Hoping to help cash-starved Michigan tech entrepreneurs, Wolverine State natives Michael Godwin and Jason Townsend have launched a seed stage IT fund called Resonant Venture Partners.
The Ann Arbor-based firm aims to raise $10 million over the next 18 months and invest up to $500,000 per seed round in regional companies in the areas information technology, life sciences, advanced manufacturing, alternative energy and defense.
There are “only 17 venture firms in Michigan,” says Townsend, who, along with Godwin earned an MBA in the spring from the University of Michigan’s Ross School of Business. There is room for Resonant because most of the other firms in the state are “looking to do later stage deals that are less risky,” he adds.
That’s no exaggeration, says Mark Heesen president of the National Venture Capital Association. Most of the deals that get done in Michigan are life sciences-related or come out of the automobile industry, Heesen says.
Altogether, 18 Michigan-based startups received venture funding from 34 firms during the first six months of this year, and roughly half of them are in the life sciences sector, according to the MoneyTree Report by the NVCA and PricewaterhouseCoopers, based on data from Thomson Reuters. (publisher of VCJ).
Among the Michigan-based companies that have raised a large round this year is EcoMotors, whose CEO, Don Runkle, is a veteran of General Motors. The company, which is developing environmentally friendly diesel engine technology, raised $23.5 million from such investors as Khosla Ventures and Microsoft co-founder Bill Gates.
Heesen thinks Resonant may be on to something by focusing on more than just life sciences and automotive technology. “You can’t move a lab” or an automotive plant for that matter, he says. “But IT is portable. I suspect those IT deals coming out of the University of Michigan are being carried to the Detroit airport and flown to Silicon Valley.”
Resonant hopes to keep local IT entrepreneurs from boarding the next plan to San Jose, Calif. Its first investment is in Scio Security, a developer of mobile security software that recently announced a $1 million round led by True Ventures. (Two undisclosed angel investors also participated in the round with Resonant and True.)
We doubt any institutional LPs will invest in a first-time fund. … [But] we hope that if we give LPs some really good returns, we, too, can open up what we’re doing to institutional investors and grow.
Scio was co-founded by entrepreneur Dug Song, who previously founded the Ann Arbor-based incubator Tech Brewery and the networking group a2geeks. Song attracted Resonant’s attention because “we all wanted to keep [Scio] here in Michigan,” says Townsend. He adds that Song received numerous term sheets from other investors who would have required the company to relocate to California.
Townsend notes that the investors at True Ventures were “fine” with letting the company remain in Michigan, especially as Resonant would serve as the local venture investor that could easily go “kick the tires and see how the company is doing.”
Whether Resonant has legs remains to be seen. Townsend previously launched two small companies and logged seven years at Intel Corp., including a stint in business development. Godwin, a software engineer, previously worked at AT&T, Excite and WebCrawler. The pair also co-managed the University of Michigan’s student-led $5.5 million Wolverine Venture Fund for two years.
They admit they have a ways to go on the fund-raising trail.
“We doubt any institutional LPs will invest in a first-time fund,” says Townsend, who adds that they’ve so far raised enough money to cover their stake in Scio and are reaching out to high-net worth individuals and people in their networks.
Both say that they are also taking a “huge salary cut from offers we were given to return to the Bay Area.”
Despite the standard terms they have negotiated with their current LPs, between “expenses and legal and the two of us, we might make $50,000 each [managing Resonant’s first fund] in a best-case scenario.”
“A lot of funds have started small and grown larger over time, and we hope that if we give LPs some really good returns, we, too, can open up what we’re doing to institutional investors and grow,” Townsend says. “This is all about what’s best for this community.” —Constance Loizos