GRAND RAPIDS — Michigan Capital Network netted $37.5 million to date in its drive to raise $50 million for a fourth venture capital fund, a goal that has doubled since fundraising began in early 2022.
The amount raised so far for Michigan Capital Network Venture Fund IV L.P. came from 91 investors, according to a Jan. 24 regulatory filing with the U.S. Securities and Exchange Commission.
The closing this month on the $37.5 million included investments from two institutional investors and provides strong momentum for continuing fundraising, which Managing Partner Dale Grogan expects will run through the first quarter.
“We’ve hit our stride and we have the right story and the right market conditions,” Grogan said. “History suggests that we’ve been doing a pretty good job.”
Michigan Capital Network 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. The groups collectively have more than 200 members.
The Grand Rapids-based Michigan Capital Network focuses on seed and Series A-round investments, usually with other investors, for startups primarily involved in life sciences, advanced manufacturing and software. The investment firm holds positions in 45 portfolio companies and deployed $75 million in capital over 19 years through its venture capital funds and angel investors that co-invest in a deal, Grogan said. The organization invested $10.7 million in 2022.
Michigan Capital Network originally intended to raise $25 million for its fourth fund. The firm increased the goal last year to $35 million and, based on its ongoing success at fundraising, raised the target again to $50 million.
The larger fund will have the ability to “write larger checks” in Series A and early Series B rounds that will come with greater involvement in a portfolio company, perhaps through a board seat, Grogan said.
“It gives us greater influence. When you get to come in and say, we can take a larger piece of the round or we can be the lead investor, that gives you the ability to get access to the company,” he said. “We are active investors and we want to add that role. We’ve been in a lot of deals and that experience should help the entrepreneur, who may or may not have been through the entire business life cycle.”
Since launching in early 2022, Michigan Capital Network Venture Fund IV has already completed seven investments using committed proceeds. Grogan expects the fund to equal that deal flow in 2023 and make up to 24 investments over the next two years.
The present deal pipeline remains full, he said.
“We looked at 2,500 deals last year, and so the top of the funnel is just brimming,” Grogan said. “But the bottom of the funnel, in terms of the number of deals that we’re doing, is really good.”
In raising capital for its fourth fund, Michigan Capital Network has drawn support from a broader spectrum of investors that include public- and private-sector institutional investors that invested along with individuals and family offices, Grogan said.
The institutional investors “came in with significantly larger checks,” making the “numbers balloon very quickly” and lifting the fundraising beyond the $35 million goal. As Michigan Capital Network fundraises toward the larger $50 million goal, “we’re talking with a few more” institutional investors who could help the fund achieve its target, he said.
A recent quarterly report from Pitchbook and the National Venture Capital Association listed just two firms in Michigan that closed on capital raises last year that netted a combined $25 million, although that tally could increase as firms report closes that occurred late in the year.
In 2021, 13 venture firms in the state raised $140.2 million. A year earlier in 2020, nine firms raised $500.4 million, according to Pitchbook and NVCA data.
Nationwide, 769 venture capital funds raised a record $162.6 billion in 2022, according to the quarterly Venture Monitor report. That compares to 1,270 funds that raised $154.1 billion a year earlier.
More than 70 percent of the venture capital raised in 2022 went to funds of $500 million or more that are led by experienced fund managers.
“The activity suggests that investors are less willing to take gambles on new managers without historical track records or go through the costly exercise of performing due diligence on new firms,” according to the fourth quarter Venture Monitor report.