Venture capital investing in Michigan reached an all-time high in 2021 for the amount invested, as the industry built further momentum, continued the growth trend of several years and as the state attracted more outside investors to participate in deals.
Michigan-based venture capital firms invested a record $1.38 billion into 155 companies last year through 161 deals, according to the Michigan Venture Capital Association’s 2022 Impact Report released today. That compares with $949 million in venture capital investments in 2020 across 162 deals that involved 147 companies.
Assets under management also grew to $5.4 billion, double from just four years earlier and up from $4.4 billion in 2020.
The MVCA annual report shows that over 10 years, venture capital investing in Michigan grew 600 percent in deal value, while volume increased 75 percent.
“We’ve seen a steady rise in the pace of investment over the past decade, making 2021 another record year for the venture capital community,” Jeffrey Rinvelt, the MVCA’s board chair and a partner at Renaissance Venture Capital in Detroit, wrote in the organization’s annual report.
Growth in venture capital investing across Michigan last year outpaced five other states in the Great Lakes region on a percentage basis, although Illinois, Ohio and Minnesota had more deals.
As venture capital investing grew in 2021, Michigan also attracted more out-of-state investors.
Out-of-state venture firms invested $364 million in 40 deals for Michigan-based startups, the highest deal volume ever and the second-highest dollar amount, behind only 2019’s $370 million in investments, according to the MVCA Impact Report, which tracks data back to 2006.
During 2021, 34 out-of-state firms were active in Michigan.
The increase in out-of-state capital indicates that “Michigan is not a flyover state,” as firms based in major VC markets such as San Francisco, New York, Boston, Chicago and Los Angeles participated in deals last year for Michigan-based startups, said MCVA Executive Director Ara Topouzian.
Innovations spun out of Michigan’s research universities, particularly the University of Michigan, have helped to lure out-of-state investors, Topouzian said. The data could help to attract more out-of-state capital and convince VCs that they “need to look at Michigan” for investment prospects, he said.
“There’s some great technology and innovation that goes on in this state. You’re seeing the attraction in that regard,” he said. “We have a great startup community and there’s plenty of opportunities to build in this state.”
A majority of the venture capital investments in Michigan last year were concentrated in Wayne, Oakland and Washtenaw counties in Southeast Michigan, which combined accounted for 112 deals for $1.17 billion on the statewide total, according to the MVCA data.
Among West Michigan markets, Kent County ranked fourth with 16 deals for local startups and fifth for deal value at nearly $44.2 million. Kalamazoo ranked fourth in the state for deal value at $84.7 million, but at four deals was not among the top five markets listed in the MVCA report for deal flow.
At the end of 2021, venture capital firms based in Michigan or with an office in the state had $236.8 million available for follow-on investments in existing startups and $527.6 million for new investments.
Additionally, angel investing made strong gains in Michigan in 2021 with $69.1 million invested in 111 companies, versus $49.5 million in 102 startups a year earlier. The number of active angel investors (1,155) was up 11.5 percent from two years earlier.
Topouzian said that even past midyear, it’s too early to tell how venture capital investing will fare in 2022, although he believes the data show the industry has been moving beyond the difficulty that began in early 2020 with the pandemic.
“What we saw is we can put the pandemic in our rearview window now and concentrate on moving forward,” he said.
Through midyear, venture capital investing held up well in Michigan compared to national trends, as the deals volume was essentially even while the amount invested nearly doubled.
A quarterly report from Pitchbook.com and the National Venture Capital Association counted 76 deals in Michigan during the first six months of 2022 totaling $657.1 million. That compares with 77 deals in the first half of 2021 for $341 million.
In the second quarter alone, venture capital investors put $291.3 million into 29 deals, versus 34 deals for $147.4 million in the April-to-June period a year earlier, according to Pitchbook data.
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