM PREVIOUS PAGE need.” I said, “I’m taking my tie off, and ing to work. Eventually, when you have to I’m done.” We needed to change the cul- shut something down, that’s the very hard- Michigan. Depending how you define it, ture, and I’ve stayed true to that through est. The successes are a lot simpler. When there were probably three active VCs here. the years. they’re successful, you’re happy, and that’s If you stretched it, you might get to five or When I first came back, I said there are great. six. And they were all very small. I came four elements that you need to create a back and raised a $100 million fund, which high-tech/venture environment. You need I’ve heard stories, second- or thirdhand, was huge. technology, people, capital and infrastruc- about you keeping the lights on at HandyLab by And the funny thing is most people did- ture. And after I got back, I added a fifth writing personal checks. The company couldn’t n’t even know what a venture capitalist one, which is actually culture. raise any more institutional money, but you did- was. One of the classic stories is — and this People will ask me, “How do you create n’t want to give up. Is that true? was in Ann Arbor — I wanted to see about an atmosphere for success?” It’s really HandyLab, I didn’t need to. We went getting set up or getting help, so I called the looking at all five of those elements and through some tough times there, and we Chamber of Commerce and said, “Is there saying, “How do you show improvement got through it. But at HealthMedia, I did. any help I can get?” They didn’t under- on all five?” If you’re out of balance on any Vic and I both wrote personal checks. stand what I did, but they told me if I came one of those, you’re still going to have a Basically, I had to go talk to higher au- down, I could buy a welcome pack from major imbalance, so you have to work all thorities at home and to get permission to them for $7. So, I spent the $7 for the enter- five. write checks to meet payroll and to keep tainment value. I’m not trying to pick on the lights on. And it worked. It was tough, them, but people didn’t know what a ven- Do you recall your first investment after you and it was not insignificant, but it ended up ture capitalist did. started Avalon? being a huge success. So that’s the kind of There were a couple. There was one that thing where you have to have the belief What caused you to say to yourself, “I want didn’t work that was called MedCard. It was a and resolution in what you do. to do VC”? smart card for maintaining medical records. We knew it was the right thing. It was just It was a way to help people, to build com- The other one was HealthMedia, and that was a timing question. There’s a comment I use: panies and to build jobs, because we had so a great success. But we went through the full The goal is to be leading edge, not bleeding much potential. We just needed more peo- cycle on that one, with Vic Strecher. Vic was edge. Leading edge is good. Bleeding edge is ple doing it. I thought I could be a catalyst great. He’s a University of Michigan professor, bad, where you can be too early to market to help make that happen. And we’ve had a and he’s just a brilliant guy. and suffer from that. Ultimately, you may lot of success. have a good idea and not be successful. That It’s not about taking credit, but if you Esperion Therapeutics was one of the early happened to me more than once, too. think about it, from 1997 till today is not ones, too. that many years, really, for how far we’ve It was already going. It already had out- That’s what happened with some of the come. We had two or three VC funds then, of-state VC, so we joined that one a little bit Ardesta investments. Great technology, great and now we’ve got like 27 firms with offices later. We were the first Michigan investors. potential, but too long to develop for the mar- here, and 90-something VC funds have in- I got to know Roger (Newton) and Tim ket. vested in Michigan. We’re in the top 15 na- (Mayleben) and built a relationship with Yeah, they were too early. That was tionally. them and helped provide some value in clearly the case. There were some of those terms of them being successful in the com- that were too early, but they were great What’s the difference between the VC munity. That was a great investment. ideas. ecosystem here in 1997 and the ecosystem Someday, they probably will show up, now? Did you ever imagine in 1997 that Esperion and I can be that old guy someday saying, There is a system now. It was a system would be sold for more than $1 billion, or “I remember when.” that wasn’t connected back in those days. HandyLab would be sold for $275 million, or Ac- There were major holes or challenges. And curi Cytometers for $205 million, or Health- You’ve said the state shouldn’t be picking now there really is a system, where if Media for $200 million? Obviously, when you’re winners and losers. Others have said govern- someone wants to do something, either as an early-stage investor, you’re hoping to make ment should keep out of the free market. Isn’t an inventor or as a CEO or as an investor, money. But did you envision there would be there’s a network you can really connect those kinds of successes? SEE GOVERNOR, NEXT PAGE into that can be a supportive resource to I thought we’d have some of them, but help you be more successful. you never know which ones. Would I have said, ‘This company will sell for this I said, ‘I’m taking my tie off, Tell me about culture and VC. You’re known amount of money, and that company will “ for not often wearing a tie, and I understand sell for that?’ No. But clearly that was part and I’m done.’ We needed to there’s a story about that and VC culture. of the premise, to After I came back, some people asked me say that there were to facilitate this session on the high-tech going to be some change the culture. community in Michigan. It was being held major successes ” in Ann Arbor, and they had about 100 peo- coming out of this. Gov. Rick Snyder ple sign up for this thing, and I was sup- That’s the portfo- posed to be the facilitator based on what I lio approach: You knew. build a portfolio I thought: “OK, I’m going to be safe as the and you have to moderator. I’m going to wear a suit.” So I have a balance. wore a suit, and I go in this room, and of If you do early- the 100 people, there are basically 97 suits. stage stuff, a lot There were two women and a guy in a Dex- of them aren’t go- ter (Mich.) sweatshirt. ing to work. So, at the first break, I said: “This has The hard part of do- got to end, all these suits. This is ridicu- ing that work is giving lous. This is not really the culture we people the tough advice that this isn’t go- ISTOCKPHOTO.COM SPRING 2013 Page 7 FALL 2006 20130311-SUPP--0008-NAT-CCI-CD_-- 3/6/2013 3:45 PM Page 1

GOVERNOR, FROM PREVIOUS PAGE

that what the state of Michigan has done, though, with its Venture Michigan Fund and its 21st Century Investment Fund — and deciding to have a focus on such things as advanced manufacturing, alternative energy and life sciences? It has picked winners and losers, with what is considered a good track record for the number of companies that got funded and the amount of out-of-state venture capital money that has co-invested. Some of those, I didn’t necessarily agree with. I was in those fields, but I wouldn’t have necessarily done a number of those programs. Now that they’re out there, you try to be supportive of all of them. I do have concerns and issues about picking winners and losers that way. I Creating economic opportunity in West Michigan. used to get paid to do that for a living, and it’s really hard work. And that was my sole For over 27 years, The Right Place has been a strategic role, versus the government doing it. leader in advancing West Michigan’s economy. We are Another model, though, that I think has more value that we have done in the past is your single source for services, information and support in the co-invest model, where you basically the region. Contact us to learn about your future in West say, “Here are matching funds that we’ll get involved with.” But it’s based on the private Michigan. sector making a determination that it’s worth investing in and providing incremen- tal resources and leveraging it that way. www.rightplace.org That’s a whole different story. I still 616.771.0325 have some concerns about how the portfo- lios could work out from some of those old deals. Were they actually good investments or not?

It’s better to invest in VCs that in turn invest in companies? investment banking + private investment That’s a better model. Look at the Renais- sance Venture Capital model. I actually launched the idea with Doug Rothwell on one of the dinner cruise ships on the De- troit River at a Crain’s event. It was through Business Leaders for Michigan. Doug wanted it, and I wrote the business plan. I didn’t know Chris (Rizik, his former partner at Ardesta) was going to end up running it, but it’s alive. And it’s cool.

Michigan has a pretty healthy VC ecosystem now. What are one or two things that still have No matter which side of the table you're on, to happen to have a fully formed, fully diversified venture capital community in Michigan? Cascade Partners is who you want in your corner. One thing that ties back into the Renais- sance Venture model is the first-customer concept. We have very successful large companies in our state that could be customers, and some of that (bringing new ften the most difficult part of managing growth and realizing your success is finding Ojust the right partners to help guide you through the myriad choices and opportunities. products or technologies to their attention We have the toolkit to help achieve your vision of success. Growth Capital. Mergers. for possible use) takes place, but it’s not Acquisitions. Divestiture. Recapitalization. very institutionalized. One of the greatest challenges that people don’t understand Cascade Partner’s combination of investment, transaction and investment experience ensures about having a successful company is it’s the broadest range of skills are brought to bear to drive success. Our tenacity and creativity are the elements that allow us to precisely craft the best strategy for your business. not just building a product, it’s getting that first customer. And so one of the opportunities you have is you could start asking if Detroit office: 29100 Northwestern Highway, Suite 405, Southfield, MI 48034 they are willing to go to these young compa- Chicago office: 1515 W. 22nd Street, Suite 370, Oak Brook, IL 60523 248.430.6266 www.cascadepartners.com nies and let them know (that), if they deliver a product that meets these specs at this Securities offered through Cascade Partners BD LLC FINRA/SIPC price, they’re going to be a buyer. That’s a huge opportunity, and that’s something we can be strategic about in Michigan. Page 8 SPRING 2013 FALL 2006 20130311-SUPP--0009-NAT-CCI-CD_-- 3/5/2013 2:54 PM Page 1

Getting warmer Investment climate changes for the better

By Brian Edwards friends and family money to make small investments totaling $1.5 million in 27 portfo- t’s a great time to have an early-stage lio companies since 2009 and plans to raise a company in Michigan — or even have an $15 million fund. The Detroit-based First Step idea for one. There is more venture capi- Fund, a $5 million fund, typically invests tal and angel activity than ever before. $50,000 in small, very early-stage companies. Incubators are popping up in cities and Start Garden lets entrepreneurs pitch on college campuses. Business plan and pitch their ideas on a website, then lets the pub- competitions are practically a growth indus- lic vote on winners each week. It’s one of a try in Michigan these days (See story, growing gaggle of entrepreneur-focused Page 40.). competitions that offer rewards ranging And perhaps most important of all: Start- from $1,000 up to $500,000. ups are hip. And more programs have launched in the The number of Michigan-based venture past few months, including the GreenLight BOB CHASE capital firms has tripled in recent years, Business Model Competition at Michigan State Skip Simms of Ann Arbor Spark is also behind and firms that used to consider Michigan a University and the nation’s first competition programs such as the Michigan Pre-Seed Fund, flyover state have since parachuted in. for socially conscious businesses, the Pure which invested in Epsilon Imaging Inc. Likewise, angel investors are delivering Michigan Social Entrepreneurship Challenge. (pictured), a medical software company. Simms more good news to Michigan entrepreneurs, With cash in hand, some contest winners is involved in some of the state’s angel funds with new funds such as the Muskegon Angels. might be in line to access incubator space (See story, Page 10). And newly liquid individuals who’ve and other services at one of Michigan’s 15 tant step in the development of Michigan’s cashed out of prior businesses over the past state-funded SmartZones, which offer wet- early-stage ecosystem, experts say. year have invested anew in local deals. lab space, business development mentoring “We expect the level of innovation to ac- There’s even an emerging class of “mi- and assistance writing Small Business In- celerate and (have) continued support for lo- cro-VCs” that invest small amounts in lots novation Research grants. cal entrepreneurs,” said Kelly Williams, of deals, from big ideas to small companies. There are also a growing number of pri- who leads the Credit Suisse Customized Fund In- In Grand Rapids, Amway scion Rick De- vately funded incubators, such as The Facto- vestment Group. “As the ecosystem becomes Vos started Start Garden with $15 million in ry and the Grand Rapids Tech Hub, founded by more fully developed, we believe a culture of family money to build a startup culture, successful entrepreneur Craig Hall. innovation will become more deeply embed- with weekly investments of $10,000 in busi- Taken together, the incubators, pitch ded in Michigan’s talent base, making it eas- ness ideas and classes for entrepreneurs events and competitions provide gathering ier for innovative companies to gather the (See story, Page 13.). places where entrepreneurs and investors talent and expertise needed to grow.” Detroit’s Ludlow Ventures LLC also has used can network and trade ideas — an impor- Mike Brennan contributed to this report.

Fund managers find fertile ground in state for innovation

By Mike Brennan looked at 500 companies over the past 2½ Economic Development Corp. provided a sig- years. Michigan is a fertile ground for inno- nificant boost for the MAF-I, while the bal- n a quest to fill West Michigan’s early- vation. The quality of the ance came from eight regional partners. stage funding gap, the $15 million Michigan deals in Michigan is every Grogan and Kerschen put in the initial $1 Accelerator Fund I has invested $4.8 million bit as good as what you million and manage the fund from their of- in seven companies, with an additional would see nationwide.” fices at Charter Group Inc., a Grand Rapids- $3 million earmarked for add-on invest- The fund emerged as based merger and acquisition advisory firm. ments in those companies. an idea in August 2010, Increasing the number of venture funds in Finding those firms meant looking at when a consortium of re- Michigan will lead to the development of new more than 500 companies, a process that gional partners, includ- companies and, ultimately, more jobs, said shined a light on the state’s innovation cul- ing the Michigan 21st Cen- MEDC President and CEO Michael Finney. ture for the fund’s managers, John Ker- tury Jobs Fund, cobbled “We are confident that by co-investing in schen and Dale Grogan. Grogan together a plan aimed at these promising funds, we can continue to “When we started, we were worried supporting early-stage grow Michigan’s venture industry and ac- whether there would be enough Michigan life science and technology companies. celerate the growth of innovative technolo- companies to invest in,” Grogan said. “We’ve A $6 million award from the Michigan gy startups,” he said. SPRING 2013 Page 9 FALL 2006 20130311-SUPP--0010-NAT-CCI-CD_-- 3/5/2013 4:09 PM Page 1 Spreading their wings More angel investors take flight in quest for deals

By Mike Brennan Simms said, is the low value of stocks in INVESTORS WITH HALO EFFECT 2008, with investors still looking for the ong before Silicon Valley, in the hey- Michigan angel investment groups and the 9 percent returns they once had. year they were founded: day of automotive innovation, there What’s more, Simms said, high-net- was a startup culture in Michigan. To Great Lakes Angels, Birmingham, 2002 worth individuals have been reading about get that mindset back will take a cul- returns generated by some Michigan exits Ann Arbor Angels, Ann Arbor, 2004 ture shift, and one vehicle to push that that have for hundreds of millions of dol- goal is angel investors. Grand Angels, Grand Rapids, 2004 lars over the past few years. So they’re At least 10 angel firms are active, or First Angels, Kalamazoo, 2006 joining angel groups to diversify. nearly so — a substantial increase from the Capital Community Angels, Lansing, Michigan has a high lone firm in existence a decade ago. That 2007 number of millionaires allows smaller entrepreneurs to tap into Traverse Angels, Traverse City, 2007 — nearly 180,000 house- the state’s network of wealthy individuals. BlueWater Angels, Midland, 2008 holds have more than With investments typically less than $1 million of investable Northern Michigan Angels, Traverse $1 million, Michigan’s angel groups pro- income, according to City, 2012 vide angels with deal flow and potential co- Rhinebeck, N.Y.-based investors so they can spread the risk and Muskegon Angels, Muskegon, 2013 Phoenix Marketing Interna- work for any individual investment. Michigan Angels, Ann Arbor, May 2013 tional, which makes them “We’re seeing a culture of high-net- good angel candidates. worth individuals seeding companies with The trick is getting Brown private capital that has been growing for that seek money from his $26 million fund. them activated in new in- the past five years,” said Skip Simms, a se- “The number of individuals making industries, said Paul Brown, vice president of nior vice president of Ann Arbor Spark and vestments in 2012 and 2013 is significantly capital markets for the Michigan Economic manager of the Michigan Pre-Seed Capital higher than it was just three years ago, let Development Corp. Fund, which deals daily with angel and ven- alone five or 10 years ago.” ture capital investors as they vet startups Driving the growth in angel funds, SEE ANGELS, NEXT PAGE

Page 10 SPRING 2013 FALL 2006 20130311-SUPP--0011-NAT-CCI-CD_-- 3/5/2013 4:10 PM Page 1

ANGELS, FROM PREVIOUS PAGE Angels aren’t generally full-time investors, so they’re less likely than private equity or VC investors to move outside of industries they know, Brown said. That can play out well in Silicon Valley, where most millionaires made their money in technology of some kind, but perhaps less well in Michigan where most money has been made in older-line industries. What Michigan needs, Brown said, is for angels to invest in technology startups, in Internet plays, in cloud and mobile computing, software and other similar sectors — the 21st century up-and-comers. “Dan Gilbert is a shining example of a relatively high-tech Michigan business entrepreneur who is comfortable investing in technology startups,” Brown said. It’s also a matter of getting the word out to the business community, Brown said. “When you land at the San Francisco airport, they introduce you to three angels right away,” he said. “We will know we have achieved something in Michigan when the talk at the country club by accountants and lawyers is about angel deals ALY DARIN Co-founder Richard Beedon has secured financing for Amplifinity through angel investors, venture and other investment opportunities in the capital and state-backed funding programs. Amplifinity, formerly uRefer, capitalizes on a growing state. We’re not there yet.” trend in marketing called word-of-mouth/brand advocacy. Brown said there are many other investors like Gilbert in Michigan, but they remain private about their activities, which makes it difficult to hang a number on the scope of angel investments here. He guesses Michigan would rank in the Amplified interest middle third of states in investment volume, perhaps somewhere around $1 billion. Ann Arbor firm looks to Series B funds Ken Kousky, president of BlueWater An- By Mike Brennan Next up this year is a Series B round in gels in Midland, said he figures that metro which the company hopes to raise $5 mil- Detroit alone has about 92,000 accredited mplifinity, formerly known as uRefer, lion to $8 million. investors. So he thinks Michigan’s angel is capitalizing on a growing trend in The root of the Series A round for Am- sector has a tremendous upside. marketing called word-of- plifinity was planted in 2010 by Beedon The problem is getting them involved, mouth/brand advocacy. and Chairman and CEO Paul Vlasic after he said, because the bulk of angel invest- And in creating a new tool for investors pumped “multiple millions of ing is not coming through organized clubs sales teams — helping companies ask dollars” into a couple of seed projects to but from families, friends and neighbors. brand advocates for sales leads — the see which would germinate. The federal Jumpstart Our Business Ann Arbor firm has been a target of in- “About two years ago, it became clear Startups Act, signed into law last year, is vestors in recent history. to us that Amplifinity had the potential expected to be a vehicle for more funding In fall 2011, Amplifinity closed a to small businesses, Kousky said. and the market to be a $100 million com- $2.1 million Series A financing round led Crowdfunding, raising money online pany,” Beedon said. “It’s at this point we through small investors, one elements of by Early Stage Partners, a fund based in decided to get a Series A round to help the JOBS Act, is still being finalized by the Cleveland with an office in Ann Arbor. build out the team and grow sales.” U.S. Securities and Exchange Commission. Also participating was RSVP Ventures in Amplifinity has used the proceeds to Dave Weaver, president of Great Lakes Ann Arbor. Several angel investors also hire software developers and enterprise Angels, said he’s seeing pockets of angel participated in the Series A round, but software executives, growing the staff activity, but many areas are still trying to Amplifinity declined to disclose them. from 10 a year ago to 20 today. Some of figure out how to move forward. He’d like In fall 2012, Amplifinity added $1.1 mil- Amplifinity’s bigger clients include ADP, to see the MEDC find funds to provide ad- lion in venture capital to its Series A DirecTV, Sony and TXU Energy, a Texas elec- ministrative support to angel groups, round. And in December, the state of tric power utility. which typically have a volunteer staff. Michigan, through its Pure Michigan Ven- “Everybody is coming at different ways With more full-time business managers ture Match Fund, contributed $375,000. to try to leverage their social channels,” paid for through state or even corporate That brings the total raised to date to said Eric Jacobson, Amplifinity president funds, more potential angel groups would about $6 million. and CFO. “We’ve learned buyers make coalesce, Weaver said. Co-founder Richard Beedon said the decisions by asking their friends. Think “In the angel environment in Michigan, company posted 2012 revenue of just un- Angie’s List. Referrals are how people there is a huge potential for deal flow — a der $1 million. He estimated Amplifinity make buying decisions today. better quality than I have seen in the last will generate an 80 percent growth rate in “Amplifinity gives our clients the tools five years,” he said. “We just need more 2013, pushing revenue to about $1.8 mil- they need to facilitate and harness earned angels in this space.” lion. media to build their brands.”

SPRING 2013 Page 11 FALL 2006 20130311-SUPP--0012-NAT-CCI-CD_-- 3/5/2013 4:17 PM Page 1 Taking a shot NBA star’s early investment powered portable iPhone battery

By Mike Brennan Bocan said he heard about Mophie tion worldwide. One of the products after the company paid a consultant expected to lead the way is Mophie’s t was an angel investment of to help it line up a Series A round. iPhone5 Juice Pack, called Helium. $500,000 in 2006 by pro basket- After doing some due diligence, Bo- To keep up with this rapid growth, ball star Carmelo Anthony that can had an “aha” moment. Mophie plans to lease a 47,000- transformed mStation into “One of our investment square-foot warehouse on Ninth Mophie, the manufacturer of a pieces has been around Street in Kalamazoo, near the portable battery for iPhones. mobile computing plat- Western Michigan University cam- At the time, Mophie co-founder forms and the explosive pus. The company plans to Shawn Dougherty was developing growth of mobile de- break ground on its new audio docking systems for Apple’s vices. Mophie’s product 32,000-square-foot corporate iPod music players. A former em- was addressing one headquarters in the WMU ployee met Anthony at a National Bas- of the weakness- Business Technology and ketball Association promotional event; es, the battery,” Research Park in the he loved the mStation’s design, he said. second or third which looked a lot like a basketball. He added quarter. He decided to invest in the com- that Mo- For now, Mo- pany, which Dougherty and co- phie is a phie’s adminis- founder Daniel Huang used to ac- pioneer in trative, market- quire Mophie. a new ing and “The investment by Anthony product distribution helped us get where we are today,” category operations are Dougherty said. “It let us buy in- — the pro- crammed into ventory and acquire Mophie.” tection a warehouse Mophie’s rapid growth caught the case with behind the St. attention in 2010 of Farmington- portable pow- Julian Winery in based Beringea LLC, which manages er — a global Paw Paw, where the InvestMichigan Growth Capital market that 45 of Mophie’s Fund, created in 2008 by former Mophie had 140 employees Gov. Jennifer Granholm to leverage barely penetrat- work. Engineering $300 million from the state of Michi- ed, capturing is based in Santa Ana, gan Retirement System. less than 10 per- Calif., and manufactur- Beringea Managing Director Jeff cent of iPhone ing is done in southern Bocan led a Series A round in Au- and Android China. gust 2010 that invested another $4 smartphone “It’s going to be an million in Mophie. As part of that sales. exciting year,” investment, Anthony’s stake was “Mophie is Dougherty said, noting bought out. poised to be one new business relation- Last year, Mophie generated $115 of the better in- ships in the Nether- million in sales, and Dougherty ex- vestments in our lands and Switzerland. pects sales this year to approach 25-year history,” “With our resources, $175 million — numbers that make Bocan said. we can work smarter, Bocan smile. Dougherty develop faster and “There is massive demand for our also expects Mo- make Mophie a glob- products,” he said. “Because of the phie to achieve al site.” enormous global smartphone mar- $1 billion in ket Mophie is addressing and their sales by 2018 as leadership position in a rapidly the company Mophie co-founder emerging category, Mophie is one rides the wave Shawn Dougherty of the rare venture-backed business- of iPhone moved to Michigan and smart- to get the company es that legitimately could be a bil- off the ground. lion-dollar business someday.” phone adop-

Page 12 ERIK HOLLADAY SPRING 2013 20130311-SUPP--0013-NAT-CCI-CD_-- 3/5/2013 4:11 PM Page 1

Seeds for a harvest

Rick DeVos is helping the Rick DeVos’ investment state’s entrepreneur community $5,000 at a time with Start Garden. fund looks for ideas that Each week the group invests in two ideas submitted to its website. can produce fruit quickly

RYAN PAVLOVICH By Mike Brennan “We encourage entrepreneurs to hit their In January, Start Garden made its networks to get people to vote for their pro- biggest investment to date, $500,000, in Blue ick DeVos — like his grandfather ject as well as talk about Start Garden. Medora, which develops software for IBM Richard DeVos, the co-founder of “Anyone familiar with my past projects Tivoli Monitoring and Oracle Enterprise Manag- Amway Corp. — is writing a new page knows I enjoy getting the public involved er. Grand Angels, a regional group of angel in the entrepreneur playbook with with a vote. It’s not just to find out what investors, announced that 20 of its 44 mem- Start Garden, a $15 million investment people like, it’s because an idea has a much bers cumulatively invested another fund that has been investing small amounts better chance of success when an entire $750,000 in Blue Medora. in scores of business concepts in the hopes community gets behind it.” While Blue Medora is a classic high-tech of growing Michigan’s next big win. Those checks — from April 2012, when investment, technology isn’t necessarily Each week, Grand Rapids-based Start Start Garden was announced, until last what Start Garden is looking to invest in, Garden invests in two ideas submitted to Feb. 7 — have gone to 85 projects, nearly all said Marketing Director Paul Moore. its website. Each idea gets a minimum of at the $5,000 level. Twenty-three have re- “There is no pattern in terms of business $5,000. One of the ceived additional rounds of financing. So categories,” Moore said. “All of the projects DEALMAKER ideas is chosen by far, Start Garden has invested $1.8 million have strong entrepreneurs working in Start Garden, Start Garden team in capital. markets where there’s a lot of room for Grand Rapids members, while the On the flip side, 38 projects have washed growth. We look for great execution of the broader public, out — acceptable losses for DeVos’ philoso- business idea. That often comes from the through votes on the StartGarden.com phy of lean entrepreneurship, a philosophy $5,000 experiment. website, selects the other. Later rounds can he’s trying to rekindle in a state once “However, when we fund an existing be $25,000, $50,000, $100,000 and even known for entrepreneurship. company at a higher level that has not run $500,000. In the 19th and 20th centuries, Michigan a $5,000 experiment, it’s because the com- “We invest small amounts in small was a frontier state where entrepreneurs pany is farther down the road and already teams to find out quickly whether they suc- prospered, first in mining and lumber, proven its ability to execute, like Blue ceed or fail,” DeVos said. “We’re looking then in finance and automobiles, DeVos Medora.” for ideas that can quickly gain traction. We said. Then Michigan became a corporate Indeed, DeVos said, Start Garden is open provide front-end exposure for entrepre- state, where entrepreneurship — and the to all sorts of business ideas, as well as to neurs. failure that often goes with it — was anyone anywhere to apply. “We have a bigger funnel at the top. frowned upon. When Start Garden exhausts its $15 mil- We’re closing the zero-to-$500,000 gap “Our industries consolidated into mas- lion fund over the next two years, DeVos startups face in our region.” sive corporations,” he said. “Michigan said, he hopes to have a nice portfolio of He said by investing just $5,000, Start became more about the job and the depend- companies. Perhaps some will be moving Garden attracts ideas seeking validation, ability of large organizations and the pay- toward exits. Many, he hopes, will have but doesn’t attract proper startups. And by check. We let our entrepreneurial muscles good stories to tell. allowing the public to participate in the atrophy. “It would be a validation of what we’re process, it opens the filter on deal flow by “What we need to do now is get more doing,” he said. “And we’d be happy with bringing in potential projects that might comfortable with losses in Michigan. We it. not typically get that validation. need to see business failure quicker and “We might set up another fund, but “Start Garden also provides a validation see validation of the business idea quicker. we’ve only been doing this for less than a for us of an entrepreneur’s hustle,” he said. We’ll all be better off for it.” year, so there’s still a lot more to learn.”

SPRING 2013 Page 13 FALL 2006 WF Spread_NEW-AWpageAD.qxd 2/28/2013 4:24 PM Page 1 Opportunity Detroit is a new initiative showcasing the opportunity that exists and is growing in Detroit.

DOWNTOWN DETROIT’S future is bright, with more ]flj]hj]f]mjkYf\`a_`%l][`Zmkaf]kk]kegnaf_lgl`][alq&<]ljgalkl][` j]ngdmlagfakYlljY[laf_kge]g^l`]ogjd\kZja_`l]kleaf\k$Yf\l][` start-ups are moving to Detroit from Silicon Valley.

Campus Commandos, a college marketing agency launched through the Detroit-based entrepreneurship accelerator Bizdom, has grown its revenue five-fold and tripled its client base in the past year alone. What does opportunity look like? It looks like Detroit.

OPPORTUNITYDETROIT.COM WF Spread_NEW-AWpageAD.qxd 2/28/2013 4:24 PM Page 1 Opportunity Detroit is a new initiative showcasing the opportunity that exists and is growing in Detroit.

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Trophies are nice. Knowledge is better.

MiBiz will present three business events (and re- CFO OF THE YEAR lated editorial supplements) in 2013 to honor West Michigan’s black belts in ﬁnance, deal making, AWARDS and nonproﬁt management. June 2013. Presented in cooperation with Financial Executives International Western Michigan Chapter At each event, we’ll nosh and hand out hardware, then grill the winners on the best practices they’ve used to earn the honors. Editorial supplements will feature winners, runners-up and others who M&A/DEAL OF THE are implementing best practices throughout the YEAR AWARDS region. October 2013. Presented in cooperation with Association for Corporate Growth Western Michigan Chapter For nomination or sponsorship information, contact [email protected] or call (616) 608-6170.

BEST MANAGED NONPROFITS November 2013. 20130311-SUPP--0017-NAT-CCI-CD_-- 3/4/2013 4:12 PM Page 1

Round two Early-stage survivors hungry for second-stage investing

By Gary Anglebrandt Investment Group. “That’s more specific to Group. Michigan. If you go to the coasts, you’re go- Mark Horne, CEO of Plymouth Manage- s more venture money has been in- ing to find pockets of that capital available. ment, said there are plenty of mezzanine vested in Michigan companies and In Silicon Valley, it’s easier for these ven- and private equity dollars available, but deals have skewed toward early-stage ture capital firms to form syndicates.” those investments are usually targeted at companies, the next chapter in the Another challenge for young Michigan companies with sales of $20 million and up. state’s venture capital industry is to growth companies is that many of them are “It is tougher for B rounds to find capital,” see whether these companies grab growth in more traditional sectors like manufac- said Horne, who is betting that his firm capital — and eventually bring about prof- turing. Even when it’s technology to make will have more regional second-stage com- itable exits. advanced manufacturing improvements, panies to invest in as they grow from their “In three to four years, we’re going to see that might not be enough to draw the atten- angel and startup phases. a bunch of early-stage companies that have tion of outside investors looking for the For Beringea LLC in Farmington Hills, seen early-stage success ready for the next next big “game-changing” thing, said Sean the largest venture firm in Michigan based round of funding — long-term, viable com- O’Donnell, a vice president of the Credit on funds under management — $490 million panies,” said Jeff Barry, partner at Ply- Suisse Customized Fund Investment — this is a good problem to have. The flood mouth Management Co. in Ann Arbor, of startups in need of investments on the which targets Great Lakes region order of $3 million to $10 million will growth-stage companies with between need a local firm to fill the gap. $1 million and $10 million in revenue. “That’s a core thesis of the existence Paul Brown, vice president in of our funds,” said Managing Director charge of capital markets at the Michi- Jeff Bocan. “We’re tracking all the ear- gan Economic Development Corp., said ly-year venture-backed companies. more players are coming back into the There are more on our dashboard than market across the funding spectrum ever before.” from senior debt and equity to mezza- Bocan said the pipeline of companies nine and venture debt. But for young is growing. Beringea, along with the growth companies, “there’s really a Credit Suisse Customized Fund Invest- gap there. We’ve seen Beringea and ment Group, is managing a new at- Credit Suisse play in that space ... but tempt to close this gap. They an- there’s still a big need in the state,” he nounced in January the launch of a said. $180 million Michigan Growth Capital For companies in need of heftier fol- Partners II LP fund to invest in Michigan low-on investments to fuel growth, growth companies. certain eternal truths haven’t Beringea and Credit Suisse also co- changed. They usually don’t have the manage the $185 million Michigan track record of business needed to elic- Growth Capital Funds, part of the Invest- it senior debt such as bank loans. And Michigan series of funds. Before the the investments needed are larger launch of Michigan Growth Capital than the startup investments, making Funds in 2008, there were no Michigan- it harder to get venture funding. These based funds that could serve this seg- companies struggle even in the best of ment, Bocan said. environments to get growth capital. For more established companies Investors are sure to point out that with a proven revenue track record, any given company with a truly strong now is a good time to find growth capi- case will never fail to find the money it tal. Banks are back in the game on the needs. But they also say Michigan senior-level debt, mezzanine funds are does have a gap in covering this area. brimming and private equity funds “This probably remains the biggest have had a couple of good years, draw- challenge area. It’s here where compa- ing increased interest in more deals. KENNY CORBIN nies are looking for a bigger piece of Managing Director Jeff Bocan says Beringea is pleased see “I wouldn’t say (private equity capital, but their profile is still pretty the rising tide of startups in need of investments. The signs firms) are booming, but they’re doing high-risk,” said Michael Kell, principal behind Bocan represent the Detroit and London locations of quite well,” said O’Donnell at Credit with Credit Suisse’s Customized Fund Beringea. Suisse.

SPRING 2013 Page 17 FALL 2006 20130311-SUPP--0018-NAT-CCI-CD_-- 3/4/2013 4:14 PM Page 1

Close-knit investors swing deal

By Gary Anglebrandt

he case of Ann Arbor-based Tangent Medical Technologies Inc.’s receiving $4.5 million in Series A funding in late 2011 was the benefit of a close- knit group of venture capitalists and executives. Arboretum Ventures of Ann Arbor and Flagship Ventures of Cambridge, Mass., led the round, which also included several angel investors from the seed round, including Osage Ventures of Bala Cynwyd, Pa. It was no surprise that Arboretum and Flagship were aboard. They were the same investors that had backed one of Michigan’s biggest recent exits, and Jeffrey Williams was the same CEO who had delivered TRAVERSE CITY that exit to those in-

------vestors. That exit was of Univer- sity of Michigan spinoff Ac- curi Cytometers Inc. in 2011. Tangent also is a UM spinoff, and Williams was familiar to Williams the local VC community for having led another UM spinoff, HandyLab Inc., to a successful exit in 2009. - - - GROUNDED STRATEGY. Tangent’s CFO and its original seed funder had asked Williams to join the MEASURABLE RESULTS. company a few months before the an- nouncement of the Series A round. The AND ENGAGING CREATIVE. company was in early stage two when he came aboard and is still pre-revenue now, Oneupweb, Williams said. WELCOME TO “It’s a very small community around MICHIGAN’S LEADING DIGITAL AGENCY. here,” Williams said. “Sometimes I’m asked, sometimes I ask, Arboretum or oth- See the great Michigan brands we work with ers if they want to invest.” at OneUpWeb.com and get a copy of our most Tangent received U.S. Food & Drug Ad- ministration clearance last summer for its recent white paper on the importance of holistic main catheter product, designed to be an OneUpWeb.com/Crains strategy at improvement on existing catheter technology. In December, Tangent closed on a Series B round of $8.6 million, with Arboretum, Flagship and Osage again participating, along with Michigan Investment in New Tech- nology Startups, a UM program, Williams LET’S TALK! ONEUPWEB.COM 1.877.568.7477 [email protected] said. Tangent is scaling up manufacturing and plans to launch the product in a few months, Williams said.

Page 18 SPRING 2013 FALL 2006 20130311-SUPP--0019-NAT-CCI-CD_-- 3/4/2013 4:19 PM Page 1

Plex Systems CFO Michael Twarozynski summed up the company’s purchase by Francisco Partners Management as a growth play. GLENN TRIEST Playing the strong suit Plex deal combines manufacturing, finance and technology

By Gary Anglebrandt joined the company in January, said the cisco deal. price was “significantly more” than that. In December, Palo Alto, Calif.-based Ac- ne deal last year involved a breed of Blessing previously was senior vice pres- cel Partners invested $30 million for a mi- software company that played to Michi- ident of application development at Oracle nority stake in Plex. Francisco asked Accel gan’s strengths — combining manufac- Corp. and is a graduate of the University of to come on board because of its track turing, finance and technology. Michigan. record driving growth from the board lev- Plex Systems Inc. in Auburn Hills The Francisco deal was mostly cash; less el, Blessing said. makes software that monitors manu- than 15 percent was debt and it was all se- The goal is an IPO on a timeline of three facturing production lines while tying that nior debt, Twarozynski said. to five years, based on current economic data with back-end office functions such as “We are a growth play, not a typical pri- trends, Blessing said. The company thinks accounting. The company was founded in vate equity play,” he said. “We’re more like its software can be applied more broadly to 1995. a venture play. Francisco didn’t want to other industries. Plex generated $50 million in revenue load us up with debt.” Plex plans to invest in its technology and last year and has been growing at an aver- Twarozynski said the company’s previ- expand its sales and marketing staff while age annual pace of 27 percent for the past ous owner, the London-based private equi- targeting more industries and regions be- five years, CFO Michael Twarozynski said. ty company Apax Partners LLP, had received yond its Michigan-centric automotive busi- In 2010, the company reported that 2009 inquiries before the Francisco deal. ness. First up will be the food and beverage revenue had grown 14 percent to $26 mil- “Over the past couple of years, we had and electronics assembly industries, with lion despite the auto industry crash. inbound interest from strategic players better overall coverage in North America Last year, Plex was sold to Francisco Part- and private equity firms,” he said, but this year. In the next few years, Plex will ners Management LLC of San Francisco for Apax wasn’t ready to cycle out yet. Last target Europe and Asia, Blessing said. an undisclosed amount. Crain’s list of year, some unsolicited offers came in, No acquisitions are planned as the com- M&A deals for 2012 put the figure at more prompting Apax to look at what the market pany concentrates on internal growth, he than $50 million. CEO Jason Blessing, who was offering. That search led to the Fran- said.

SPRING 2013 Page 19 FALL 2006 20130311-SUPP--0020-NAT-CCI-CD_-- 3/4/2013 4:14 PM Page 1

MICHIGAN LED maker draws investment VENTURE CAPITAL Here’s a look at venture capital activity in Michigan: By Gary Anglebrandt manages in the state’s $300 million InvestMichi- Year: Deals, dollar value gan fund. Also participating were Ann Arbor- 2012: 47, $232.31 million elume Technologies Inc. in Oxford makes based Plymouth Management Co., Detroit-based In- 2011: 36, $84.75 million outdoor LED lighting for municipalities vest Detroit and San Jose, Calif.-based Western and businesses. It’s also an example of an Technology Investment, which provided venture 2010: 31, $151.66 million established, growing company that began debt. 2009: 36, $178.45 million with automotive roots but has worked its Beringea played a matchmaker role in Re- 2008: 44, $204.03 million way well beyond Michigan’s bedrock industry. lume’s growth strategy. Beringea’s managing di- 2007: 23, $109.7 million The company was a high-tech startup back rector, Jeff Bocan, who is on Relume’s board, led 2006: 24, $131.25 million when Peter Hochstein launched it in 1994 as a the search that brought Lipsey into the company 2005: 21, $93.32 million spinoff of a previous company he founded that and helped make the connections with other lo- made instrumentation and test equipment for cal investors. Beringea also invested $1 million 2004: 17, $134.25 million the automotive industry. in Relume in 2009. 2003: 18, $95.17 million Hochstein picked up 20 patents for Relume’s Then this past December, Beringea helped Re- 2002: 27, $109.42 million LED technology. In the beginning, the company lume raise $4 million in an internal round of in- 2001: 22, $154.92 million mainly served the auto industry but then vestments, largely from existing individual 2000: 55, $356.44 million branched out to serve commer- shareholders but also with Beringea, Plymouth 1999: 44, $253.47 million cial and military customers. In Management and Invest Detroit again participat- 1998: 30, $122.64 million more recent years, the compa- ing. ny has seen rapid growth due Lipsey said having trusted insiders work the 1997: 28, $106.22 million in large part to a strategy of investment field freed management to concen- 1996: 21, $79.39 million targeting municipalities. trate on running the company. 1995: 12, $65.7 million Thanks to that strategy, Re- “That was a big deal for us. It allowed me and Source: MoneyTree Report lume’s revenue has more than my team to not worry about going out and get- doubled since 2007. Last year ting more money,” he said. the company posted $10 mil- Relume is using the funding to expand its lion and is on pace to reach $16 sales and marketing team and to invest in pro- SECOND STAGE million this year, said CEO Lipsey prietary technology, such as lighting controls COMPANIES Crawford Lipsey, whom the board of directors technology that requires levels of investment DEFINED brought on in 2010. Lipsey’s previous role was that many small companies can’t or won’t spend, Second-stage companies executive vice president of Acuity Brands Inc., a Lipsey said. are firms that have grown large Atlanta-based maker of lighting products. Examples of the technology Relume is develop- beyond the startup stage, Familiar names such as Starbucks, McDonald’s, ing include remote energy consumption controls have annual revenue of Chase and Best Buy are among Relume’s corpo- that allow customers, from an office computer, between $1 million and $50 million, and employ rate customers. Municipal customers include to dim the lights during hours of low traffic and between 10 and 100 the cities of Ann Arbor and Arlington, Va. monitor energy use. workers with the capacity In January of last year, Relume announced it The company has had several new opportuni- for further growth. had raised a $7 million Series D round to fund ties come about recently that could prompt an- growth, with Beringea LLC, Michigan’s largest other search for funding. Source: Edward Lowe Foundation venture capital firm, leading the charge. “We might be entertaining another round of Beringea committed $3.2 million, using money it funding later this year,” Lipsey said. Funding path leads east for Lansing firm

By Gary Anglebrandt Capital Community Angels Investors Inc. in ing manufacturing equipment and the Lansing and Ann Arbor Spark, Knox said. other half toward R&D. Knox said. The he path to growth-stage funding led to For follow-on funding, company in the past year and a half has South Korea for XG Sciences Inc. in XG had a hard time find- gone from eight employees to 30. Lansing. ing capital from in-state Additional funding will help ramp up The company, founded in 2006, uses venture firms and cor- production as XG increases supply to exist- technology developed at Michigan porations. But after a lot ing customers and builds its business in State University to make an advanced nano- of legwork, Knox re- the electronics industry, where companies scale material called graphene. XG makes ceived backing from two can use graphene materials to cool proces- the carbon-based material for customers major Korean conglom- sors and circuits. who develop lithium-ion batteries, a hot erates: Hanwha Corp. and Large Asian companies generally are alternative-energy area of research for au- Pohang Iron & Steel Co., or more likely to nurture a tech startup that tomakers and electronics manufacturers. POSCO. can benefit the large company down the XG had just under $4 million in revenue Knox Through four rounds road and will act faster to get these deals last year, and its products are used in re- of funding from these companies as well as done, Knox said. search and development by battery makers private individuals, XG was able to raise “We deal with global companies includ- as they strive to produce smaller, more an additional $10 million. The company is ing automakers and big suppliers,” he said. powerful batteries, CEO Mike Knox said. working on another round now. “In our case, we had better luck with the XG’s $500,000 in seed funding came from Half of the money has gone toward buy- Asians.” Page 20 SPRING 2013 FALL 2006 20130311-SUPP--0021-NAT-CCI-CD_-- 3/4/2013 4:13 PM Page 1

Ann Arbor firm still writes the big checks for medical companies

By Gary Anglebrandt

eff Williams knows what it’s like to search his Michigan environs for follow-on investments. Williams was the CEO of Accuri Cy- tometers Inc. and HandyLab Inc., two Ann Arbor-based medical device companies that were the source of some of Michi- gan’s biggest exits. Ann Arbor-based Arboretum Ventures LLC was a major investor in both companies and one of the only DEALMAKER firms in the state Arboretum Ventures that could handle LLC, Ann Arbor the investment load to carry those companies across the finish line. Arboretum remains one of the only homegrown firms able and willing to write bigger checks for middle-stage health care and health care-related companies that typically need to raise $25 million to $50 million in total funding, he said, noting that Beringea LLC is also in that category. LON HORWEDAL “It sure would be nice if we had some ad- Jan Garfinkle, the founder and managing director of Arboretum, said now that outside ditional venture funds. ... For guys who can investors are paying attention to Michigan, it's become easier for health care and life sciences write a $5 million check, there’s Arbore- startups to attract follow-on investments. Garfinkle founded the firm in 2002. tum and that’s it,” Williams said. “We’re still very dependent on the West Coast and for health care startups in California. She sales that ranged from $180 million to $285 East Coast, or at least Chicago and Cleve- came to Michigan in the early 1990s when million, Garfinkle said. land, for follow-on (investments).” her husband got a job with a Michigan hos- There are now 20 companies in Arbore- Jan Garfinkle, the founder and manag- pital. tum’s portfolio. Garfinkle said the two ing director of Arboretum, said now that Garfinkle spent eight years as a consul- holding the most promise are Tangent Med- outside investors are paying attention to tant to local health care and life sciences ical Technologies Inc. and ArborMetrix, both Michigan, it’s become easier for health startups. She wanted to find work for a lo- based in Ann Arbor. care and life sciences startups to attract fol- cal venture capital firm focused on health Tangent makes what it describes as an low-on investments. care, but finding few, she started her own. improvement on catheter technology and “Other venture funds are willing to come Arboretum launched in 2002. has raised $13 million in two rounds of in to Michigan and either syndicate or lead That year, she brought on Tim Petersen, funding in the past two years. It is run by deals,” she said, providing as an example who also is a managing director of the firm, Williams, the CEO who ran Accuri and last year’s announced raising of $36 million along with Paul McCreadie, who came on HandyLab. by Ann Arbor-based medical device compa- board in 2006. ArborMetrix makes software that allows ny CytoPherx Inc. The round was led by Arboretum has maintained its focus on hospitals to see the costs and quality of funds based outside the state: Onset Ven- medical devices and diagnostics, health medical procedures, tracking data like tures of Menlo Park, Calif.; Early Stage Part- care-related information technology and length of stay and infection rates. Arbore- ners LP of Cleveland; and the Milwaukee- health care services — no biotech or phar- tum provided the seed funding about a year based Capital Midwest Fund. maceuticals — since closing its first fund of ago. Arboretum can take some credit for that $24 million in 2003. Since then, it has closed Garfinkle credited the state’s support outside attention. The firm co-led the in- two more funds: a $75 million fund in 2007 through funds as a major reason why Michi- vestments in Accuri Cytometers and and a $149 million fund in 2011. gan has avoided the consolidation trend HealthMedia Inc. with firms based outside Garfinkle said her firm is “stage agnos- that has hit the nation’s venture capital in- Michigan and was the sole investor in one tic,” investing across stages of a company dustry. Arboretum has received invest- of HandyLab’s later rounds. until it goes public or exits. A typical in- ments from the Venture Michigan Fund. “We did a very good job selecting those vestment cycle starts with a $3 million to $5 Arboretum’s business has grown because companies to invest in,” Garfinkle said, million Series A round, followed by subse- of that national consolidation over the past while giving credit for the companies’ suc- quent rounds that bring the total invest- three to four years. “As a consequence of cess to the CEOs who ran them. ment to between $8 million and $12 million. that, our deal flow has doubled over the last Garfinkle, who has a bachelor’s degree The firm has sold five companies from couple of years,” Garfinkle said. in bioengineering from the University of Cali- its portfolio and took one, Asterand Plc, pub- “There’s more competition for deals in fornia at Berkeley and an MBA from the lic in 2006, an early victory for the firm. Michigan, but it’s still really challenging to Wharton School at the University of Pennsylva- The companies sold have returned more get rounds raised right now because there nia, is from the Bay Area and has worked than five times the amount invested in aren’t as many venture funds investing. SPRING 2013 Page 21 FALL 2006 WF Spread_NEW-AWpageAD.qxd 2/22/2013 10:28 AM Page 1

congratulates the winners of Accelerate Michigan Innovation Competition, a $1 million business competition

With more than 300 Michigan companies vying for funding in 2012, 15 companies captured cash prizes. Top award winners were:

Grand Prize $500,000 Second $100,000 Third $50,000 $lgal 6cientiÀc &orporation is a 3lymouth, Michigan nanoMA* //& is developing bioabsorbable ,n3ore 7echnologies ,nc., a Michigan 6tate 8niversity bio-technology Àrm pioneering high value sterile magnesium alloy (BioMg™) orthopedic implants spinoff, is bringing to market its patent-protected production of animal and human health and that support the bone during healing and provide mesoporous ceramic particle technology. A multi- nutrition ingredients from algae. A complementary nutrients to promote bone regrowth, while degrading function platform technology, its initial foci are on the technology uses algae to recycle water and recover over time. By using an alloy of elements that are application of Mezzopore™ additives for improving the valuable nutrients and co-products from food naturally found in the body, the BioMg™ implant performance of water puriÀcation membranes as well industry process streams that currently incur high can supply the temporary structural reinforcement as the application of Silapore™ additives that reduce treatment costs. needed while avoiding the complications associated the need for costly (and environmentally unfriendly) with permanent metal alloy implants. Áame retardants.

The 2013 Accelerate Michigan Innovation Competition will be held Nov. 13 and 14 at The Westin Book Cadillac in Detroit. Go to www.acceleratemichigan.org for more information.

Read about these and dozens of other investment-worthy companies in Michigan through The New Michigan Deal, a special report on early-stage and high-growth companies across the state and the private equity and venture capital funds investing in them. Publishing March 11, 2013. For advertising information, contact Marla Wise at 313.446.6032 or [email protected]. To order your FREE copy, email [email protected] or call 313.446.6083.

PROUD SPONSORS: WF Spread_NEW-AWpageAD.qxd 2/22/2013 10:28 AM Page 1

congratulates the winners of Accelerate Michigan Innovation Competition, a $1 million business competition

With more than 300 Michigan companies vying for funding in 2012, 15 companies captured cash prizes. Top award winners were:

The 2013 Accelerate Michigan Innovation Competition will be held Nov. 13 and 14 at The Westin Book Cadillac in Detroit. Go to www.acceleratemichigan.org for more information.

PROUD SPONSORS: 20130311-SUPP--0024-NAT-CCI-CD_-- 3/4/2013 4:00 PM Page 1

VENTURE CAPITAL AND PRIVATE EQUITY IN THE STATE As venture capital and private equity activity has grown in Michigan, so has the number of firms active in the state. Here’s an alphabetical list of venture capital and private equity firms that are either based or active in Michigan. The information is based on interviews with principals at the firms, as well as databases and industry organizations. Fund, location Investment focus Top executive(s) Representative investments Fund size The Anderson Consumer products, industrial, Cory Gaffney, Tom Gaffney Hastings Manufacturing N/A Group, media, property, retail and Barry Shapiro, partners LLC, Michigan Wheel Bloomfield Hills Marine, TecArt Inc. Apjohn Biotechnology, health care, Mina Patel Sooch and Donald ProNAi Therapeutics, $15 million Ventures,* medical devices, Parfet, co-founders and general RenaMed Biologics Kalamazoo pharmaceuticals partners Arboretum Health care, life sciences, Jan Garfinkle, Tim Petersen Arbor Metrix, Fidelis $235 million and Ventures,* medical devices, medical and Paul McCreadie, managing Senior Care, Tangent an estimated Ann Arbor instruments, medical directors Medical $118 million left ** technologies Aria Ventures, Diversified Jeff Sloan, founder HorseShow.com, BizHub, N/A Birmingham Hoscomm Systems

Arsenal Venture IT, communications, energy, Jason Rottenberg, Christopher Bioformix Inc., Arctic N/A Partners,* Winter power, industrial and Fountas and John Trbovich, Sand Technologies Inc. Park, Fla. (locally environmental general partners in Birmingham)

Augment Clean technology, IT, renewable Sonali Vijayavargiya, founder Llamasoft Inc. Target size of Ventures,* energy and managing director; Amit $20 million, fund Ann Arbor Roy, managing director still open

Belle Capital, Clean technology, consumer Carolyn Cassin and Lauren Current Motor, Michelle’s $25 million, with Grosse Pointe services, Internet, IT, life Flanagan, managing partners Miracle $20 million left to Farms sciences, manufacturing, medical spend.** devices, technology

Beringea Private Biotechnology, clean tech, digital Charles Rothstein, co-founder Mophie Two funds, totaling Equity,* media, health care, intellectual and senior managing director $365 million Farmington Hills property, IT, leisure, manufacturing, media, medical devices, medical technologies, property, transportation

BioStar Biomedical, health care, medical Louis Cannon, M.D., founder ASI Ablative Solutions $70 million, an Ventures,* devices, medical technologies, and senior managing director Inc., Embrella, Hotspur estimated $8 mil- Petoskey pharmaceuticals lion remaining**

BlackEagle Aerospace, business services, Michael Madden, managing Rockford Products LLC, $200 million with Partners, construction, consumer products, partner Instart Services Group $42 million Bloomfield Hills consumer services, defense, LP, US LBM Holdings remaining ** distribution, health care, industrial, LLC, Waste Associates manufacturing, natural resources, transportation Blackford Middle-market manufacturing, Martin Stein, managing director Source International, Target size of $20 mil- Capital, distribution and service companies Dynamic Fabricators, lion; estimated Grand Rapids Unisen $7 million raised**

Bridge Street Business services, consumer Bill Kaczynski, managing director; Superior Fibers LLC, $40.7 million Capital Partners, products, distribution, health care, John Meilner, managing partner V.I.O. Inc., Callpod, with $1 million Grand Rapids logistics, manufacturing Zorch remaining **

Camelot Venture Financial services, Internet, David Katzman, managing partner Quicken Loans, N/A Group, leisure, retail, technology Fathead.com, Cleveland Farmington Hills Cavaliers, ePrize

CIG Capital Health care Osman Minkara, managing principal; Elixir International LLC, $25 million fund Partners, Paul Schapira, vice president GenerationOne Inc. limit Southfield of alternative investment

*Identified as venture capital firm by the Michigan Venture Capital Association **Estimates based on information from various databases CONTINUED ON PAGE 25 Page 24 SPRING 2013 20130311-SUPP--0025-NAT-CCI-CD_-- 3/5/2013 2:52 PM Page 1

CONTINUED FROM PAGE 24 Fund, location Investment focus Top executive(s) Representative investments Fund size

CITG Capital Manufacturing, software, Naimish Patel, managing LenderLive, Netlink, N/A Partners, Troy technology, telecoms director Precision Optical Manufacturing

Chrysalis Ventures,* Early- and expansion-stage health David Jones Jr., chairman; BioSeek and $400 million Louisville, Ky. care and technology companies Koleman Karleski, Intervention Insights (locally in Ann Arbor) in the Midwest and South managing partner

Detroit Investment Construction, consumer products, David Blaszkiewicz, president Global Titanium Inc., Roughly $45 million Fund, Detroit consumer services, distribution, of Invest Detroit and Detroit International Specialty manufacturing, property, retail Investment Fund Tube, Madison Building, Broderick Tower Detroit Venture Digital media, IT security, Josh Linkner, CEO and UpTo, Are You a Human? N/A Partners,* Detroit software, technology managing partner

Donnelly Penman Financial services John Donnelly, managing Aquesta Bank, Level One $28 million with Capital, member Bancorp Inc., MidSouth $4 million remaining** Grosse Pointe Bank Dow Ventures,* Companies in areas of strategic Monty Bayer, corporate vice Alta Devices, Imprint $30 million spent Midland interest to Dow, focusing on president for new business Energy, Xtreme Power annually technology development and ventures

DTE Energy Clean technology, energy, Knut Simonsen, president A123 Systems, Echelon, More than $100 million Ventures, Ann Arbor renewable energy PlugPower invested to date EDF Ventures,* Health care, IT Mary Lincoln Campbell and Lycera $160 million under Ann Arbor Mike DeVries, managing management directors Early Stage Early-stage investment in Andrew McColm, managing HistoSonics More than $100 million Partners,* information, health care, director Cleveland, Ohio advanced manufacturing and (locally in Ann Arbor) industrial technology Endurance IT, software, wireless Ron Reed, managing Fullscope Inc., EcoDuro N/A Ventures, Ann Arbor member Inc. Flagship Ventures,* Therapeutics, health technologies, Noubar Afeyan, Ph.D., Accuri Cytometers, Manages more than Cambridge, Mass. sustainability and clean technology managing partner and CEO Tangent Medical $900 million in capital (office opening in Ann Arbor)

Fletcher Spaght Health care devices, diagnostics John Fletcher and Pearson HistoSonics $100 million Ventures,* and services Spaght, founding partners Boston, Mass. (locally in Ann Arbor) Fontinalis Partners,* Mobility solutions companies Ralph Booth, Bill Ford and ParkMe, Life360, N/A Detroit Mark Schulz, founding Streetline partners; Chris Cheever and Chris Thomas, founding principals

General Motors Clean technology, materials, Jon Lauckner, president The NanoSteel Co. $100 million, with an Ventures,* Detroit technology, transportation estimated $64 million remaining**

Glencoe Capital, Diversified David Evans, chairman and American Education $1.5 billion in Birmingham chief investment officer Group, Encore completed transactions Rehabilitation, Child Development Schools, Budco Holdings Inc. Hopen Life Health care, medical devices, Mark Olesnavage; Michael Fidelis Senior Care Two funds, $65 million. Sciences,* medical technologies Fulton, M.D.; Jerry Callahan; Estimated $21 million Grand Rapids managing directors remaining**

Huron Capital Business services, consumer Brian Demkowicz, managing Artissimo Holdings Inc., $1 billion with Partners,* Detroit products, consumer services, partner Bloomer Plastics Inc., $602 million distribution, manufacturing Cardinal Agri-Logistics remaining ** Inc. Huron River Clean tech, energy, engineering, Ryan Waddington and Tim SideCar Technologies $11 million expected Ventures,* materials, power, renewable Streit, managing directors Ann Arbor energy, software, technology *Identified as venture capital firm by the Michigan Venture Capital Association. CONTINUED ON PAGE 27 **Estimates based on information from various databases. SPRING 2013 Page 25 FALL 2006 WF Page_NEW-AWpageAD.qxd 2/28/2013 5:33 PM Page 1

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CONTINUED FROM PAGE 25 Fund, location Investment focus Top executive(s) Representative investments Fund size Longpoint Capital, Manufacturing, distribution and Gerry Boylan, Ira Starr and Arrow Tru-Line, Cumming $315 million of capital Royal Oak service Eric Von Stroh, managing Group, The Saxton Group, under management directors UMA Entreprises LV2 Equity Distribution, manufacturing Michael Flint, senior Auto-Lab, Nex N/A Partners, Midland managing director Solutions, MPR McKinley Chemicals, materials, software, Mark McKinley, managing MPG Tech LLC Not currently raising Technology Equity technology partner funds Fund, Bay City Michigan Clean technology, defense, Dale Grogan, managing Ablative Solutions $16 million with Accelerator Fund energy, manufacturing, materials, director $13 million Management,* technology, transportation remaining ** Grand Rapids MK Capital,* Software and digital media Bret Maxwell and Mark Llamasoft, Outdoor More than $250 million Northbrook, Ill. Koulogeorge, managing Hub in total capital under (locally in general partners management across the Ann Arbor) firm’s two funds North Coast Communications, distribution, Lindsay Aspegren and Hugo Stik.com $130 million in capital Technology manufacturing, materials, Braun, co-founders and under management Investors,* software, technology managing partners Ann Arbor O2 Investment Business services, diversified, Jay Hansen, co-founder, RheTech, Silbond N/A Partners, industrial, manufacturing, managing partner and Corp., Greco Aluminum Bloomfield Hills technology president Railings Ltd. Open Prairie Seed-, early- and growth-stage Patrick Morand, president Vestaron, $135 million in three Ventures,* life sciences, technology, TomoTherapy, InfoBlox funds Effingham, Ill. (locally agriculture in Kalamazoo) Oracle Capital Consumer products, health care, David Morris, managing A&D Technologies LLC, $30 million with Partners, Detroit industrial, manufacturing, retail, director MIST Innovations Inc., $4 million remaining** technology TAG Holdings

Peninsula Capital Consumer products, distribution, Scott Reilly, president and Smith Brothers Tool Co., Investing out of Peninsula Partners, Detroit industrial, manufacturing, media, chief investment officer Particle Dynamics Fund V, which has $389 mil- technology International LLC, Kiosk lion committed; five Information Systems Inc. investment partnerships totaling $1.2 billion

Plymouth Diversified Ian Bund, chairman; Mark Lynx Network Group Plymouth Venture Management Horne, CEO Partners II at more than Co.,* Ann Arbor $40 million

Quantum Value Distribution, financial services, Robert Skandalaris, Mossy Oak Graphics, N/A Management, industrial, Internet, publishing, chairman and CEO Vantage Point Auburn Hills software, media, manufacturing Concepts, Manitex Questor Distribution, manufacturing, Jay Alix, managing principal Polar Corp. Manages approximately Management, technology, transportation $1.2 billion in two funds Birmingham (not active)

Renaissance Fund of funds; investment in Christopher Rizik, CEO and Arsenal Ventures, $110 million Venture Capital top-tier venture funds active in fund manager; Jeff Rinvelt, Flagship Ventures, Fund, Ann Arbor Michigan principal RPM Ventures

Resonant Venture Communications, hardware, Michael Godwin and Jason Duo Security, N/A Partners,* Ann high-tech, IT, IT infrastructure, Townsend, managing Deepfield Network Arbor software directors

RHV Capital LLC, Diversified Glenn Healey and Paul Continental Fire and Safety N/A Bloomfield Hills Rogers, managing Systems, Pneumatic directors and investment Compression Technologies, committee members Onesource Water Rizvi Traverse Diversified Chief Investment Officer Playboy Enterprises Inc., $356 million with Management, Suhail Rizvi and COO John Facebook Inc., Twitter $27 million Birmingham Giampetroni, co-founders remaining**

Rockbridge Growth Business services, consumer Dan Gilbert, Brian Hermelin Quicken Loans, Cleveland N/A Equity, Detroit products, consumer services, and Kevin Prokop, partners Cavaliers, Fathead.com, entertainment, media, financial Title Source, ePrize services, Internet, marketing *Identified as venture capital firm by the Michigan Venture Capital Association. **Estimates based on information from various databases. CONTINUED ON PAGE 29 SPRING 2013 Page 27 FALL 2006 WF Page_NEW-AWpageAD.qxd 3/5/2013 12:43 PM Page 1

What Will It Cover? I Major medical device manufacturers I Investments and funding I The growing infrastructure for Michigan’s medical device industry

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313.446.6032 or [email protected]. I 2,000 bonus distribution through partners

DISTRIBUTION PARTNERS 20130311-SUPP--0029-NAT-CCI-CD_-- 3/5/2013 2:53 PM Page 1

CONTINUED FROM PAGE 27 Fund, location Investment focus Top executive(s) Representative investments Fund size RPM Clean tech, digital media, high-tech, Tony Grover and Marc Deepfield, Mojo Motors, Current fund at Ventures,* Internet, IT, manufacturing, materials, Weiser, co-founders and ShareThis $60 million with Ann Arbor retail, semiconductors, software, wireless managing directors $32 million remaining** RSVP Capital, Clean technology, health care, Raymond Spencer and Advanced Battery Concepts, $8 million Ann Arbor renewable energy, technology Paul Vlasic, founding Amplifinity, Liquid Piston Inc. partners SB Partners, Consumer products, financial services, David Shryock, general Bravo Food Group LLC, CLP N/A Holland restaurants partner LLC, Colorado Pharmacy LLC Seneca Healthcare Health care, health care IT, medical Michael Skaff and Critical Signal Technologies $14 million Partners,* devices Anthony Zambelli, Birmingham managing directors Strength Capital Business services, consumer products, Mark McCammon and Inland Industrial Services $140 million with Partners, distribution, financial services, Michael Bergeron, Group, Conifer Holdings, $5 million Birmingham industrial, infrastructure, manufacturing managing partners Inland Pipe Rehabilitation remaining** Superior Capital Business services, distribution, Mark Carroll, managing NAPC Holdings LLC, $60 million with Partners, Detroit industrial, logistics, manufacturing, partner; Scott Hauncher, Aftermarket Controls $8 million retail managing director Corp., Edge Adhesives remaining** SWMF Life Early-stage life sciences companies Patrick Morand, Vestaron $65 million Science Fund,* managing director. Fund Kalamazoo managed by Open Prairie Ventures, Effingham, Ill. Talon Group, Diversified James Agley, president ACT Test Panels LLC, N/A Detroit Diamond Automations Inc., Monroe Mold LLC TechTown,* Technology Leslie Lynn Smith, Pill Pouch, Always Brewing $290,000, with Detroit president and CEO Detroit, CYJ Enterprise $110,000 remaining TGap Ventures,* Advertising, computer services, Jack Ahrens II and Peter HistoSonics Two funds, total Kalamazoo electronics, health care, Internet, IT Farner, general partners $50 million under infrastructure, manufacturing, materials, management. medical devices, medical instruments, An estimated medical technologies, nanotechnology, $19 million software, technology, telecoms remaining Transportation Business services, distribution, Roger Penske, James Tire Group International, See footnote 1 Resource education and training, financial Hislop, Richard Peters, Commonwealth Laminating Partners, services, logistics, manufacturing, David Mitchell and Steven and Coating, Versant Supply Bloomfield Hills outsourcing, retail, transportation Carrel, managing directors Chain, HomeDirect True North Companies performing outsource Jeff Wigginton and Jim PowerTeam Services, KS See footnote 2 Equity, Plymouth services for natural gas and electric Wigginton, managing Energy Services, utilities partners Southeast Connections Wolverine Venture Diversified Erik Gordon, associate Sonitus Medical, $5.5 million Fund,* Ann Arbor director, clinical professor TransCorp Inc. ValStone Real estate and loans Gerald Timmis III and Mortgages backed by real $318 million in Partners, Larry Jennings, Jr., senior estate across the state assets under Birmingham managing directors management Venture Investors,* Seed- and early-stage health care Roger Ganser, founder HistoSonics, Tissue N/A Madison, Wis. and technology Generation Systems (locally in Ann Arbor) Venture Michigan Fund of funds; investment in venture Mike Kell and Sean Arboretum Ventures, Early Venture Michigan Fund,* Troy capital funds that focus on Michigan- O’Donnell, principals. Stage Partners, T-Gap Fund I, $95 million; based early-stage companies. Managed by Credit Ventures Venture Michigan Suisse’s Custom Fund Fund II, $120 million Investment Group Vineyard Capital Business services, consumer services, Rich Helppie, chairman JobApp Network Inc., Santa N/A Group, health care, health care IT, Internet, IT, of the board and CEO Rosa Consulting, Real Bloomfield Hills property, software, technology Estate Services Solution Co. Worth Aerospace, business services, Eric Boorom, president American Copper and N/A Investments chemicals, defense, distribution, energy, Brass LLC, Biological Group, Jackson financial services, food, health care, Mediation Systems LLC, industrial, infrastructure, insurance, Curtis Marketing LLC manufacturing, transportation

1. Currently investing from its third fund, formed in 2008; previous two funds had total transaction values of more than $2 billion. 2. TNE provides funding for acquisitions through a partnership with CIVC Partners, a Chicago-based private equity firm with $1.3 billion under management.

*Identified as venture capital firm by the Michigan Venture Capital Association. **Estimates based on information from various databases. Sources: Michigan Venture Capital Association, Credit Suisse’s Custom Fund Investment Group. List researched by Michelle Muñoz.

SPRING 2013 Page 29 FALL 2006 20130311-SUPP--0030,0031-NAT-CCI-CD_-- 3/5/2013 2:56 PM Page 1

Coming to terms Improved economy has buyers and sellers connecting

By Mark Sanchez window here and they’re going to jump out,” he said. aluations are up, the economy and bal- Or, after going through the tough times ance sheets look better, credit is more and perhaps seeing a friend or acquaintance accessible and business owners aren’t lose his or her company, some business getting any younger. owners have realized that much of their per- Nor do those owners have the same sonal net worth is tied up in their business. appetite for running a business that they On the other side of the equation, buyers once did — and after surviving the reces- are motivated by the same dynamics as al- sion, many are ready to cash out. ways: driving sales and earnings growth Those are just some of the factors that through entering a new product or geograph- have created fertile ground across Michi- ic market, or securing additional production gan for business owners who want to sell or distribution capacity and a customer base. their company and for buyers looking to Experts say there is an increase in buy- add capacity, capabilities and market ers in the market who now have the ability share through an acquisition. post-recession to pursue such acquisitions. “It’s a good market environment for in- “For a lot of companies, it was about sur- vestments (now),” said Jason Duzan, man- vival for a few years,” Roth said. “Now, aging director of the Birmingham office of people are thinking about growth and what private equity firm Glencoe Capital Michigan the business is going to look like three to LLC. “We’re keeping busy, and I expect it to five years from now.” be a pretty active year.” Roth and others say activity has been He sees 2013 remaining a “little more of a picking up among suppliers in the automo- seller’s market” after a period when it was tive industry. They also cite increased activ- TOM MCKENZIE hard to complete a deal and agree on the Attorney Jim Romzek of Warner Norcross & Judd ity in medical device and food processing, as value of a business, Duzan said. LLP says some business owners, having made it strategic buyers make moves to grow. Experts in mergers and acquisitions and through the recession, are weary of running a Data indicate buyers across the U.S. private equity field say they are seeing an business and ready to sell. have a lot of cash to spend on acquisitions. increase in deals involving well-run, later- Through the third quarter of 2012, compa- stage businesses that have toughed out the Grand Rapids-based law firm Varnum LLP. nies in the S&P 500 had a collective $1.20 hard times of Michigan’s recent past and “They’re not great (valuations), but trillion in cash balances on their books, up can add to a buyer’s top and bottom lines. they’re up there enough that a lot of people from $1.14 trillion at the end of 2011 and The recession, in fact, has become one of are looking at it and saying, ‘I’m three or $1.06 trillion in 2010. the key drivers of activity, said Phil four years older than when I wanted to re- “With pressure from shareholders to put Gilbert, managing director and president tire. I can cash out enough and retire cash to work or distribute to investors, an- of investment bank P&M Corporate Finance now,’” he said. “They’re getting enough alysts expect continued incentive to pursue LLC in Southfield. now that they see, ‘I can take these chips M&A activity in 2013,” states a recent re- He and other professionals say pent-up off the table and live my life.’ ” port from P&M Corporate Finance. seller demand is releasing, especially for Also impacted are the business owners The combination of cash on hand and his- companies whose owners wanted to sell who may not want to retire but are ready to torically cheap debt has encouraged some three or four years ago but couldn’t because get out. After surviving the recession, normally conservative Michigan companies valuations were depressed and they could they’ve lost their appetite for running their to leverage up in pursuit of growth. not get their asking price for the business, own business. Last fall, for example, Rockford-based or at least enough so they could retire. “Seller fatigue,” as attorney Jim Romzek shoemaker Wolverine World Wide Inc. took on “Companies now have rebuilt their track of Warner Norcross & Judd LLP calls it, has $1.3 billion in long-term debt to acquire a record,” Gilbert said. “They had a good further created a market opportunity for portfolio of casual shoe brands that included 2010, they had a good ’11 and they had a buyers. Keds, Stride-Rite and Sperry Topsider from good ’12. More importantly, they can look “It’s been a tough road for a lot of sellers Topeka, Kan.-based Collective Brands Inc. forward and give buyers fairly high com- the last five years. Frankly, some have just Wolverine raised $1.1 billion in credit fort relative to what 2013 is going to look grown weary of the daily struggle, and from a syndicate of 20 banks and completed like or 2014 is going to look like.” that’s motivating some to decide this is the an offering of $375 million in senior notes Now that the economy has come back time to get out,” said Romzek, a partner in to fund the purchase and pay off debt. and valuations have improved, those busi- Warner Norcross’ Clinton Township office. “We’re a pretty conservative Midwest ness owners are back on the market and “They’re seeing an uptick in the value of company,” Wolverine CEO Blake Krueger looking to sell, said Peter Roth, head of the the business and they certainly don’t ever corporate law group across Michigan for want to go through that again. They see a SEE CONNECTING, NEXT PAGE Page 30 SPRING 2013 FALL 2006 20130311-SUPP--0030,0031-NAT-CCI-CD_-- 3/5/2013 2:56 PM Page 2

Buyers aim to keep Aspen Surgical on cutting edge

By Mark Sanchez Rapids, and more than 700 worldwide. Hill-Rom’s strategy is to leverage he sale of Aspen Surgical Inc. was about customer relationships with acute- as good of an outcome as Dan Bowen care hospitals to increase sales of As- could have hoped to see. pen Surgical products. The company Thirteen years after Bowen started makes disposable medical products fo- the Caledonia-based business, which cused on patient safety and infection makes surgical and operating room equip- control. ment, Aspen was sold to Batesville, Ind.- The sale to Hill-Rom Holdings gener- based Hill-Rom Holdings Inc. for $400 million. ated a return on investment for The transaction generated a consider- RoundTable Health Partners that was able return for both Bowen and Aspen’s JON BROUWER about four times what the private equi- majority owner, RoundTable Health Partners, Thirteen years after Dan Bowen started a surgical ty firm put into Aspen Surgical over the Lake Forest, Ill.-based private equity supply company, it was sold for $400 million — a six years. considerable return for Bowen and his investors, with firm that had helped propel the company’s some of it to be reinvested in other local companies. At the time of the sale to Hill-Rom growth since 2006. Bowen used some of the Holdings, Aspen Surgical had annual proceeds to fund investments in other med- was point No. 1” of the acquisition, Hill- revenue of about $120 million, about four ical device companies through his Grand Rom President and CEO John Greisch said times what it had when RoundTable Health Rapids-based holding company, Dempsey during a January health care investor con- Partners acquired its majority stake. Ventures LLC. ference hosted by J.P. Morgan. “It gave us an In its latest quarterly sales and earnings “It was a great deal for all of the people opportunity to build what already was a report for the final three months of 2012, involved,” said Bowen, Aspen Surgical’s very profitable but small surgical franchise Hill-Rom attributed $59 million of its founder and a minority owner at the time within our portfolio.” $428 million in total revenue to the Aspen of the deal. “Hopefully, they can continue RoundTable Health Partners acquired a Surgical acquisition. An 84 percent in- to build on it and they build it in Grand majority share of Aspen Surgical from crease in revenue for Hill-Rom’s surgical Rapids.” Bowen in 2006 and invested heavily to gen- and respiratory care division came entire- That’s exactly what Hill-Rom plans to do. erate organic growth and to make acquisi- ly from Aspen, the company said. Executives at the $1.63 billion producer tions. After holding Aspen Surgical for six RoundTable Health Partners — which of medical beds and equipment have told years, RoundTable Health Partners sold manages $1.5 billion in capital through investors they intend to build a larger busi- the company in July 2012 to Hill-Rom Hold- three equity funds and two subordinate ness segment around Aspen Surgical. ings. debt funds — declined to comment on the “The opportunity to add to the value Aspen Surgical employs about 330 at its transaction beyond a news release issued proposition that we bring to our customers home base in Caledonia, south of Grand at the time of the deal.

CONNECTING, FROM PREVIOUS PAGE approaching on when to deploy their capital more,” he said. “Now I’m seeing healthy or return it to investors, Gilbert said. businesses and normal strategic acquisi- said. “For years, we’ve operated with basi- Private equity investors are sitting on tions.” cally no debt and a pretty large cash sur- more than $400 billion in uninvested capi- One new factor that could begin to come plus, but this was obviously such a strate- tal, although “the clock is ticking on” less into play is the right-to-work law state leg- gic opportunity for us. So we made the than a quarter of that amount, Gilbert said. islators passed late last year. decision to make a break from our past Despite the window some funds face to Walawender believes Michigan becom- mode of operating.” deploy their capital, Gilbert doesn’t see a ing a right-to-work state “has the potential The acquisition is expected to help push rush to invest it just to meet a deadline. to really draw a lot of attention to Michi- Wolverine’s revenues to $2.7 billion or “Equity funds do feel pressure to deploy gan,” especially from out-of-state buyers. more in 2013, an increase of nearly 65 per- the capital, but they don’t feel pressure to The law makes for a “more friendly” la- cent, according to company guidance. do stupid things,” Gilbert said. bor market in the state, alleviating one sig- While many say the market right now Glencoe Capital doesn’t feel that pres- nificant barrier for outside investors, he tends to favor sellers, Rick Walawender of sure and is “not in any hurry to make in- said. Miller Canfield Paddock & Stone PLC believes vestments,” Duzan said. “That has hampered interest in Michi- that could change this year. He urges busi- The firm has made two acquisitions in gan in the past, so if you are able to neu- ness owners who want to sell not to wait recent months through its Michigan Op- tralize that issue with respect to a buyer too long. portunities Fund, buying Arrow Energy Ser- looking at a company in Michigan, I think “2013 could be a pretty attractive time to vices Inc., a national oil field services com- it does have a big potential to really spur sell, as opposed to taking your chances and pany based in Kalkaska, in January and both greenfield investments in Michigan as waiting,” said Walawender, head of De- Farmington Hills-based Encore Rehabilita- well as acquisitions in Michigan,” troit-based Miller Canfield’s corporate law tion Services in December. Walawender said. group. “That M&A market, specifically As activity picked up in 2012, and in a “Sellers may be more inclined to take ad- Michigan, is about as good as it’s going to sign of an improved economy in Michigan, vantage of that opportunity because the get for a while.” Varnum’s Roth saw fewer deals involving market has become more friendly for in- Professionals are also seeing an increase distressed companies. Businesses that vestment in Michigan because of that,” he in activity from financial buyers that are were in too deep during the recession and said. “It’s something that is asked about all seeking to make a good investment. One of couldn’t recover have since been liquidated the time and has been … a big factor in de- the drivers of deals by financial buyers is or sold, Roth said. cisions that companies make on where to the “equity overhang,” where private equity The distressed deals of 2010 and 2011 may locate in the U.S. So based on that, I think it firms that made limited investments during be gone, Roth said. should have a pretty good impact on at- the recession are now seeing the deadline “I’m not seeing those kinds of deals any- tracting investment here.”

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PRIVATE Pet project: Drug company’s acquisitions EQUITY IN MICHIGAN BY THE put it on trail of growth in animal health sector NUMBERS By Mark Sanchez The two transactions are the first product forays 332 into the animal health market and initially should ven dogs need affordable health care, and Perri- generate combined annual revenue of about $200 Number of private equity backed go Co. thinks it’s just the company to give it to million for Perrigo. companies in them — or at least provide it to their owners. “As we launch products with this category, that’s Michigan With two acquisitions, the when we’ll see acceleration of Allegan-based maker of gener- growth,” Perrigo Chairman, Presi- ic drugs and lower-cost, store-brand dent and CEO Joe Papa said. 537,400 medications entered a new market: In January, Perrigo reported Number of workers animal health. sales of $882.9 million for the sec- at PE backed The transactions represent a key ond quarter of its 2013 fiscal year. companies in growth strategy for Perrigo, which The company has grown over the Michigan seeks to use its R&D and manufac- years through a series of acquisi- turing capabilities and an extensive tions and developing over-the- $40.5 logistics and distribution network counter versions of human medica- to penetrate a new product market tion after their patents expire. The billion and sell animal medicines over the over-the-counter medicines are sold Estimated investment counter at retail stores. at national retailers such as Rite-Aid, by PE firms in In January, Perrigo announced CVS, Target, Walgreens and Walmart. Michigan-based the planned acquisition of Yardley, In entering the animal health companies (2002-11) Pa.-based Velcera Inc. for $160 mil- business, Perrigo thinks it can help lion in cash. Velcera produces flea drive more pet medicines to retail and tick medicines sold over the shelves and sell them at a lower cost 36 counter. than what you’d pay a veterinarian. Number of PE firms In October, Perrigo closed on the Across the U.S., the market for headquartered in $285 million cash acquisition of Michigan COURTESY OF PERRIGO CO. pet supplies and medications to- Omaha, Neb.-based Sergeant’s Pet CEO Joe Papa expects growth as taled an estimated $11.77 billion in Source: Private Equity Growth Capital Council Care Products Inc., also a maker of two acquisitions set up Perrigo 2012, according to the American Pet flea and tick medicines. Co. to sell flea and tick medicines. Products Association.

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Page 32 SPRING 2013 FALL 2006 P33.qxp 3/6/2013 4:33 PM Page 1

“A company like (Poof-Slinky) does not come along too often. It was fun to work on.” Chas Chandler, Amherst Partners GLENN TRIEST Slinky deal pairs unique company with unique buyer

BY MARK SANCHEZ ownership as he got older and execute a sale the company once it came on the market, in 2012, before the increase in the capital Chandler said. n seeking a buyer for Poof-Slinky Inc., gains tax on Jan. 1, 2013. The equity firm closed on the deal in July Chas Chandler knew he wasn’t work- Poof Products Inc., with Dallavecchia as for a price estimated to be between $18 mil- ing with just another company. CEO, bought the Slinky company from James lion and $24 million based on industry esti- The Plymouth-based toy company Industries Inc., in 1998 from the daughter of mates of earnings per employee, assuming a makes one of the most iconic toys in the Slinky inventor and founder Richard James. multiple of five times earnings. The firm de- world, but the business isn’t for everyone. Where Amherst typically reaches out to clined to disclose the actual number. Finding a buyer meant carefully crafting a hundreds of potential buyers on behalf of a Propel plans to grow Poof-Slinky’s opera- list of potential acquirers. client, the firm made less than three dozen tions in Michigan and develop new prod- “A lot of people are not interested in the contacts for Poof-Slinky, which in addition ucts, including colored and different sizes toy business in general because of the sea- to Slinky, counts Poof foam balls, Ideal, of Slinkys, said Robert Farinholt, a partner sonality of it. So much of your revenue Cadaco, Scientific Explorer and Fuzzoodles at Propel Equity Partners. comes in the fourth quarter,” said Chan- among its toy brands. And after the Poof-Slinky deal, Propel dler, a partner and investment banker at The search, even though limited in its Equity Partners subsequently acquired Amherst Partners in Birmingham that assist- scope, quickly led Amherst to Propel Equi- Fundex Games Ltd., a maker of board and ed in last year’s sale of Poof-Slinky to Palo ty Partners. Formed in 2012, Propel Equity outdoor games, the latter of which add a Alto-based Propel Equity Partners. Partners invests exclusively in consumer revenue stream away from the heavy “The thought process was we wanted to products. Christmas season. go to buyers that understood consumer Poof-Slinky employs 75 people at its home Looking back, Chandler recalls the products and the value of brands and also base in Plymouth and 40 to 45 at a facility in transaction as one that was unusual in his understood the power and attractiveness of Hollidaysburg, Pa., where Slinkys are made. 30-year career. Rarely does a chance to American-made products, because over Since debuting at Gimbel’s department come along to work with a company with 50 percent of what Poof-Slinky sells is made store in Philadelphia in 1945, more than 300 the kind of brand identity of Slinky. in America,” Chandler said. million have been produced and sold. “Everybody can relate to a Slinky toy be- Poof-Slinky retained Amherst Partners in In Poof-Slinky, Propel Equity Partners cause at some point they had that toy,” said the summer of 2012 to manage the process of saw an opportunity to acquire an iconic Chandler, who like Farinholt now keeps a marketing the company and structuring a brand in a highly fragmented industry Slinky on his desk. “A company like this transaction. The 65-year-old company’s ma- that’s dominated by massive players like does not come along too often. It’s was fun jority shareholder, Ray Dallavecchia Jr., Mattel Inc. and Hasbro Inc. The firm had con- to work on. It’s not the kind of business wanted to transition Poof-Slinky to new tacted Poof-Slinky earlier and pursued of that we’re used to seeing.” SPRING 2013 Page 33 FALL 2006 20130311-SUPP--0034-NAT-CCI-CD_-- 3/6/2013 3:42 PM Page 1

Martin Stein of Blackford Capital LLC in Grand Rapids formed the Michigan Prosperity Fund, which acquired Custom Profile Inc. in September. Stein said he expects the fund to make three more acquisitions by midyear. REX LARSEN Back home and looking for deals

By Mark Sanchez a very, very solid year.” Since coming home, Stein has formed the hortly after returning home in mid- Michigan Prosperity Fund, which has secured 2010, Martin Stein went to an Associa- commitments of $5 million from investors tion for Corporate Growth meeting in even as it pursued acquisitions. He hopes Grand Rapids where former Perrigo Co. to raise $20 million by year’s end. CEO Mike Jandernoa talked about The Prosperity Fund made its first ac- Michigan’s economy. quisition last September, buying Custom The state was mired in the depths of the Profile Inc., a 20-year-old Grand Rapids plas- recession and ranked at the bottom na- tics molder that supplies components to the tionally for job appliance, office furniture and marine in- growth, per-capita DEALMAKER dustries. income and many Custom Profile in Grand Rapids specializes in Blackford Capital Stein expects the Michigan Prosperity other metrics. extruded plastic products for appliance, LLC, Grand Rapids Fund to close on three more acquisitions But Jandernoa furniture, office and marine industries. by midyear. told Stein later not to dwell on the economic malaise but instead to look at it as an op- Blackford Capital to his hometown, Stein, Through the Prosperity Fund and a na- portunity to become part of lifting Michi- 41, wanted to tap Michigan’s robust manu- tional equity fund, Blackford Capital owns gan back to economic prominence. facturing sector for acquisitions. seven portfolio companies that have opera- “It stayed with me,” Stein said of Jander- Blackford Capital’s own market research tions in 13 states, employ more than 1,100 noa’s advice. “He was dead on.” shows that Michigan has 15,000 to 20,000 people and have annual revenue totaling Today, nearly three years after relocating manufacturing companies, about 1,500 to about $250 million. his private equity firm from Los Angeles to 2,000 of which fit into the firm’s investment Blackford Capital aims to hold a busi- Grand Rapids, Stein is focused on pursuing criteria. Stein thinks 30 percent to 40 per- ness for seven to 10 years and seeks to re- that opportunity. cent of those companies will transition tain the management team of the compa- Stein’s firm, Blackford Capital LLC, targets ownership over the next decade, generat- nies it acquires. mature, profitable manufacturing compa- ing plenty of opportunity for investors like “We’re investing as much in the manage- nies with annual revenue of $20 million to him. ment team as the business,” said Jeff $100 million, a potential for solid growth, “There are a lot of deals out there,” Stein Helminski, a managing director at Black- and owners wanting to sell. In moving said. For Blackford Capital, 2013 “should be ford Capital.

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During his career, Phil Torrence has handled more than 40 bank mergers and more than 100 venture capital financings totaling more than $400 million. He expects 2013 to be a busy year for M&A activity. COURTESY OF HONIGMAN Kalamazoo dealmaker expects to see a busy 2013

BY MARK SANCHEZ next level.” The seller, in turn, maximized You can have both sides of the investment and got the liquidity he or hil Torrence can’t think of a better “ she wanted out of the business, Torrence time to do M&A legal work. the table happy. said. Torrence, managing partner of the ” During his career, Torrence has handled Kalamazoo office of Honigman Miller Phil Torrence, more than 40 bank mergers and more than Schwartz and Cohn LLP, said that 2012 Honigman Miller Schwartz and Cohn LLP 100 venture capital financings totaling was a busy year for M&A activity and that more than $400 million. 2013 “started off with a real bang.” In 2010, he represented a special commit- “We have Varnum LLP and joined Miller, Canfield, Pad- tee of the board of directors at Fremont DEALMAKER more business dock and Stone PLC in 2001 as an associate in Michigan InsuraCorp Inc. on the hostile in the pipeline Kalamazoo. He worked his way up to se- takeover bid received from Biglari Holdings Phil Torrence: Honigman Miller Schwartz and this year than nior partner, chairman of the firm’s ven- Inc. that was rejected. The publicly traded Cohn LLP, Kalamazoo I’ve seen in a ture and technology group and deputy Fremont Insurance ended up selling out to long, long leader of the Kalamazoo office before leav- Auto Club Insurance Association in 2011 in a time,” said Tor- ing for Honigman in 2008. $67.7 million deal. rence, who joined the firm in 2008 to form Torrence handles mergers and acquisi- Torrence prefers corporate law over liti- the Kalamazoo office and chairs the De- tions, capital formation and regulatory mat- gation and other practice areas because he troit-based firm’s corporate law practice. ters. His clients vary from young, venture- likes the variety. In litigation, one party He might get even busier in the months backed firms to mature, family-owned usually comes out of it “feeling like they ahead. Torrence specializes in life sciences companies. His practice group also repre- got screwed.” In doing corporate law and and financial services, two sectors that are sents 35 private equity funds across the U.S. M&A work, he can help fashion a deal that ripe for increased M&A activity in Michi- A good deal, he said, is one where the leaves everybody satisfied. gan. buyer “thinks they got a company or a plat- “You can have both sides of the table Torrence, 38, started his law career in form or a product, or whatever, where they happy,” Torrence said. “Not all the time, 1999 as an associate at Grand Rapids-based can make a lot of money and take it to the but more times than not.”

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Investments and M&A deals made news FOOD DEAL CREATES MAJOR MICHI- nomics business based in Davis, Calif., and across the state in 2012. The following is a GAN SNACK COMPANY: Kellogg Co. acquired the assets of Igenity, another ani- selection of deal news from Crain’s Detroit (NYSE: K) bought the Pringles business mal genomics firm, last May. Business and MiBiz. from Procter & Gamble in February after Dia- Why it matters: After years specializing in mond Food’s bid to buy the potato chip mak- tests for food safety, Neogen moved aggres- sively into animal safety. HOMECOMING FOR SILICON VALLEY er crumbled. Battle Creek-based Kellogg, CHINA INVESTS IN NORTHERN STARTUP: Detroit Venture Partners LLC, the which also makes Cheez-It crackers, agreed MICHIGAN COMPANY: Menominee-based venture capital firm run by Josh Linkner to pay $2.7 billion for Pringles, a global Enstrom Helicopter Corp., a helicopter manu- and co-founded by Dan Gilbert, recently an- snack brand with $1.5 billion in annual facturer for defense and commercial appli- nounced that it has joined in an investment sales. cations, was acquired by Chongqing Heli- round of $2.3 million in Stik.com, a social me- Why it matters: Pringles’ global footprint copter Investment Co. Ltd. of Chongquin, dia startup that lets friends on Facebook moves Kellogg to the No. 2 position in the China. make recommendations to each other on pro- worldwide savory-snacks category, Kellogg Why it matters: Analysts at IHS Inc. called fessional service providers such as attor- CEO John Bryant said in a statement an- the acquisition “one of the most high-pro- neys, doctors, dentists and real estate agents. nouncing the deal. file in a series of transactions in which Chi- Why it matters: Despite funding from Sili- DEAL GOBBLES UP BURGER JOINTS: nese companies have purchased U.S. com- con Valley, founders Jay Gierak and Grand Rapids-based Meritage Hospitality panies involved in the aerospace and Nathan Labenz — both native Detroiters — Group Inc. (OTC: MHGU), which operates defense sector.” wanted to move back home and moved the Wendy’s restaurants as well as its own FUNDING ROUND DRAWS MORE company to Detroit in October. branded establishments, gobbled up several THAN EXPECTED: Ann Arbor-based Molec- DEAL MAKES 3RD-LARGEST GLOBAL acquisitions in a late-year burger run. Mer- ular Imaging Inc., a contract research organi- SHOE COMPANY: Executives at Wolverine itage bought three Wendy’s in the Charlotte, zation that provides preclinical imaging World Wide Inc. (NYSE: WWW) used the word N.C., area last October, then announced it services to the pharmaceutical and biotech- “transformational” in describing their deal had acquired two Wendy’s franchise groups nology industries, closed on an oversub- to acquire the footwear portfolio of Topeka, with 19 stores in Georgia and Virginia. In scribed, $9.9 million Series A round of ven- Kan.-based Collective Brands Inc. in October total, Meritage opened or acquired 24 ture capital funding. 2012. Wolverine bought the operations of restaurants in 2012 to finish the year with Joining in the round were Farmington CBI’s Performance + Lifestyle Group and its 111 restaurants operating in six states. Hills-based Beringea LLC, the Detroit-based four brands: Sperry Top-Sider, Saucony, Why it matters: The acquisitions expand First Step Fund, Baird Venture Partners of Stride Rite and Keds. the reach Meritage, which reported Chicago and Arcus Ventures LLC of New York Why it matters: The transaction is expect- $99 million in annual revenue, beyond its City. ed to add $1 billion in annual sales in 2013, core markets of Florida, Georgia and The $2.5 million committed by Beringea making Rockford-based Wolverine the Michigan. came from the $185 million InvestMichigan! third-largest footwear maker in the world, PURCHASE COULD CREATE Growth Capital Fund it co-manages with Cred- trailing only Nike Inc. and Adidas AG. LARGEST U.S. TRANSMISSION COMPA- it Suisse. Molecular Imaging is the 26th DEAL IS PART OF AUTO’S DIGITAL NY: ITC Holdings Corp. of Novi plans to buy portfolio company in the fund. FUTURE: Livio Radio secured Series C fund- the New Orleans-based electric transmission business, Entergy Corp., for $1.8 billion. Why it matters: The company had been ing from venture capital funds —Farming- seeking $8.5 million to fund growth — and ton Hills-based Beringea LLC, Ann Arbor’s Why it matters: Pending the completion of the deal, ITC will be the largest indepen- it raised more than it needed. North Coast Technology Investors and Detroit’s WEST COAST FUND LEADS First Step Fund — to further commercialize dent electric transmission company in the MEDICAL DEVICE DEAL: Ann Arbor-based Livio’s products. Livio Radio sells vehicle U.S., with more than 30,000 miles of trans- CytoPherx Inc., a clinical-stage medical device Internet apps for iPhone and Android mission lines spanning 12 states from the Great Lakes to the Gulf Coast. company initially focused on acute kidney phones and a Bluetooth Internet kit for cars. EPRIZE EXIT EXPECTED TO BOOST failure, raised $34 million in venture capital. Why it matters: The $1.85 million invest- TECH SECTOR: The Connecticut-based The investment in CytoPherx was led by On- ment is part of developing the future of in- private equity firm Catterton Partners Corp. set Ventures of Menlo Park, Calif.; Early Stage car systems, helping Michigan’s technolo- took a majority stake in Pleasant Ridge- Partners LP of Cleveland; and the Milwaukee- gy industry leverage the auto industry. based ePrize LLC. based Capital Midwest Fund. M&A DEAL FOLLOWS BANK The amount remains a secret, and is esti- CytoPherx makes custom, patent-pro- TURNAROUND: Akron, Ohio-based First- mated at $100 million. High-profile in- tected configurations of commercially Merit Corp. (Nasdaq: FMER) plans to buy vestors in the company, launched in 1999 available hollow-fiber dialysis filters, used Citizens Republic Bancorp Inc. (Nasdaq: by Josh Linkner, included Quicken Loans to lessen the effects of inflammation caused CRBC) in a transaction valued at $912 mil- Inc. founder Dan Gilbert. by a spike in white blood cells in a patient’s lion. The deal, expected to close in the sec- Why it matters: It’s considered a symbolic bloodstream. ond quarter, will create a bank with $24 bil- first — an Internet company created in Why it matters: It was the largest round of lion in assets and more than 5,000 metro Detroit with a large-scale exit. such funding for a state company since employees at 415 branches in Pennsylvania, DEAL OPENS NEW MARKET FOR Ann Arbor-based Lycera Corp. raised Ohio, Michigan, Illinois and Wisconsin. TESTING FIRM: Lansing-based Neogen $36 million in April 2009. Why it matters: It’s an exit that follows a Corp. (Nasdaq: NEOG), which makes test- SECOND-LARGEST MICHIGAN FUND tough streak. After 12 consecutive quarter- ing products for food and animal safety, ac- RAISED: Detroit-based Huron Capital Part- ly losses, in July 2011 the bank broke into quired MacLeod Pharmaceuticals, a Fort ners LLC raised its fourth and largest pri- the black. In July 2012, it reported a fifth Collins, Colo.-based company that makes a vate equity fund. The Huron Fund IV LP straight profitable quarter, and its best popular antibiotic for horses. Neogen also ever, with net income of $297.1 million. bought Scidera Genomics LLC, an animal ge- SEE DEALS, PAGE 37 Page 36 SPRING 2013 FALL 2006 20130311-SUPP--0037-NAT-CCI-CD_-- 3/6/2013 4:23 PM Page 1

DEALS, FROM PAGE 36

closed at $500 million. Michele Favoretto Why it matters: It was $100 million more Founder and CEO than originally targeted when fundraising TerraYebo, Inc. and My Inch of the Earth began in 2011. But it’s also thought to be the second-largest fund raised by a Michi- “I know I have a great concept. gan private equity or venture capital firm, behind the $865 million raised in 1999 by I also know having experienced Southfield-based Questor Management Co. advisers is key to our success.” LLC. NEW YORK INVESTOR BUYS CANCER CENTER: West Michigan’s Metro Health sold its cancer center in Wyoming Technology’s Matchmaker for BusinessTM near Grand Rapids to New York City-based Connecting ideas with the support and resources to make them reality, Automation Alley’s American Realty Capital Healthcare Trust Inc. entrepreneurial services guide new technology businesses every step of the way while accelerating for $6.2 million in a sale-leaseback transaction. their growth :e assist emerging businesses in ¿nding grants and investors and make investments Why it matters: The transaction frees cash in promising new technologies. So bring us your idea and let us make the same connections for you. for Metro Health, which announced it Call 800-427-5100 or visit automationalley.com. would seek a strategic partner last fall. DEAL CREATES TECH JOBS: The Grand Rapids-based Iserv Co., which acquired 31 other telecom companies and In- ternet service providers in the 11 years Tom Anderson, Ph.D. that Victor Shepherd was CEO, was Senior Director, Entrepreneurism bought by Boston-based 382 Communica- Automation Alley tions in June 2012. After the deal’s completion, 382 announced plans to add 50 em- “We help entrepreneurs with ployees, invest in Iserv’s data center and expand services to include wireless con- everything from business nectivity and telecommunications. strategy and customer attraction Why it matters: The deal brings more tech to seed funding.” jobs to West Michigan and some liquidity for Iserv’s investors, many of whom invested back during the dial-up era. TECH COMPANY BOUGHT BY DC INVESTOR: Grand Rapids-based X-Rite Inc. had its share of ups and downs over the past decade — as evidenced by its stock price, which bounced between $1 and $16. In April, the science and technology company announced a definitive agreement to be acquired for $625 million — a tender offer of $5.55 a share — by Washington, D.C.- based Danaher Corp. (NYSE: DHR). Association for Corporate Growth. Why it matters: A closely held public company with deep West Michigan roots is Where M&A professionals and corporate growth now a division of a massive conglomerate driven Southeastern Michigan Business Leaders Meet. that demands consistent performance. ARCHITECTURE FIRMS MERGE: West Michigan architectural firms spent Networking. the summer on mergers designed to re- Informational Meetings. shape the region’s competitive landscape for building design. In September, two Networking. large Grand Rapids-based firms, Progres- Social Gatherings. sive AE and Design Plus, announced they 325 Chapter Members Strong. would merge to create a $25 million, 150- person firm specializing in architecture, 14,300 Members Globally. engineering and interior design. The merger marked the third transaction involving West Michigan architecture For events and more information: and design firms in less than three www.acgdetroit.org | 877.894.2754 months. Grand Rapids-based Concept De- sign and Serve Studios merged to form Con- cept Design LLC in September, and Holland- based GMB Architecture + Engineering Inc. acquired Visbeen Associates Inc. in July. Driving middle market growth.™ Why it matters: With construction slowly www.middlemarketgrowth.org sputtering back to life, firms have realized the need to stay competitive and spread out costs. SPRING 2013 Page 37 FALL 2006 20130311-SUPP--0038-NAT-CCI-CD_-- 3/6/2013 3:10 PM Page 1

VENTURE CAPITAL, FROM PAGE 3 Many venture capitalists in Michigan least $1 million in revenue. The firm looks worked in California before opening local at 300 deals in a typical year and invests Heesen of the NVCA said the assets offices. They saw fertile ground to be tilled only in four or five, CEO Mark Horne said. Michigan has going for it compared to in a state with respected research universi- When negotiating with companies, he those in California include valuations that ties and talent but little venture activity. said, “it’s fairly rare to have another com- aren’t at Silicon Valley levels, an educated For Beringea LLC — whose $490 million un- petitive term sheet on the table.” While workforce at a lower pay scale and a lower der management makes it the state’s largest that may translate into favorable valua- tax burden. VC firm — there also was an opportunity to tions for investors, it also means some good “Are you still going to have companies fill a funding gap for companies needing deals are not getting funded, he said. in Michigan that fail? Absolutely,” he said. $3 million to $10 million in growth equity. “We still need more firms looking at a lot “Are there still folks in California who say, “I’m an example of a person willing to of different slices,” Horne said. ‘I’m not going to go to a flyover state’? Ab- move from the West Coast,” said Jeff Bo- Jeff Williams, the CEO who led Accuri solutely. But there are a lot more pluses in can, managing director of Beringea. “I and HandyLab through their exits, said the Michigan than other states now.” don’t regret my decision to come here, and state still has a pressing need for more VC Heesen also pointed out that it’s not that our core thesis has proven out.” firms, but it has come a long way in the hard to get to Ann Arbor from the coasts be- The family side of things was a factor, past 15 years. cause Detroit Metropolitan Airport is so close. too; many of these investors talk about how Williams, who grew up in Michigan, “That’s not a small thing,” Heesen said. they preferred to raise a family where the moved back to the state in 1997 when he co- pace was easier and the money spent on a founded Ann Arbor-based Genomic Solutions house would get them something much Inc., eventually leading that company Hot for health care nicer than in Silicon Valley. through an initial public offering and a Tony Grover and Mark Weiser at RPM Ven- subsequent acquisition by Harvard Bio- The sector that has drawn the most invest- tures moved back to the Midwest after spend- sciences Inc. in 2002. ment by far is health care at 40 percent of all ing time in Silicon Valley. When he first came back, Williams had a capital managed in the state, according to “We knew we had all hard time finding accountants, lawyers, the Michigan Venture Capital Association’s most sorts of assets in our banks and landlords who understood high- recent annual report, which came out in backyard,” Grover said of tech startups. 2012. Other major sectors are information their decision to start a “They were used to talking to tier-one technology, alternative energy and ad- firm in Michigan. They (auto) suppliers with lots of capital equip- vanced materials and manufacturing. saw “tremendous techni- ment. ... No one knew what a wet lab was,” Startup and early-stage companies cal talent” and intellectu- Williams said. “It’s gotten a lot easier.” soaked up 55 percent of invested money, al property at the univer- For life sciences venture funding, espe- while funding for later-stage companies sities and the presence of cially for larger follow-on investments, the seeking capital for growth took up 25 per- Grover Fortune 500 companies in state still has a small playing field, he said. cent. the Great Lakes region. “It sure would be nice if we had some ad- Three deals often talked about by people “We looked at those assets and said, … do ditional venture funds,” Williams said. in the state’s VC community all are in you really need another venture capital “We’re still very dependent on the West health care and medical devices: New Jer- firm in Silicon Valley?” he said. Coast and East Coast or at least Chicago sey-based medical device supplier Becton, and Cleveland for follow-on” investments. Dickinson and Co. bought Accuri Cytometers Pros, cons of small market Heesen at the National Venture Capital Inc. in 2011 for $205 million; Becton, Dickin- Association said that despite the encourag- ing signs coming out of Michigan, another son also was the buyer in the biggest of the Today, the field in Michigan isn’t overly three recent exits, that of medical device challenge that remains is attracting talent- crowded like Silicon Valley or Boston, where ed managers to run the startups. maker HandyLab Inc. in 2009 for $275 mil- firms have more competition for any given lion; and Johnson & Johnson bought Health- “It’s still difficult to get people to move out deal. Flagship’s Wilcox said that makes it of California” despite the heavy traffic, high Media Inc. in 2008 for at least $200 million. possible for outside investors “to come in At the time of the sales, all three compa- cost of living and high taxes there, he said. and invest at reasonable valuations.” Tom Petersen, chairman of the MVCA nies were University of Michigan spinoffs Even so, more competition for deals is based in Ann Arbor. and managing director of Ann Arbor-based needed to fill out the state’s venture capi- Arboretum Ventures, said the ecosystem- tal and private equity ecosystem, several building is a 30-year process. Changes since 2007 leaders in the state’s investment commu- “The challenge for the next 15 years is to nity say. keep it going,” he said. Jeff Barry, a partner at Ann Arbor-based “Silicon Valley has proven that having Plymouth Management Co., moved to Michi- more available capital, everybody wins in gan from the Washington, D.C., area in that situation,” said Beringea’s Bocan. More exits needed 2007. In that time, Barry said, the invest- “Yes, it’s more competitive, but it attracts ment scene already has changed. more entrepreneurs. There’s a multiplier Michael Kell, a principal with the Credit “It kind of looked like effect.” Suisse Customized Fund Investment Group, the Wild West,” he said. With most Michigan venture firms at or which manages the Michigan 21st Century In- There were some dedicat- below $50 million, a need will grow for vestment Fund and Venture Michigan Fund, ed, active firms. But the more and bigger funds to help portfolio said more firms and more successes are community was small, companies and startups achieve their full needed to attract more law, accounting and and there weren’t many potential. Although it varies by industry, other professional services firms that are options for referrals, the rule of thumb is that a company needs aimed at the venture capital and private eq- leading to “gaps in the fi- $5 million to $25 million to realize its poten- uity world. Homegrown successes will lead nancing continuum,” tial, Bocan said. to young entrepreneurs and investors with Barry said. “We can’t put $25 million into one com- the capital to support more endeavors. “Today, there are a lot pany by ourselves,” he said. “We have to “We need more successful exits,” Kell said. Barry more early-stage funds look for investors at later stages.” “We’ve had a few, but we’ve really not yet and a couple of more growth-stage funds For example, Plymouth Management in- seen the tree bear fruit. When it does, it cre- and more deal flow between them.” vests in growth-stage companies with at ates a lot of overnight young millionaires.”

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PRIVATE EQUITY, FROM PAGE 5 DuBay, a partner at the Detroit law firm of “These funds are beginning to reach the Honigman Miller Schwartz and Cohn LLP. end of their investment mandate, so in- ing in the state — a contrast to the national The firm worked on more than 140 M&A vestors may lose access to this capital in trend of venture capital consolidation. deals last year, with an average deal value the coming years,” said the report. “It’s great that there’s so much private eq- of $35 million. Of those, 74 involved private Another recent report from Chicago- uity being imported from out of state, but I equity or venture capital, with private eq- based financial services firm BDO, which think from our perspective … we need to uity accounting for most of the 74. The firm surveyed more than 100 executives of na- change that,” said has private equity clients all over the coun- tional private equity firms in the U.S., Michael Flanagan, manag- try, but most of them are Michigan-based. found that more expect to make deals this er of equity capital pro- Michigan has plenty of small, old, well- year compared to when they were asked grams for the Michigan run private businesses of the type that pri- the same question last year. But they also Economic Development Corp. vate equity investors like, said Sam Stahl, said they expect only a minor improve- “We think funds that a Honigman partner who co-chairs the ment in the number of deals. are located here will not firm’s private equity and venture capital “Fund managers are not expecting a sud- only create a talent base practice group. den boom in deal volume anytime soon,” of people in the industry, “These are nice businesses grown to a BDO reported. but it will also hopefully reasonable size by the family that owned it M&A activity among Southeast Michi- invest more in Michigan and now are anywhere from $50 million to gan-based companies spiked last year for Flanagan than they would if they $300 million or $400 million in value, and deals of at least $10 million, with private were (from) out of state.” that’s right down the middle of the plate for equity firms’ need to deploy capital playing But while the state’s investment has lower middle-market and middle-market a role. skewed heavily toward catalyzing growth firms,” Stahl said. “For good companies, there were lots of in the venture capital industry, Kell said Those types of companies represent a buyers, both strategic buyers and financial state government has stayed largely on the sweet spot for Martin Stein, president of buyers, fighting for the deal. A year ago, sidelines with private equity. Grand Rapids-based Blackford Capital. The you were hoping to keep one or two buyers “Where the state hasn’t been very sup- West Michigan native returned home after interested,” said Joshua Opperer, a partner portive — and this isn’t meant as criticism several years in Chicago and California to in Honigman’s corporate and securities — they haven’t put a lot of dollars toward start the Michigan Prosperity Fund in 2012 practice. fund investments in private equity man- to invest in mature, profitable Michigan- “Private equity companies signed a lot of agers in Michigan,” said Kell. “There’s a based manufacturing companies that have confidentiality agreements; they looked at a view in Lansing that venture (capital) is revenue of $20 million to $100 million, are lot of deals, finding the gems in the coal. And better for the economy than private equity. profitable, have growth potential and when they found them, there was an ap- And that may be true or not, but there’s a whose owners wish to sell. petite and the money to get the deal done,” view that investments in venture man- The “buy local” mentality helped Stein Opperer said. “A couple of years ago, even agers and early stage companies create raise about a third of the targeted $20 mil- when you found the gems, you might have jobs over time. Investments in private eq- lion fund in a few months, mostly from in- had a hard time finding lenders.” uity come with all sorts of risk.” vestors in his backyard. Detroit-based Huron Capital Partners LLC, The MEDC’s Flanagan acknowledged that “We are not a group that’s far away, in- one of the state’s most active firms, an- the state has been much more focused on vesting in companies that are far away,” he nounced in January it had raised $500 mil- growing venture capital in Michigan after it said. “It’s all right here. (Investors) can see lion for its largest private equity fund yet. “recognized early on that there were gaps in the investment that they are making. It’s Huron invests in lower middle-market the credit market and they wanted to be not something that is removed from them. growth companies and has 25 companies in proactive about that.” The state plans to com- They can come out and see the company.” its portfolio. mission a study to analyze the capital mar- Even so, as Stein raised capital for the Partner Christopher Sheeren said his kets to help identify further gaps in capital. Michigan Prosperity Fund, he has had to go firm did seven transactions last year. “The indigenous private equity industry through an education process with some “It was kind of a par year for us, not a in Michigan is just not quite there yet, and prospective investors and explain how pri- record year but a good year. We’ve got the the mezzanine market probably isn’t ei- vate equity works and “why it’s a great as- bar set higher for 2013,” he said. “We’re ther. So we think growth in both of those set class.” cautiously optimistic that our number of areas — and they’re complementary, we “Generally, Michigan has not had as transactions will be up for 2013.” think — is huge for the state going for- much exposure to private equity as other William Sigler, vice president of member- ward,” Flanagan said. “We’re more focused states — California, New York, Illinois, ship at the Association for Corporate on (private equity) now as a state and try- Massachusetts. So there’s a ways (to go) to Growth’s Detroit chapter, said private equity ing to help the industry grow. I think im- catch up,” Stein said. “There’s a learning deal volume has gotten back to 2004 levels, porting capital from outside is great, but I curve associated with it.” before things got overheated in 2006 and 2007. think helping create more indigenous Senior debt from bank lenders and sub- funds is going to be important as well.” ordinated debt from mezzanine lenders has Dry powder to spur activity made a comeback, and competition among private equity firms has increased, Sigler PE eyes attractive companies Available private equity money will con- said, making conditions better for compa- tinue to drive deals this year, according to a nies seeking growth funding. Looking forward, many industry insid- report from PitchBook, which tracks national But he also said firms have to look at ers are bullish on the state’s private equity private equity activity. The report noted that hundreds of companies just to find a few activity. Not only does data show private firms are sitting on $348.2 billion in unspent good ones in which to invest. equity fund managers have dry powder to capital, more than $100 billion of which Scott Reilly, president of Peninsula Capital invest, but the state’s companies — the sur- stems from money raised in 2007 and 2008. Partners LLC in Detroit, a firm that takes mi- vivors who made it through a decade of dif- “The massive fundraising efforts during nority stakes in companies to help compa- ficult economic conditions in the state — the boom years resulted in a large buildup of nies grow, said, “There’s no shortage of are also prime targets for funds. capital that is just beginning to work its way money and deals, but we’re far from the “Some deals pulled ahead into 2012, but it’s through the system,” the report said, making market highs we saw in 2006 and 2007,” still going to be a very robust year. There’s a it hard for firms to raise new funds, while which probably is a good thing because lot of money to be put to work,” said Mike pressuring them to deploy existing capital. those levels were unsustainable, he said.

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Places for entrepreneurs to show, grow

itch for your business, win a prize and get some recognition along the way. The state’s up-and-coming businesses — or even just business ideas — have no shortage of venues to mea- sure against others. As business plan competitions are al- most a growth industry in Michigan, here are a few of the nearly two dozen events taking place annually: Accelerate Michigan Innovation Competition The event — sponsored by the Michigan Economic Development Corp., Business Leaders for Michigan and the CALLING New Economy Initia- INVESTORS tive — gives a Institutional $500,000 first prize investment will and a range of other take center stage cash prizes. Even EDWARD WALLACE PHOTOGRAPHY during Accelerate better than money, At the 2012 Accelerate Michigan Innovation Competition, Detroit Venture Partners CEO Josh Michigan as part of in some cases, is the Linkner accepted the Spirit of Michigan award (for Dan Gilbert). Presenting the award: Dave Egner, a special event recognition: A judg- executive director of the New Economy Initiative. hosted by Crain’s ing panel of 40 ven- er organizations, the Great Lakes Entre- Michigan Women’s Foundation. The event is Detroit Business. ture capitalists preneur’s Quest offers a range of cash in Ann Arbor. The investor comes to town, so prizes, including $5,000 for a new business Boost, a series of events in Gaylord, event to be held even if a company idea. Through the event, microloans and Lansing, Bay City, Battle Creek, Macomb Nov. 14 at the Westin doesn’t win the other investments are also available, such Township, Marlette and Marquette. It’s Book Cadillac will prize, it could find as a $100,000 SmartZone Award. hosted by the Mid-Michigan Innovation Center feature speakers an investor. Deadline for registration is March 27. and the BlueWater Angels group. and information Applications are Last year’s winners: Ann Arbor-based related to the state’s due Aug. 7 for the Monarch Antenna Inc. — a 2007 spinoff from A number of events are set to be hosted investment climate. Nov. 12-14 event. Delphi Technologies Inc. that is developing a by colleges or universities for students It will be geared Last year’s win- better antenna for smartphones, tablets with business ideas: toward institutional ners: Algal Scientific and laptops — won the $5,000 top prize in The Michigan Business Challenge, put on investors and CFOs. Corp., a biotechnolo- the emerging-company category. by the University of Michigan, is held in Ann For more infor- gy company that de- The second place winner of $3,000 was Arbor each year. First prize is $20,000 for mation about the veloped a process for Blue Water Bioproducts LLC of Port Huron. UM graduate and undergraduate students. event, contact creating a byproduct Exo Dynamics LLC of Ann Arbor received the UM also hosts the Michigan Clean Energy Crain’s Deputy from algae to be used third-place award of $2,500. Venture Challenge, offering a $50,000 first Managing Editor as a food supplement In the new business ideas category, the prize to students from any college or uni- Daniel Duggan at for pigs and chick- first place award of $2,000 was presented to versity in the state. dduggan@crain ens on traditional Ann Arbor-based AdAdapted LLC, which is There’s also the Broad MBA Business .com or (313) 446- farms and for fish developing an advertising network for prod- Plan Competition, open to MBA students at 0414. and shrimp in aqua- uct placement in mobile games and apps. Michigan State University. It offers a $3,000 culture, won the The runner-up winner of $1,500 was Ply- first prize. first-place prize of $500,000. mouth-based Beet LLC, which does business The New Venture Competition, at Central The second-place award of $100,000 went as Beet Analytics Technology. Ann Arbor- Michigan University, offers a $30,000 first to NanoMAG LLC of Ann Arbor, with InPore based Kymeira, which makes a new, prize for current students. Also at CMU is Technologies Inc. of East Lansing getting the stronger ceramic material, won the third- the Chippewa Pitch Competition, offering a third-place prize of $50,000. place award of $1,000. $500 prize. Other events around the state: Programs are also being hosted by in- Great Lakes GreenLight, put on by MSU Federal Credit dividual colleges and universities with Entrepreneur’s Quest Union and Spartan Innovations, is held in East prizes under $5,000: Grand Valley State Uni- Lansing each year with a $25,000 prize. versity, Eastern Michigan University, Northern Sponsored by the Community Foundation Pitches of Promise Competition, a series Michigan University, Hope College, Aquinas for Southeast Michigan and a long list of oth- of microgrants offered as prizes by the College and Davenport University.

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