Labeled: Venture Capitalist (part 1) – Midwest, Michigan, or Ann Arbor VC?

There is an old joke about a pushy guy who jumps a line at a check-out counter and the clerk tells him to go to the back of the line.  The man retorts, “Do you know who I am?”  The clerk responds by getting on the PA system and announcing “We have someone here who doesn’t know who he is.  Can someone in the store help?” 

A few weeks ago I was being interviewed and the reporter referred to me as an “Ann Arbor Venture Capitalist.”   I corrected him, and suggested “Michigan Venture Capitalist.”  Then I recalled a series of conversations I had recently around the Great Lakes region; In Chicago someone described me as a Midwest VC.  In Grand Rapids another person described me as part of the East Side VCs.  I just think of myself as VC.  However, with all of these labels I begun to have an identity crisis of my own and was reflecting on the impact of these labels on the rest of the region.

The biggest question I asked myself is, do these labels create silos or segregation of the venture communities in the region?  I would contend that it does, and worse yet I’ll make the case that it has effectively harmed the entire entrepreneurial culture in the region.  Let us look at a couple of uncomfortable but real facts:

  • Entrepreneurs in the region and every sub part of the region universally complain about a lack of capital locally.
  • The region is viewed by Silicon Valley and New England as a fly over zone.
  • The region does not have very many sustained stand-alone traditional venture funds at almost any stage.
  • Every sub-market of the region has its own economic development, entrepreneurial fast start initiatives, and entrepreneur’s gatherings that have moved the needle, but not nearly enough.

For the most part all of these are a result of the little cross-boundary interaction.  Economic development agencies in the region all have programs that don’t seem to be synchronized.  Entrepreneurs in Chicago, for example, have no awareness of who are the VCs in Michigan or Ohio.  I can count on one hand the number of venture funds in the entire Great Lakes region that has $100 million or more in their current fund.   And, while none of us admit it, most VCs in the region don’t defend the region to our buddies on the coasts; we simply like to wear the “crazy for staying in the Midwest” badge like it is a special honor that they couldn’t hack.

Of course, everyone hates the person that just complains about problems, and doesn’t offer any solutions.  Especially me.  While these aren’t specific, here are some suggestions on ways to improve our community in the region:

1)      Stop Viewing Other Venture Firms in the Region as Competition. VCs in the region need to share their best deals first with the other firms in the region, and need to do so aggressively.     I’m the first to say it, even in Ann Arbor, in just one city it seems like there is little trust or cooperation and it extends across the region. We need to stop viewing each other as competitors and start actively trying to build syndicates for current and future rounds as much as possible here.  This has the added bonus that when we do have a big win, institutional investors will take notice and realize that if they aren’t investing in Great Lakes funds they will miss out because the coastal funds aren’t getting access to the region’s best deals.  For example, ShareThis (400M users, nearly 1 million sites) was a deal put together and owned primarily by 4 funds with operations in the region (Blue Chip, DFJ Merucry, Illinois Ventures, and us – RPM).

2)      Entrepreneurs need to think Great Lakes, Not Just my City.  Entrepreneurs in the Region need to familiarize themselves with every VC in the region, and get introductions to them.  Getting in a car and driving from Ann Arbor to Cincinnati is easy to do.  Know who writes first checks and who doesn’t.   Make sure you go to networking events in multiple cities.  The reality is, there isn’t a ton of capital here, but the entrepreneurial community isn’t that large either.  If you are willing to look, there are enough firms in the region to support Seed, Series A, and Series B rounds for every type of company.  You just have to be willing to go find them.  The value? Someone in your own backyard who is active and hands on.

3)      States must Partner to Compete.  Every state in the region says they want to compete with Silicon Valley.  Michigan alone can’t do it.  Illinois alone can’t, etc…  For any state in the region to compete effectively, it needs to be done as a region.  MEDC (Michigan), DCEO (Illinois), Third Frontier (Ohio), and the other economic development organizations all need to find a way to cooperate and have some continuity between programs. If a Fund in Ohio invests in a Michigan deal that becomes a success, then we all win.

The good news is we are starting to see some of this movement.  The Midwest Governors Association is having a small summit on this topic today.   The Midwest Healthcare Investors Network has built some co-operation in the life science/med tech space. Michigan Growth Capital Symposium and Invest Midwest are gaining momentum and really beginning to pull VCs in the region together.

These are earnest beginnings, but they are just that.  If the entire entrepreneurial and venture community in the region doesn’t adopt some of these ideals as a part of our core attributes, in 20 years we’ll look up and we’ll still see the planes flying over.

By the way, the answer from now on is a “Great Lakes Venture Capitalist.”

– Marc

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