June 24, 2013 @ 8:26 am
The Michigan Angel Fund (MAF) is a for-profit, professionally managed equity fund focused on capital efficient early stage companies located in Michigan. It is a $2 million fund that, with nearly 70 members, is the largest angel organization in Michigan.
“There are two really unique aspects to MAF,” explains managing director Skip Simms. “MAF flipped the traditional angel model on its head by raising a fund first, reaching out to existing angels around the state, and people new to the angel community.
MAF is looking to fund companies that need $1-4 million in total investment to get to profitability. “Most VCs aren’t interested in these investments because these companies are too small,” Simms explained. “In reality, the majority of startups don’t need the amount of capital that can generate the size returns a VC needs. We believe these smaller companies can still generate significant outsize returns comparable to VC returns on an IRR basis, just smaller dollar amounts.”
MAF is also unique because its managing member, Ann Arbor SPARK, is a non-profit economic development organization that provides support to the fund and its funding recipients. Ann Arbor SPARK, as managing member, coordinates screenings of fund applicants, conducts due diligence, and works with the New Enterprise Forum to prepare companies for their investor presentations. Ann Arbor SPARK also handles back office work on behalf of MAF.
“People wonder why Ann Arbor SPARK, an economic development group and non-profit, decided to create a for-profit identity and get in to managing an angel fund,” Simms said. “If you look back a few years ago, it was apparent that the companies Ann Arbor SPARK and other groups were helping were all struggling to raise funds, mostly because they didn’t need a large investment, and weren’t quite right for VCs. On the flip side, Michigan is a top 10 state for high net worth individuals, yet we didn’t have a lot of angels investing in these companies. We need to develop an angel funding culture. By supporting MAF, Ann Arbor SPARK brought more individuals in to the angel arena, and made it easier for startups to find capital in the state.”
Startup BioPhotonics Solutions is the first company to benefit from MAF’s focus on Michigan businesses. The company, a Michigan State University spin out venture, is developing technology that automated the process of shaping and compressing ultrashort (femtosecond) laser pulses, ultimately improving their utility. In addition to funding, MAF helped find BioPhotonics’ CEO Kyomi Monro.
“It’s important that MAF have an active role in its portfolio companies; by having a hands-on approach, MAF delivers valuable support beyond just funding the business,” Simms said. “The angel community backing MAF offers a very diverse and significant depth of experience that can be a big help in getting a startup on the fast track to success with the connections and wisdom of its members.”
Going forward, Simms said that MAF will shift its focus from closing the fund to making investments. “A year from now, we want to have six to eight companies in our portfolio,” he explained. “At that point, we can begin thinking about raising another fund to keep MAF going. The true measure of our success in a year is whether MAF’s 70 investors are happy with the program, its process and want to keep it going and keep making great things happen here in Michigan.”