Northern Michigan Angels: New collaborations, growth and what the group looks to invest in next

nmangels_logoA group of 30 investors is steadily making a name for itself in the angel community. Northern Michigan Angels is marking nearly five years in existence and is wrapping up a successful year and growing collaborations – both local and statewide.

The group’s plan for 2017: recruit more local angels to get behind the area’s thriving entrepreneurial spirit, said Deanna Cannon, executive director of Northern Michigan Angels (NMA) and also owner of Cannon & Company CPAs in Traverse City.

Founded in 2012, Northern Michigan Angels’ ultimate goal is to be involved in launching scalable, early-stage companies – ideally locally, but it also invests in entrepreneurs headquartered elsewhere in the state. Through those investments it hopes to help create jobs and improve the region’s economic prosperity while at the same time receiving a financial return on the invested capital.

The group’s members get that return when a company sells, and the group saw two exits from its portfolio in 2016, bringing the total number to five in nearly five years.

One of this year’s exits, RetroSense Therapuetics of Ann Arbor, was “very significant,” said Cannon – acquired by global pharmaceutical company Allergan, headquartered in Dublin, Ireland. RetroSense is a biotechnology company focused on “novel gene therapy approaches” to treating blindness, according to a news release announcing the acquisition.

Midland-based BlueWater Angels – not NMA – was the lead angel group, Cannon said, but some NMA members were part of the syndicate group of angel investors back in 2014. When the company sold earlier this year, member investors received three times their initial investment right away as a down payment. There could be additional funds paid if future thresholds are met, Cannon added.

The second exit involved Gemphire Therapeutics of Northville, Mich., a biopharmaceutical company which developed a drug to treat patients with cardiovascular disease. The IPO was launched in August and the price remains higher than the stock NMA investors purchased. However, the stock can’t be sold for six months due to Securities and Exchange Commission rules so the actual return can’t yet be calculated, Cannon explained.

In all, NMA has participated in 21 funding deals. Northern Michigan companies that have received investment by NMA members include Harrietta Hills Trout Farm in Cadillac and SiliKids and ALTUS Brands, both of Traverse City.

“Companies have to want to scale up and sell … otherwise we don’t get money,” Cannon said. “But selling doesn’t necessarily mean leaving the area, but rather just giving us an exit opportunity.”

There is one exception to this model, however, in NMA’s portfolio: Henrietta Hills Trout Farm.

“We’ve structured it so it’s a fixed return,” explained Cannon, of the legacy company – a company typically passed down from generation to the next. “It is generally difficult for angel investors to invest in a legacy company, and there are a lot of those here. Start-ups are what grow and add the jobs.”

Cannon pointed to membership growth – now at 30 – as a key in the group’s growing success. More established groups in more populated regions – BlueWater Angels in Midland and Grand Angels in Grand Rapids – both have 50 members, a number Northern Michigan Angels is targeting.

NMA members are enthused by the entrepreneurial climate in northern Michigan, and Cannon specifically highlighted TC New Tech, a monthly meet-up of tech-minded enthusiasts and entrepreneurs that NMA has begun collaborating with. The hope is that the tech group could become a significant source of deal flow for NMA.

“The analogy I like to use is TC New Tech is like the minor leagues, feeding companies into the major leagues (the NMA group),” said Russell Schindler, who founded the group in June 2015. “Not everyone is going to make it … but it’s nice having people from the angel group in attendance at the monthly meetings.”

Schindler, who is president of and American Remediation in Traverse City, said TC New Tech’s growth has “far exceeded his highest expectations” – from a couple dozen attendees at its first few meetings to 150 people last month.

NMA is also seeing the benefit of bringing what TC New Tech offers to other industry segments. At its annual dinner earlier this year, NMA hosted a panel discussion featuring the CEOs of three local technology companies and three local manufacturing companies, in the hopes of fostering some developments between these two communities. TC New Tech also recently held a “manufacturing night” as a way to further push conversations into potential collaborations with the advanced manufacturing companies in the region.

“With all the high tech now in manufacturing, I think there’s some synergies that can be enjoyed,” said Schindler.

On The Radar

The angel investor group is currently reviewing three Traverse City-based companies that it is eyeing for investment. They are Vector Center (a project of global news source Circle of Blue), Edit Juice, maker of a de-sugared fruit juice, and Promethient, a developer of products utilizing geothermal technology.

Lee Gardner, a founding member of NMA who also sits on its board of directors, said projects like these that are tied to the northern Michigan community and economy are particularly exciting from an investment standpoint.
Angel investing affords an opportunity to be much closer to the company, explained Gardner. “You’re not just looking at a monthly statement,” he said. “It’s more about rolling up your sleeves and helping than just writing a check. It has a community feel.”

In that vein, discussions are ongoing among local business leaders and investors about the need for an incubator in Traverse City to help companies become “investment ready.” Now it appears that idea is edging closer to implementation.

“Nothing is definitive, but we are working on a co-working space that will also function as an incubator,” said TC New Tech’s Schindler. “Something centralized and tech-oriented” – think Detroit’s Tech Town or Grand Rapids’ Start Garden, but sized and styled for the needs of this particular business community.

Schindler said the former ECCO event space in downtown Traverse City where the tech group currently holds its monthly gatherings is a possibility for housing such a space and the group is looking for partners in this new entity.

NMA is also exploring a “mentor directory” for these early stage companies, essentially providing a stable of experts willing to be tapped for their specialized expertise.

“From our seat on the bus, we see where the gaps are,” said Cannon. “Much of our deal flow (investment) so far has also required a lot of mentoring.”

She noted one project in particular needed to be “incubated” so NMA sent them to Seamless, an accelerator in Grand Rapids. The company ended up with two major customers, but ultimately ended up not coming back to NMA for possible funding.

Growing Angel Investors In Michigan

As part of reviewing future projects, Northern Michigan Angels (NMA) is also looking at how it can bring in additional investors to help it fund these early-stage endeavors. One effort NMA is working on is ways to bring non-accredited investors into the fold.

The state of Michigan has recognized the need to substantially grow the investor base if it wants to attract more entrepreneurs – and jobs – to the state, said Deanna Cannon of NMA. Early this fall, the Michigan Economic Development Corporation issued a Request for Proposal to advance this initiative.

Through the 2016 Angel Capital Development Fund, the Michigan Strategic Fund plans to allocate up to $750,000 over a three-year period to a nonprofit organization (or organizations) to expand the network of angel investors in Michigan. In addition, the state wishes to see education of early stage investors around the value of angel investing and reduce administrative costs for angel groups.