Venture capitalists invested nearly $38 million in 14 deals with Michigan-based companies in the first quarter of the year, according to the MoneyTree Report, released today by PricewaterhouseCoopers LLP and the National Venture Capital Association.
The report, based on data from Thomson Reuters, found that nearly half of those investment dollars involved software projects.
“Clearly, software is the area where most of the dollars are going,” says Mark McCaffrey, global software leader and technology partner at PwC, which operates a practice in downtown Detroit. “We saw that in 2013, and 2014 is continuing that trend.”
There are a couple of qualities about the software industry that promote that trend, McCaffrey says. “For one, the window to an equity event in the software industry is shortened, whether it’s an IPO or a (M&A) deal. With a short window, a high ROI (can occur) when that event happens, and (it being) a low capital intensive industry, it just seems to be attracting a lot of dollars.”
Software impacts many different industries, McCaffrey adds. “You’re talking about software related to health care, software related to security, software related to mobile advertising. Software, in and of itself, is a very general category, but it hits so many other industries and provides so much value across all of those industries,” he says.
The diversity can be seen in Michigan, where last quarter investors supported two early stage companies: Ann Arbor-based Larky Inc., which offers an app that helps consumers manage discounts and coupons for retailers; and Detroit-based UpTo Inc., an app that allows users to feed event streams to their calendars.
NeuMoDx Molecular Inc. in Ann Arbor secured the largest deal last quarter, with five investors providing nearly $11 million to support the development of a platform for molecular testing in hospital and clinical reference laboratories.
On a national level, venture capitalists invested $9.4 billion in 951 deals in the first quarter. While investment activity rose 12 percent from the previous quarter in terms of dollars, it fell 14 percent in the number of deals. There were also more investments in expansion-stage companies, while there were fewer capital requests from firms seeking seed and early stage funding, says Bobby Franklin, President and CEO of NVCA.
“This was to be expected when you consider the domination by seed and early stage deals in 2012 and 2013,” Franklin says. “Because these companies are now moving to the next stage of their maturing process, the investment rounds tend to be bigger, which explains why the numbers are trending toward the later stages of the investment calendar. To be sure, the spring thaw of the exit markets is providing some firms with new life, but overall capital remains constrained for most venture capital firms.”