In an aggressive bid to diversify and grow Michigan’s economy, state officials have turned to the private sector and a virtual who’s who of local business leaders for guidance. The unique multipurpose initiative, called “Invest Michigan,” is tapping $300 million from the state pension fund to invest in promising businesses.
“As a threefold approach, it’s a program to grow the state’s pension fund, help diversify the state’s economy by investing in small and medium-sized Michigan businesses, and to create jobs,” says Michigan Department of Treasury official Terry Stanton.
The program works as follows: Co-managing partners Beringea, Credit Suisse, and Glencoe Capital receive advice from a newly formed “Business Leadership Council,” which consists of 21 statewide business leaders led by auto and racing mogul Roger Penske. “The Business Leadership Council will be instrumental in making Invest Michigan a model for other states,” says Penske, chairman and CEO of Bloomfield Hills-based Penske Corp.
The Council will offer advice on potential investments, mentor new businesses, and provide participating companies with access to local and international business relationships, he adds.
Rich Peters, a longtime associate of Penske’s and the managing director of Bloomfield Hills venture-capital firm Transportation Resource Partners, says the Council’s efforts will be modest at first before picking up steam. “[Roger] told me in the beginning, ‘I don’t want to wake up a year from now and find out we just went to some meetings, so let’s figure out a mechanism where we can really help.’”
That meant turning the program over to investment experts. As senior managing director of Beringea in Farmington Hills, the state’s largest venture-capital firm, and co-manager of Invest Michigan’s Growth Capital Fund, Charles Rothstein says the effort represents a strategic opportunity.
“Michigan has had a venture-capital shortfall,” he says, “especially in the expansion capital phase [of emerging businesses], so our mission is to invest money in companies that are emerging leaders in sectors that will help transform and diversify Michigan’s economy, [such as] clean tech, health care, advanced manufacturing, and Internet technologies.”
Rothstein says they’ll look at several hundred potential deals a year and can expect to close on approximately 2 to 4 percent of them. “It takes a lot of legwork to find the right companies to invest in,” he says, “and even after a deal is done, we work very closely mentoring and supporting these companies to help them achieve their greatest potential.”
That’s where the Business Leadership Council comes in. In November, the Council met for the first time and reviewed presentations from the fund managers and portfolio companies. “It helps for us to provide added value to these new businesses by [giving] them access to these very successful and powerful people,” Rothstein says.
By January, the Invest Michigan portfolio had already made investments in Auburn Hills-based Microposite, an advanced manufacturer of clean technology in home construction; EcoSynthetix, a Lansing-based clean technology producer of bio-based replacements for petroleum-based chemicals; and Pioneer Surgical Technology, a Marquette-based medical-device firm.
“I would’ve personally invested in any of those three businesses,” Peters says, “and that’s a good test because it’s [really] easy to make investments when it’s not your money. … I always take that perspective.”
Microposite CEO Marc Carlson appreciates the investment in his growing company and in the emerging clean-tech sector. “Being the first recipient of this initiative validates the innovative approach we’re taking in the residential-siding market and our strategic growth plan,” he says.
Because the Council is not a legal entity and has no actual authority, its role is still evolving. “My sense is that we’ll meet as a group [once or twice] a year, continue to use conference calls, and communicate with managers as needed,” Peters says. “We’re looking at using a private Web site for the council that will have real-time information where members post ideas and comments. It’ll be incumbent upon the managers to take advantage of this group because everyone made it clear that they want to help.”
Peters is understandably bullish on Invest Michigan. “We have a tool bag of 21 top business leaders, the full support of the state, the tool bag of the Michigan Economic Development Corp., and managers who have a history of being successful,” he says, “so when you put that all together, shame on us if we don’t succeed.”
