Michigan venture capital bounced back from pandemic lows of 2020

In what was a banner year globally for venture capital, the industry within Michigan had a pretty good year itself.

That’s according to the annual report released Thursday by the Michigan Venture Capital Association, which tracked a total of 161 startup companies in the state receiving north of $1.4 billion in VC investment last year.

That’s a substantial uptick from the first pandemic year of 2020, when the Novi-based trade group tracked just 88 startup investment deals, totaling $257 million.

Michigan “is leading the ascent of the Great Lakes region amid the national VC landscape,” according to the 2022 report, which notes that the state was second in the region — but trailing Illinois and the Chicago region — for VC assets under management.

“For a year that saw many records being broken nationwide, we were proud to see that Michigan beat both the National and Great Lakes region average for investment volume,” Jeffrey Rinvelt, MVCA chair and a partner at Renaissance Venture Capital in Ann Arbor, said in a statement. “Our report is more than facts and figures; it tells the story of the enormous impact and resiliency of the venture-backed businesses and how Michigan is becoming a leader within the Great Lakes region.”

The 2022 report marks the 20th anniversary of the annual research report, and a key goal was to make the report into something with more of a narrative, highlighting the industry’s growing success in the state and region, said Ara Topouzian, executive director of the MVCA.

“We wanted to create the stories we wanted to tell more about the vibrancy of the Michigan startup community,” Topouzian told Crain’s. “And the positive effects that venture (capital) does have.”

Additionally, Topouzian said the trade group partnered with industry data firm Pitchbook for much of its data used in the report.

While relying on various stories and narratives, the report highlights a number of significant data points highlighting the continued growth for the state’s startups and venture funds:

• The number of venture-backed startups in Michigan has grown by 56 percent over the last five years, hitting 154 last year.
• There were 19 exits by Michigan VC-backed startups in 2021, the largest number of exits in a given year.
• Michigan VC funds had a total of $5.4 billion under management last year, an increase of 100 percent over the last five years.

The MVCA report also highlights some interesting geographic breakdowns of where VC deals are being done in the state.

In most categories, the Ann Arbor and Detroit areas stand as the state’s hubs. For instance, Ann Arbor saw 41 deals last year, followed by Detroit with 31 and Grand Rapids with 14. Ypsilanti, Traverse City and East Lansing each saw five deals, according to the report.

However, Detroit led the way in deal value with nearly $537.8 million, followed by Ann Arbor with deal value totaling $419.57 million.

Kalamazoo, Madison Heights and Grand Rapids rounded out the top cities for deal value.

The MVCA report looks at the year that was 2021, and the venture capital space has hardly been immune from the larger market chill that has taken hold in the new year. Recent reports show that in Michigan, deals last quarter were down but investments were up.

Topouzian said that as it’s still only halfway through the year, “it’s still too early to tell” how 2022 might shake out for VC funds and startups in Michigan and beyond.

The MVCA report, however, points to at least one bright spot: VC funds have “dry powder” — that is, uncommitted money ready to invest — available.

The remaining capital available for new investments in 2021 was $527.6 million, according to the report. As for follow-on funding for startups, it is expected that $236.8 million is reserved for existing Michigan-based portfolio startups.