What if you could take a blood sample and with the use of a handheld device test whether someone had a medical problem? It'd be pretty useful in remote locations – or even in a doctor's office.
Well it exists, and it's made by Ann Arbor-based HandyLab, one of the many small tech companies that has surged from concept to concrete with the help of $24 million in venture capital funding.
Using a credit-card-sized chip, HandyLab devices will perform laboratory processes on site, providing results within minutes, instead of the traditional method of sending samples to a lab and then waiting for days to obtain results.
HandyLab is one of many companies in southeast Michigan that benefited from a local venture capital company. And more are needed. Venture capital has long been the province of Silicon Valley and Boston-area firms. Michigan – and the rest of the nation – recieve only a small fraction of this venture capital investment. Why is it important? Because venture capital creates fertile ground for entrepreneurs, and those are the folks who hold the keys to Michigan's economy in the long-run,
"There's an overwhelming body of evidence that entrepreneurial economies are dynamic economies that create jobs, prosperity and wealth," says Tom Kinnear, managing director of University of Michigan's Wolverine Fund ¬– an investment pool run by MBA students, and president of the investment board of the new Venture Michigan Fund created by the state of Michigan to provide seed money to venture firms in the state. Kinnear also is the director of the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies at University of Michigan's Ross School of Business.
Kinnear says venture firms and entrepreneurs go hand in glove. One goes where the other is. Unfortunately, most of the venture firms aren't here right now, so even if a company starts here, once it gets venture funding from a California firm, it may find it impossible to stay in Michigan as the leaders of the venture firm want to keep close tabs on it.
That's why it is significant that HandyLab was co-founded in 2000 by two U-M PhD students Sundaresh Brahmasandra and Kalyan Handique and EDF Ventures, an Ann Arbor venture capital firm. EDF helped the students create the company and spin the technology out of the University of Michigan. The company now has over 30 employees, says CEO Jeff Williams, and the product is currently undergoing clinical trials, with the hopes of bringing it to market during 2007.
Ardesta LLC, an Ann Arbor venture capital firm, has also invested in HandyLab. Ardesta focuses on Small Technology companies, which enhance current products and develop new ones by making them smaller, more capable, and cost-efficient to manufacture and operate.
“You have someone manufacturing big old widgets; suddenly Small Tech comes in and says you can make this in a room that is 12 by 12, with wafers used to make computer chips,” explains Chris Rizik, Co-Founder and board member of Ardesta, “It affects everything up and down the supply chain.”
Venture capital makes stories like this possible by taking a higher risk than would a bank. In exchange for more risk venture capitalists usually take an equity stake, unlike banks. When making loans, banks want the three Cs: credit history, cash flow, and collateral. All too often an entrepreneur has started a company, yet lacks the three Cs plus a fourth one, connections, to grow it.
Venture capitalists bridge that gap by bringing not only growth capital to new enterprises, but also customers, industry contacts, technical advisors, and management and market expertise. “Entrepreneurs are going through a learning curve,” explains Rajesh Kothari, Co-Founder and Managing Director of Seneca Partners, Inc., a Birmingham venture capital and investment banking firm. “We see the learning curve across a variety of companies and bring our experience to bear on that.”
Relative to the well-established hubs on the east and west coasts, Michigan’s venture capital community is still young. Many of the firms were established in 2000 and afterward. However, plans are underway in the public, private, and academic sectors to grow Michigan’s venture capital industry by providing funding, incubating technologies, and retaining and attracting more talented entrepreneurs.
Both the state government backed Venture Michigan Fund and the 21st Century Investment Fund – another state organized fund – are ready to invest a total of over $200 million over the next three years into venture capital and other investment funds that will then aim to deploy this capital into Michigan-based companies in such cutting-edge fields as life sciences, homeland security, and alternative energy. A primary goal of these funds is to create and sustain new businesses, jobs, and technology in Michigan.
According to Ned Staebler, Director of Capital Markets Development at the Michigan Economic Development Corporation, both local and out of state venture capital firms have applied for these funds, which represent by far Michigan’s single largest initiative to date in the venture capital arena. Michael Shore, Chief Communications Officer for the MEDC, believes these funds are “opening the eyes of venture capitalists on the coasts to what is available in Michigan.”
The new funds have garnered a positive reaction from local venture capitalists. Mary Campbell, co-founder and general partner of EDF Ventures, says the impact will be, “Very favorable. It will provide additional money to venture capital firms already resident and doing business here, and will attract other venture capital firms to open offices here.”
In the private sector, the Michigan Venture Capital Association (MVCA) is playing a key role in the acceleration of venture capital in Michigan. Campbell, who is also the association’s president, says, “The MVCA has taken on as goals for itself to increase the amount of venture capital in Michigan, and to increase the number of talented entrepreneurs here in Michigan.”
To that end, the MVCA has received $2.1 million from the MEDC, a portion of which will be used to sponsor an Entrepreneur in Residence program in 2007. This offers a talented entrepreneur the opportunity to serve as the CEO of a venture capital backed company. The MVCA will also provide seed stage capital to an entity raising a venture capital fund.
On the academic front, recently Michigan’s universities have realized the value of technology commercialization. In return for licensing technology developed by students and faculty, universities receive royalties, equity stakes, or some combination thereof from companies founded by the developers. Additionally, society benefits from new innovations in the marketplace.
Launched in 2001, the Michigan Universities Commercialization Initiative (MUCI) supports the transfer of technology to the market. Tom Porter, founder and general partner of Ann Arbor-based investment and advisory firm Trillium Ventures and MUCI’s co-chairman says that MUCI plays an important role because, “It helps universities become more user friendly and helpful, so it’s easier for inventors to commercialize their inventions.” Nine of Michigan’s public universities and the Van Andel Research Institute participate. One of the chief components of the program is the Challenge Fund, which awards grants to further research that shows potential to become commercially viable, but has not yet advanced to the point of readiness for venture capital funding.
According to Porter, the Challenge Fund has awarded over 60 grants to date. And a high percentage of these grants have allowed inventors to bring their projects to the next level with capital received from equity investors. For 2007 and 2008, the state will increase the funding to $4.5 million and expand the focus from life sciences to include other technologies such as homeland security, advanced automotive and manufacturing, and alternative energy.
For venture capital to move its way up the growth charts, Michigan needs “talent, which goes hand in hand with capital. It’s about people with the experience of starting rapidly growing high technology companies and getting them financed and sold. You can’t go from a great idea to a great company without the talent and know how to shape or package the idea,” Porter says. “We need creative programs to stimulate the recruitment of talented people who can drive these programs. Good things bring more success.”
Photos:
Offices of Ardesta, LLC, an Ann Arbor based venture capital firm
Tom Kinnear of University of Michigan Wolverine Fund
HandyLab laboratory
HandyLab entry
HandyLab laboratory
Photographs by Peter Schottenfels - All Rights Reserved
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