Coming off what Diane Durance calls a “robust” year in 2022, Grand Rapids-based Michigan Capital Network looks to close fundraising in 2023 on a fourth venture capital fund and grow its network of angel investors. Durance oversees the angel investing side of Michigan Capital Network, which manages four venture capital funds and five angel investor groups: Grand Angels in Grand Rapids, Ka-zoo Angels in Kalamazoo, Woodward Angels in Detroit, Flint Angels and BlueWater Angels in Midland. She returned to Michigan in August 2021 to join Michigan Capital Network as executive vice president after working for five years in North Carolina.
What’s the present landscape for angel and VC investing in Michigan as we head into 2023?
Our fund investing in 2022 has been extremely robust in terms of the dollars deployed to help these technology ventures reach their next milestone, and it was really packed toward the front of the year. Earlier in the year, we had a lot of deals, and then it has slowed down in the latter part of the year as valuations are kind of a question mark and likely to be lower. So, companies that don’t need to fundraise, that can slow their growth and kind of spread out their cash flow, are doing that because they want to wait and see if the market’s a little better when they go out to raise money, and eventually they’ll have to.
At some point, they’re going to need to raise money. We’re really looking at things getting energized maybe at the end of the first quarter, into the second quarter of next year, but right now it’s pretty slow. Everybody’s kind of taking this approach of ‘let’s see how long we can go without having to raise money.’
How has angel investing been changing as your groups matured?
We do have the longest-standing angel investment groups in the state that are part of the MCN network, and since some of those groups have been around close to 20 years, some of the older members that have been there from the beginning are starting to move away from angel investing just because of the time horizon. But we’re also seeing at the same time a whole new generation of angel investors coming into investing in our groups. Some of our younger groups like Woodward Angels and Ka-zoo Angels tend to be attracting younger investors. On a whole, there probably will be more angel investors, but younger investors tend to have less resources to invest in angel opportunities, so the dollar amount that they’re investing may be lower.
With the stock market volatility, do you expect more investors to turn to angel investing as a place to put their money?
Absolutely. As the public markets have gone down and you have the inflation and interest rates going up, angel investing may be, for some investors, an opportunity to beat inflation, to be investing in something that might have a higher return.
What’s the biggest challenge for Michigan Capital Network in 2023?
Our biggest challenge is just reaching people and that next generation of angel investors and really bringing them in and helping them understand the asset class and how it works and how it might fit in their investment portfolio, but also just finding those that are inspired by these entrepreneurs and really do want to help these early stage, innovative companies bring these new technologies to market. It takes a certain mindset to really enjoy angel investing to learn about what is happening and what are the technologies that are coming forward.
What’s your biggest opportunity?
We’re almost in the final stage of raising fund four and it is the largest fund that we have ever raised. We’re excited about having the amount of capital that we’ll have to deploy and we’ll be able to invest in the best opportunities because we’re now at that stage where we’re large enough that we can attract the CEOs that are looking for funding at a higher level. I think we’ll have more and better investments next year. The growth opportunities are huge for MCN and for our fund investors and our angels that get the opportunities to invest in the same deals that fund is selecting and vetting.
We think our timing is great because we might be really well-positioned with cash on hand for investments that come up in the first and second quarter of next year where valuations might still be somewhat depressed, so we’re getting in on opportunities with good valuations, and then with good upside potential on those investments.
What’s a prediction that you have for 2023?
I’m thinking, as far as venture and angel investing, that it won’t be the slowdown that people are imagining because it is an asset class with a lot of really interesting, dynamic things happening and a lot of momentum coming out of 2022. The other dynamics in the market affect angel investing and venture capital differently than they do the other asset classes. Bottom line, venture investing — especially the way we’re doing it through our fund and the Series A and B rounds and the angel investing in Michigan — is more resilient than people think.