May 24, 2013 @ 9:03 am
With a relatively late start, Michigan’s venture capital community spent the early 2000s playing catch up to the leaders of the national venture scene, not redefining it. But the 2008 creation of Michigan’s first private venture capital fund-of-funds was so revolutionary it made waves that continue to reverberate around the country and established our region as model for innovative venture fund creation.
Formed in association with Business Leaders for Michigan and with the backing of some of Michigan’s largest corporations, the $45 million Renaissance Venture Capital Fund I was hailed as a new model for fundraising. The private sector could improve on the long-used public economic development model, using a fund of funds vehicle to earn strong returns, increase venture capital activity in a region and improve the portfolio’s chance of success by giving young companies invaluable direct access to their largest potential customers in the state—the Fund’s investors.
Renaissance Venture Capital Fund CEO and Fund Manager Chris Rizik describes these kinds of connections as “make or break” for some of the start-ups in his fund’s portfolio, allowing them to gain market traction quickly. “Venture fund managers do a great job of vetting technology but the difficult piece is validating is the market—is there a customer base out there, and can we bring in a significant customer quickly? With Renaissance Venture Capital Fund, we’re actually introducing the market to the start-ups. If we find an interesting investment in the energy space, for instance, we’re one phone call away from DTE Energy. A first or second customer of that size and profile can mean the difference between a slow climb or a quick ascension into viability.”
The success of Renaissance I led to the $65 million Renaissance Venture Capital Fund II in 2012, whose investors include a base of returning institutions as well as new additions like prominent Michigan businesses Meijer Inc. and La-Z-Boy; the first university to invest, Wayne State University; and three influential Michigan foundations: the Herbert H. and Grace A. Dow Foundation, the W.K. Kellogg Foundation and the McGregor Fund. Rizik says expanding the investor profile was always the intention of the Fund’s organizers. “The hope was to make this more than just a corporate-backed fund, involving Michigan institutions that represent many different stakeholders. Fund I proved that a privately-backed fund-of-funds model could achieve regional impact while achieving solid financial performance for investors, so we were thrilled to widen the opportunity with Fund II.”
Rizik and partner Jeff Rinvelt credit recent strong returns and exits in Michigan for the Funds’ robust deal flow from all over the country, and Rizik says the Funds have doubled original targets for investment dollars attracted into the state. In fact, the Renaissance Venture Capital Fund model has been so successful that leaders around the country have sought out Renaissance and his team to help replicate the model in their region.
“Cincinnati was a region facing many of the same issues we had in Michigan. Led by executives from Proctor & Gamble, a group there commissioned a McKinsey Consultants study that suggested they replicate the Renaissance Venture Capital Fund model,” said Rizik. The managers of the resulting fund, called Cintrifuse, asked Rizik to sit on the advisory board and share best practices.
“We’ve helped Cintrifuse, and others who are also attempting to copy our model, because we feel it’s good for us to have complementary regional fund of funds. And because we know this is a model that can make a huge difference to a geographic region that really needs it—we’ve seen it happen first-hand in Michigan.”