University technology-transfer offices and venture capitalists in the Midwest have a lot to gain by working together, said a MGCS panel of experts drawn from universities, research institutions and venture capital firms in Michigan, Wisconsin and Ohio.
“Venture investing is a relationship business,” stated Erik Iverson, managing director of the Wisconsin Alumni Research Foundation, who spends considerable time meeting both with state legislators and company CEOs. “I can do nothing alone, so I’m willing to share deal flows and access to our people and our technologies. It’s important to build relationships across academia, industry and politics.”
The Midwest lacks the density of investors, entrepreneurs and startups that gives Silicon Valley its competitive advantage, so collaboration is more important in the nation’s midsection, according to Jim Adox, managing director of Venture Investors. “Our challenge is to take research and create teams and companies,” he remarked. “Working together and sharing resources with educational institutions will make us all successful.”
The Michigan Venture Capital Association’s 2018 research report estimated that $627 million of additional venture capital will be needed over the next two years to fund the growth of Michigan’s existing venture-backed startups. Yet only $403 million of venture capital is available in Michigan to support these companies. The resulting gap in funding opens the door for East and West Coast investors to swoop in and spirit away Michigan companies.
“One advantage in Michigan is that startup growth is seen as part of the state’s economic-development strategy,” observed Kelly Sexton, associate vice president for Research at the University of Michigan, who provides leadership and support for the work of the Office of Technology Transfer. She suggested that finding creative ways to engage U-M alumni in supporting startups through investment and mentoring could help fill the funding gap and strengthen the statewide entrepreneurial ecosystem.
Jack Miner, managing director of Cleveland Clinic Ventures, said that venture investors in the Midwest tend to be more focused on justifying the use of investment dollars than their counterparts on the coasts. “It’s about the IRR,” he commented. “Often it takes a long time before you see returns on investments in early stage companies.”
Iverson suggested universities can and should do a better job of collaborating and forging closer ties with the investment community. “We’re all struggling with access to funding and talent and smaller ecosystems,” he said. “We need to create more powerful pockets of entrepreneurship.” Panel presented by Venture Investors