With the introduction of Michigan’s new Small Business Investment (Angel) Tax Credit bill, which was signed into law last month, seed stage companies are under a brighter spotlight in the state. The bill provides a 25 percent tax credit to qualified investors of seed and early stage businesses in Michigan, tied to the income to be gained from the investment. “On one hand, it’s not a huge amount of money, but it’s clearly an incentive,” said Michigan Growth Capital Symposium (MGCS) Founder David J. Brophy, Director and Professor of Finance at the University of Michigan Ross School of Business. “It’s non-trivial and it’s a good signal. A lot of states are doing this. It represents a positive sign.”
Seed-stage investment has formed a solid community in Michigan, with organized angel investor groups in Grand Rapids, Kalamazoo, Oakland County and Ann Arbor, and many more less-visible groups across the state. Educational programs are launching, providing resources and know-how to new angels and further fostering a strong atmosphere of support for these investors. Brophy said Michigan is uniquely suited to host a robust seed-stage investment industry, and has a vital interest in nurturing it. “Probably our strongest suit here is new company formation, because we have such a rich flow of technology out of our universities and out of our industrial base,” he said. “As we begin to get robust growth in our organized venture community, and as we attract venture capitalists from around the country, their interest is a little further up the growth curve. So it’s really important that we do a good job of launching these companies and getting them on a solid financial footing early on. This is a critically important part of what we do, and I think the Symposium is perfectly positioned to help out.”
The MGCS has a long history of focus on early-stage deals, and has been shaped over time by this distinction. This year’s Symposium will feature an expanded format with seed-stage companies presenting during the opening day. Brophy said companies presenting to angel investors must show themselves to be prepared to use the capital. “You have to be VC-ready,” he said. “You have to have a well-formed company; it has to be legally properly formed. You have to have your ducks in a row in your management team. You’ve got to be ready to use the money that you’re going to be asking for. If we’re going to compete for our own money – the institutional capital in this state and in the Midwest drawing interest from people in other parts of the country – then we’ve got to put together top-quality deals.”
Brophy noted that in recent quarters the growth rate of venture financing in the Midwest has been slightly higher than in California. “As we begin to grow a little faster, we should be taking some market share, thereby attracting the interests of investors from around the country,” he said. “You’ve got to ring that bell very, very loud so that they know we’re here and that we’ve got opportunities. That, of course, has been the primary purpose of the Symposium for 30 years now.”