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Michigan Capital Network aims to expand fund amid strong interest in 'alternative investments'

Despite a cooling capital markets environment, a Michigan venture capital firm is touting strong demand for its fourth fund.

Grand Rapids-based Michigan Capital Network on Monday announced it has submitted filings with the U.S. Securities and Exchange Commission to increase the total investment amount of its Fund IV from $25 million to $35 million.

Strong interest in “alternative investments” is helping drive that increase, according to Paul D’Amato, CEO and managing director of MCN.

A regulatory filing Monday shows that the MCN fourth fund has closed on a total of $23.7 million from 81 investors, with a minimum investment of $250,000.

The firm’s venture capital funds primarily invest in Michigan companies within a variety of industries, including advanced manufacturing, life sciences and software and IT.

“This expansion reflects the ever-growing interest of investors in Michigan’s tech startup sector,” D’Mato said in a news release.

Investments include Tetra Therapeutics Inc., Facility Health Inc., HealthBridge Financial Inc. and Grand Rapids Aseptic Manufacturing Inc., which is producing a monkeypox vaccine for the U.S. government.

The earlier VC funds help to “build on our investment strategy in a way that will grow our state’s economy,” D’Amato said.
The strong interest from investors comes amid some sense earlier this year that the venture capital and startup worlds were beginning to cool, facing challenges in a declining macroeconomic climate.

Venture capital funds set a record for fundraising last year, with industry publication Pitchbook and the National Venture Capital Association tracking 999 funds raising $138.9 billion. Through June 30, the two organizations had tracked 415 venture funds raising $121.5 billion, according to the quarterly Venture Monitor report.

The report, however, notes that VC funds were likely in discussion with many of those limited partners well ahead of any volatility.

“Market downturns have historically been successful periods for investing in VC assets from a fund return standpoint, but it’s likely the recent success in fundraising was just sustained momentum from 2021 — not from LPs seeking to time the market,” reads the report.

In addition to its four traditional venture capital funds, the Michigan Capital Network also operates five angel investing groups around the state: the Grand Angels, Ka-zoo Angels, Woodward Angels, Flint Angels and Bluewater Angels. Together, the five groups have more than 170 investors, according to the MCN website.

In Michigan last year, a total of 1,578 angels invested more than $69 million in 111 companies, according to a May report from the Michigan Angel Community and the median amount invested per angel was $38,000. Of the 111 companies to receive angel investment in the state, 22 were owned by women and 41 were minority-owned.

Those numbers were down from the high-watermark year of 2019 for angel investing in the state, but represented a rebound from 2020. That slowdown in the pandemic year of 2020 hit MCN’s five angel groups quite significantly, said D’Amato, but things have since rebounded.