“Ann Arbor is the natural startup hotbed,” said Tim. “We intentionally opened our first office in Ann Arbor. That’s the center of talent in the Midwest.”
Huron River Ventures Partners, an Ann Arbor, Mich.-based early stage venture capital firm, just announced that it recently closed the final round of its first fund, Huron River Ventures I at $11 million.
Tim Streit and Ryan Waddington, managing directors of Huron River Ventures, are ready to invest in more companies looking to change the way we consume energy. The pair moved to Ann Arbor and started investing in young startups in 2010. Since then, they have made seven seed-stage investments in energy-efficient companies including Side.Cr, FarmLogs, and Ambiq Micro.
But this isn’t about just solar or wind energy. This is about companies with a novel approach to consumption and use. For example, as Sterit told me, they invested in Side.Cr because of how it changes transportation, Michigan-based FarmLogs for its potential to disrupt agriculture, and Ambiq Micro, a company that claims to build the most energy-efficient microchips.
This isn’t a fund looking for companies built around buzzwords like “cleantech” or “green energy”. This is venture capitalists investing in technology that’s clean.
Both are from the great state of Michigan, attended the University of Michigan, and returned to the Great Lakes State after stints elsewhere.
“The caliber of talent here, young tech talent, and on a relative basis, is a greater access to talent and the cost of doing business.” Tim said. “You have access to human capital and financial capital that’s growing very quick. I think you need to overlay the Midwest work ethic. We are very bullish on the work ethic.”
As someone who has spent a good deal of time in Detroit and Ann Arbor, I can tell you this is a very common sales pitch. I was born in Michigan and never left. We’re very proud of our talent and work ethic. But the state is struggling to retain the talent it trains.
As Tim explained, Ann Arbor naturally attracts talent. “That being said, it’s a bit harder to stand out in Ann Arbor than Detroit.”
“Why fight for money in Ann Arbor when there’s low hanging fruit in Detroit,” he said flatly, pointing out the free office space and access to technical resources provided by Dan Gilbert’s companies. “But this isn’t Silicon Valley.” he added. “Fellow VCs discovered we don’t have to fight over deals. There’s a lot of collaboration between Ann Arbor and Detroit.”
Predictably, upon moving back to the area, Tim and Ryan quickly rediscovered the depth of the technical talent in the area.
“We’re finding a lot of rock star technical founders here,” Tim explained, pointing to FarmLogs, one of HRV’s early investments as a perfect example. The Y Combinator alum just closed a $1 million seed round, which HRV participated in, and aims build a cloud-based analytics platform for farming.
FarmLog’s founders didn’t attend Stanford or MIT, although Tim promised me that they could have if they wanted to, but rather went to Saginaw Valley State University, a small college close to the family’s farm.
With this $11 million fund, HRV will continue its goal of providing seed and early-stage capital, support and guidance to startups in and out of Michigan. The pair travels a lot, and they’re finding that VCs in the Valley are increasingly interested in the overlooked sectors startups are exploring in the Midwest.
“VCs are dying to see what we’re working on. There are so many me-too businesses in Silicon Valley – everyone is doing the same thing. Look at FarmLogs: Agriculture is the second largest economic sector in Michigan.”
This fund is just the latest from the many firms in Ann Arbor. With the University of Michigan in the city and several other colleges in the area, it’s long been a popular spot for VCs to set up shop. Per the Michigan Venture Capital Association’s annual report (PDF), out of the 106 venture-backed companies in the state, 43 are based in Ann Arbor alone. CrunchBase lists ten VC firms within Ann Arbor’s city limits.
Venture investment is quickly gaining steam in Michigan. 2011 saw a record year for fundraising and likewise, in 2012, firms invested $232 million over 47 deals. It was a dramatic increase over 2011 levels where less than $100 million was invested. This spike caused the state’s national ranking to jump ten spots, landing it as the 15th most prolific state in terms of capital investments.
Huron River Venture Partners was selected by the State of Michigan, which awarded the fund’s first $6 million. The remaining $5 million-plus came from a combination of family offices, high net worth investors, and corporate partners, including DTE Energy Ventures. The VC firm has LPs all over the country, all of whom have a tie to the State or the University of Michigan and share their commitment to building great early-stage technology companies in Michigan.