An additional $6.5 million state investment gives pre-seed fund Michigan Rise more capital to back a strong pipeline of startup companies.
Created a year ago and administered by the Michigan State University Foundation, Michigan Rise has at least 10 startups awaiting investments. The Michigan Economic Development Corp. expects Michigan Rise to invest $2.5 million in 15 startups in just the next three months.
“These additional funds give us an opportunity to build on the success so far that we’ve been able to have in terms of impacting entrepreneurs throughout the state,” Michigan Rise Executive Director Jeff Wesley said. “We just think these additional resources we can put to good use to build the program out and have a bigger impact on the state and, hopefully, support more entrepreneurs.”
Michigan Rise invests up to $250,000 into startups across funding rounds, starting with an initial investment of $50,000 to $150,000. Investment prospects generally have a product or service that’s in pilot mode or is generating early revenue.
The Michigan Strategic Fund Board initially allocated $3 million in April 2020 and contracted with the MSU Foundation to manage the new pre-seed capital fund for five years. The state also agreed to provide additional funding in subsequent years. The MSU Foundation matched the state funding with a $2.4 million commitment over five years.
‘Dire need’ for funding
The Michigan Strategic Fund’s goal was to address a gap for early-stage capital in Michigan.
Michigan Rise formally launched in mid-August 2020 and has since made $3.7 million in investments in 26 companies that went on to raise $101.2 million collectively in follow-on investments. The growing startups Michigan Rise backed so far have created more than 60 jobs, according to the MEDC.
The additional Strategic Fund allocation will allow Michigan Rise to make follow-on investments in portfolio companies and an equal number of new, first-time investments, said Michigan Rise Director Prem Bodagala.
The number of early-stage investments made in the first year are double what Michigan Rise expected to make, partially the result of a pent-up demand for funding, Bodagala said.
Michigan’s investment pipeline remains “extremely robust,” reflecting a rising trend of entrepreneurship in the state and “the evolution of the ecosystem” over the last decade, Bodagala said.
“There is a huge need for this type of funding,” he said. “There is a dire need in the state to keep those fires burning for these high-tech, high-growth companies to come out of Michigan.”
Early-stage investing in Michigan has evolved from being primarily focused on life sciences years ago to an increased focus on other technology sectors such as software and I.T., Bodagala said.
Michigan Rise matches the financial investments with a network of professional contacts around the state who can support startups and nurture entrepreneurs.
While the need for early-stage capital remains great, startups today have a far greater network of support and services than in the past, Wesley said.
“I think Michigan’s kind of at that next phase,” Wesley added. “You see some great collaborations now happening between different groups and units that have been built in the last number of years. They’re working together more in terms of the effort to take the state to the next level.”
Telehealth, education technology
ADHD Online Inc. is among the West Michigan-based companies that Michigan Rise has backed. The company developed and operates a telehealth platform to assess, diagnose and treat children and adults with Attention-Deficit/Hyperactivity Disorder. 86 Repairs Inc., a virtual service provider that streamlines the equipment repair and maintenance process for restaurants, has also received backing from Michigan Rise.
Both companies recently raised additional capital. 86 Repairs closed this summer on a $7.3 million capital round, while ADHD Online raised $2 million in the spring. The strong investment pipeline for Michigan Rise also reflects the rise in innovation during the COVID-19 pandemic, particularly in areas involving telehealth and remote learning.
Michigan Rise is “looking at more education technology companies, where four years ago we didn’t see them,” Wesley said. “Now we’re seeing them all over the place in terms of opportunities and ideas.”
“Innovation was hot before,” he said. “It’s in an even better position now and it’s so important as we move forward to fund new ideas and get them commercialized.”
The Michigan Strategic Fund Board authorized the additional $6.5 million for Michigan Rise in late July.
Michigan Rise has reached out and done deals across the state, including in Detroit, West Michigan and the Upper Peninsula, said Fred Molnar, the MDEC’s vice president of entrepreneurship and innovation.
Of the startups the pre-seed venture capital fund has backed, more than one-third were spun out of universities in the state and nearly eight of 10 are led by diverse and underserved founders.
“That is something we’ve been really intentional about from the get-go, and I think it really puts us in a separate class in the region,” Bodagala said.
The MEDC “is very happy with (Michigan Rise’s) performance so far,” which led to the second year of funding, Molnar said.
Of the additional $6.5 million allocated to Michigan Rise, $3 million will go to a new loan fund that will support small businesses that have booked future business. The MEDC will test the loan fund with the additional allocation to Michigan Rise, Molnar said.
The loan fund is “breaking new ground” and will support companies with signed purchase orders that need to expand but that don’t yet have the revenue or collateral needed to qualify for a traditional bank loan or other capital, he said.
“The bank looks at them and says, ‘I like where you’re going, but come back in a couple of years.’ That’s what we’re trying to fill,” Molnar said. “We’re kind of almost looking at it as a pilot program. We’ll see where it goes, and after a year we’ll take a look and see what demand is. There’s definitely demand, the question is how much demand.”