GRAND RAPIDS — A West Michigan capital investment fund that involves the family office for Doug and Maria DeVos wants to make long-term investments across a variety of industries with a goal of preserving and growing local companies and jobs.
The DeVoses’ Continuum Ventures LLC has partnered with Grand Rapids-based Auxo Investment Partners to manage the new Michigan Opportunity Fund, whose early investors include businessman and auto racing icon Roger Penske. Among the fund’s investment targets are Michigan-based family-owned companies whose owners are ready to retire and lack a next generation to take over.
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The Michigan Opportunity Fund will make majority and minority investments in small and mid-sized companies across the state. Investments will occur across the capital spectrum, from growth and buyout capital to subordinate and distressed debt.
The response from prospective investors across the state has been strong, said Doug DeVos, the co-chair of Ada-based direct-selling giant Amway Corp. Even investors who passed on the opportunity told him “I love the idea” and offered advice on creating the fund, DeVos said.
“The fund has been really, really well received,” said DeVos, who sees a large demand for the kind of capital the fund plans to invest.
“In our discussions, this is a market that sometimes isn’t always served or may not be served totally, meaning you may have pockets if it’s around a big city or somebody gets connected, but maybe it’s just not as serviced as fully as it could be. That’s what we’re trying to do,” DeVos told MiBiz. “We want to be a spark in the neighborhood and maybe we can have a role to play in making things better or creating an environment where businesses can thrive at an even higher level going forward.”
While partners are reluctant at this point to discuss how much they intend to raise, the fund could become substantial, given the connections of DeVos and his family office’s involvement, plus the existing investors in Auxo Investment Partners that they intend to approach.
“We want to keep making friends,” DeVos said. “This is north, south, east, west, across all of Michigan — wherever there’s friends, wherever there’s people interested in this.”
As well, the fund will offer companies more than simply financial investments. Partners bring to the fund their own networks of people who can offer advice and guidance to the companies that it backs.
“That’s what good partners do: They introduce you to the next partner, or the next friend or connection. Those are the things you want to bring because sometimes just throwing money at a problem isn’t the solution. It’s the ingenuity, it’s the creativity, it’s the people,” DeVos said. “You’re going to need some money somewhere along the line, but what you really need are great people and great ideas, and people who understand the bigger issues of what a business is trying to accomplish, what value they’re trying to provide for their customers, what environment they want to create for their employees, and what role they want to play in their communities.”
Investment targets
Partners intend to target an array of sectors that include health care, technology, food and beverage, consumer products, manufacturing, distribution, and business and industrial services.
The fund will consider companies with owners and management teams that want to grow the business, or cases in which the founder or family owners want to sell and retire. Investments will go toward companies with revenue of $10 million to $200 million with $2 million to $20 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).
Organizers are building the fund “to have a pool of capital that supports just about any Michigan business, regardless of the type or need it has for capital,” said Jeff Helminski, co-founder and managing partner at private equity firm Auxo Investment Partners.
“We built the fund to broadly support Michigan businesses regardless of where they’re at in their need for capital or the evolution of their life cycle,” Helminski said. “We wanted to make sure we had a wide enough angle on the lens that we’re looking through for investment opportunities so that we could see all of the opportunities that are out there and consider all of those opportunities.”
The fund’s first deal could close within 60 days, he said.
Creating connections
The idea for Michigan Opportunity Fund started last spring as DeVos talked with colleagues at the West Michigan Policy Forum, where he serves on the board of directors, and the Grand Rapids Area Chamber of Commerce regarding how best to respond to the COVID-19 pandemic and its effects on small and medium-sized businesses.
“The idea is that if we could really find a way to connect with these businesses and partner with them, and to focus and bring resources and support to them in a different way, maybe we can be helpful,” DeVos said.
Those discussions led to Auxo Investment Partners and the partnership to create the Michigan Opportunity Fund. The partners are launching the fund not only amid the pandemic, but also as an entire generation of entrepreneurs will need to retire and exit their businesses.
In the last few years, business leaders and economic developers have voiced concerns about the sale of local businesses to owners from outside of the region, or to out-of-state private equity investors who lack ties to the community.
“We’re living it as business transitions from one generation to the next,” DeVos said.
Many businesses are poised for growth and need capital, “but just making that next step or connection is a tough one, so maybe we can help on that front, too,” DeVos added.
Organizers have been approaching family offices, institutions, and other prospective investors around the state to back the fund, which “isn’t so much focused on a particular dollar amount as it is focused on finding the right group of capital partners to be part of this with us,” Helminski said.
Local focus
Key differentiators for the fund compared to many private equity firms are maintaining local ownership and owning companies well beyond the typical timeframe of many PE investors, perhaps indefinitely in some instances, he said.
“We’re really looking to connect with people that share our values, our passion for Michigan, and believe that you can leverage our investment activities as a force for good to create jobs and support Michigan communities, all while delivering superior returns,” Helminski said. “We want to connect with like-minded individuals, families and organizations that share those beliefs and invite them to be part of this with us.”
One of those like-minded individuals is Roger Penske, the 83-year-old chairman of Bloomfield Township-based Penske Corp.
In a statement on the fund’s formation, Penske said that “it is an honor to partner with the DeVos family and other Michigan investors in this endeavor, and I look forward to the economic vitality the fund will usher in across the state, from Detroit to Grand Rapids and all points in between.”
“The Michigan Opportunity Fund presents the unique opportunity for local investors to invest directly in the future of our great state, supporting its family-owned businesses and the communities in which they operate — and at a particularly pivotal moment,” Penske said.
Respecting legacies
The fund’s focus on attracting Michigan investors and family offices to invest in Michigan-based companies represents a “big selling point” when scouting for prospects, according to Helminski. Oftentimes, sellers of family-owned companies have concerns about their legacies in their communities under the new ownership, particularly when they sell to out-of-state investors.
“If you’re a family-owned business that’s reached the point of deciding it’s time to sell the business because there is no next generation, the prospect of … partnering with a group like us, which is made up of other well-known and highly respected families who have built businesses similarly to the acquisition targets we have, will be very appealing to people — and comforting,” Helminski said. “They are trusting their legacy and their employees’ future into the hands of people that are going to treat it with the respect and with the care that they would have if they continued to own it.”
He expects the fund will likely make 12 to 15 investments over a four-year period, after which partners would then consider forming a successor fund.
“I would love nothing more than for this to be the first of many and to have what ultimately becomes a perpetual pool of capital that we can continue to invest in Michigan businesses as they grow over time, and as more get to the point of meeting those generational transitions,” he said.
