Grand Angels surpassed its projections for 2014.
The Holland-based regional investment organization released its 2014 annual report May 6, indicating the angel fund not only exceeded its goal for 2014 by investing roughly $2.5 million into 12 early-stage companies, but also refined its strategic direction for the future by honing its future investments in four market segments.
During 2014, the angel fund exceeded its initial goal to invest at least $2.3 million in 10 deals by closing on 12 deals that included four new portfolio company additions and eight follow-on round investments.
Of the $2.5 million in funding for 2014, roughly 35 percent was invested in the biotechnology industry and another 35 percent was allocated in the software and IT sector, according to the Grand Angels 2014 Annual Report.
The remaining 30 percent of Grand Angels investments for 2014 went toward portfolio companies in industries such as semiconductors and networking, industrial and energy, and health care and medical.
Jody Vanderwel, president of Grand Angels, said the significance of exceeding the initial goals for the year reflects both the angel fund’s growth and a growing early-stage investment space in the state of Michigan.
“We continue to grow, and our investors continue to have confidence in the whole early-stage space — otherwise they wouldn’t keep investing in that, which of course gives us confidence we are going to continue to be active in the space,” said Vanderwel.
“For the state of Michigan, it means there continues to be a good deal of flow: There are entrepreneurs here who are coming up with good ideas; we are probably attracting and retaining talent the way the state needs to; and the whole venture capital and angel space is continuing to grow.”
The newest additions to Grand Angel’s portfolio include Accio Energy, A2P LLC, Tecat Performance Systems and Zipment.
Vanderwel said the due diligence process for selecting businesses includes looking for a company solving a real problem with a strong leadership team and that has a clear line of sight for a potential exit strategy.
“We are looking for a company with a really topnotch leadership team and a company we believe brings the opportunity for 35 to 45 percent annual internal rate of return, because given the high risk of these investments, we need the opportunity for a homerun every deal that we make,” said Vanderwel.
“We know 10 percent or 20 percent will be successful, but every investment we think has a chance to be a homerun.”
Other companies in Grand Angels’ portfolio as of 2014 are: Ablative Solutions, Advanced Architectural Products, Altus Brands, Ambiq Micro, Armune BioScience, Blue Medora, Conceivex, Creative Byline and QMinr, Grand River Aseptic Manufacturing, Janeeva, Local Orbit, ProNAi Therapeutics, Salamandar Technologies, Tetra Discovery Partners, Tolera Therapeutics, V.I.O., Varsity News Network and Vestaron Corp.
As the angel fund looks ahead to goals for 2015 and strategic direction for the next decade, Vanderwel said it is focused on clearly articulating business sectors of interest, consistent and deeper due diligence processes, and interacting with members to gain perspective and feedback on deals.
“Those are the key ways in which we want to make some refinements to our process in order to make us successful and sustainable for another 10 years and continue to increase our chances of making smart investments,” said Vanderwel.
“I think one of the keys is we celebrated our 10th anniversary and we took the time to think about what would make us successful for the next 10 years.”
Grand Angels’ goals for 2015 include investing in 10 deals, with roughly half a dozen syndicate deals, and reaching 45 members with a 75 percent attendance rate and a 60 percent participate rate in the due diligence process.
The angel fund board of directors and members also supported a decision to focus 2015 investments in four market segments: life sciences; digital media, software and IT; advanced manufacturing and advanced materials; and advanced technologies in agriculture and food.
“We think our members have expertise in those areas, which means it helps us conduct better diligence — understand the technology and the market better than maybe some other business sectors that we just don’t have as much experience in,” said Vanderwel.
“We think they play to the strengths of the state of Michigan, overall, so we have within our state, capability in our areas that is unique and special.”
Grand Angels launched 2015 by closing on two or three deals, and has made an average of $1.48 million in annual investments during its roughly 10 years of operations. Since Grand Angels began in 2004, it has made a total investment of more than $16.2 million in early-stage companies throughout the state of Michigan.
“If I look back to when we started Grand Angels … this whole industry was in its infancy in Michigan. We had no idea whether Grand Angels was going to be able to survive, let alone thrive,” said Vanderwel.
“Since the early 2000s, I think this industry in Michigan has grown tremendously over a relatively short period of time — both venture capital and angel.”
Grand Angels has provided an average of roughly $507,000 in funding to each portfolio company from 2004 to 2014, with an average round investment of more than $210,000. Within a decade, Grand Angels closed on an average of 6.4 rounds per year with more than seven investors in each round.
“The quality of deals has exceeded what it was before the economy tanked, the number of accomplished entrepreneurs in Michigan has increased, and certainly the amount of available capital has increased,” said Vanderwel. “While Grand Angels is growing and experiencing some success, we would love to have new members, accredited investors who are looking for an opportunity to invest in this space.”
The Center for Venture Research at the University of New Hampshire released an Angel Market Analysis Report for the first and second quarters of 2014 indicating the average deal size in entrepreneurial ventures was more than $332,000, which declined slightly from the average investment of more than $337,800 in the same period for 2013. Despite the decrease, approximately 30,270 entrepreneurs received funding during the first and second quarters of 2014, which is a 5.9 percent increase from the prior year, and the number of active investors increased by 6.1 percent during the same period from 2013 to 2014.
The Michigan Venture Capital Association, which represents venture capitalists and angel investors, indicated in its 2013 annual report the state’s venture capital community outpaced the national landscape during 2009 to 2013. Firm numbers in Michigan grew during the five-year period by 44 percent, while there was only a 6 percent growth rate across the nation.
In 2013, the national venture capital community invested $29.5 billion across more than 4,000 deals, while Michigan had a $108 million deployment in venture capital for roughly 72 deals.
Vanderwel attributes the growth to individuals who work hard to develop investor companies and entrepreneurial companies, as well as the investment allocated by the state.
“It is not a grant; it is an investment bringing a return to the state. It is genuine investment in a growing industry, in a state that is running counter to so much of the industry across the country where there has been some decrease in the amount of venture capital funds and the amount of capital being raised,” said Vanderwel.
“Michigan is going the other direction, which is a really good and important thing.”