Tech Banking In SE Michigan

Do angels really exist? They do in Michigan, it seems.

It’s the oldest type of investor – the private, high-net worth individual who puts his money into ideas and enterprises. Today, we refer to him by the elegant sobriquet, "angel investor." And increasingly in Michigan, so-called angels are banding together. Why? What do all these bands of angels mean for Michigan’s economy? Who is coordinating them? And most importantly, how do you go about finding – or being - one?

The concept of an angel investor is not new to Michigan. At the turn of the twentieth century, inventors who would later contribute to GM, Oldsmobile and Ford relied heavily on private equity groups and individuals with money to spare. Angel activity is a tried-and-true growth formula for nurturing fledgling businesses in Michigan – and it has undergone a hefty upgrade in the last three to six years.

Banking on innovation

Michael Cole, founder and vice president of the Technology Industry Group at Bank of Ann Arbor, focuses a great deal of his attention on the matter of angel investors.  His bank group was formed six years ago to provide banking services to local early-stage tech and life science companies relying on private equity support. Some of these locally grown enterprises have the potential for tremendous growth, says Cole, and they often need advisory banking services. As a local institution with deep community ties, the Bank of Ann Arbor can not only assist business between investor and enterprise; it can help generate business by connecting the right people.

The Bank of Ann Arbor is the only bank in the state that specializes in tech banking.  Yet its work has a precedent outside Michigan -  most memorably in the near-legendary , which is this year celebrating its 25th anniversary.   Rooted in the intellectually-fertile soil of Silicon Valley, SVB has long been known for its support of emerging technologies and entrepreneurs. Another pioneer in the field of tech banking is the Royal Bank of Canada, the 6th largest bank in North America, where Cole gathered much of his experience. 

But there’s no Silicon Valley in Michigan – at least, not yet. So where are all these tech enterprises and the brilliant thinkers coming from that they are spawning entirely new local banking practices? 

"In the mid-80’s, Ann Arbor became the center of research in the Midwest," says Cole. "Over the last few years, we’ve also become the Midwest center of technology and life science businesses."

In short, some of them are homegrown – others are attracted to the offerings of Michigan communities like world-class research universities: the University of Michigan, Michigan State University and Wayne State University, to name a few. 

The key to Michigan’s future success, says Cole, is to get the great minds related to these institutions to stay in the area -- either as employees of existing companies or heads of their own companies. Supporting this talent is where united groups of angels can be of service. Entrepreneurs and new companies will stay close to where the angels are -- particularly where there are large, well-organized groups of them.

Attracting angels

In addition to his work with the Bank of Ann Arbor, Cole is founder and managing director of the Ann Arbor Angels (AAA), a non-profit organization that works with technology groups and angel investors in Southern Michigan. Groups like AAA coordinate angels’ interests with those of the entrepreneurs the state so badly needs to keep –– and give the latter a fighting chance at success. AAA facilitates the process of translating an idea or invention within a research institution to something with real world business applications. Of course, not all enterprises succeed – a risk that angels must be willing to take. So, how does one encourage them to take such risk?

Dwight Carlson, President and CEO of Ann Arbor-based Coherix, is a successful entrepreneur with a long list of past business triumphs. (He founded companies XYCOM, Inc. and Perceptron, Inc.) Three years ago, to fund his new company, Coherix, Carlson and the Bank of Ann Arbor created the Michigan Innovation CD (MICD), a brand new type of angel financing. With the development of the simple CD system, he was seeking investors both in and out of the state.

"I found out that there is actually an embarrassing amount of capital in Michigan," says Carlson.  "There is in fact no reason why someone would have to leave Michigan to find capital."

Under the MICD model, the enterprise seeking funding enters into a three-party agreement with the bank and the investors. The CDs sold to the investors are used as collateral for a loan by the bank to the enterprise.  The company pays interest only on the loan during the time of the loan. Investors typically receive quarterly interest payments over the life of the CD, as well as a warrant to purchase shares at a fixed price (up until the termination of the MICD). In fact, the investors will begin receiving a return immediately – instead of waiting for a liquidation event. 

"95% of the MICD investors have never invested in anything like it before," says Carlson.

There could be a bright future for other companies with the MICD concept. Carlson hopes to eventually create a state-wide MICD plan in order to support the state’s emerging tech industry and encourage innovators to make their homes in Michigan.

"It’s a completely new way to invest in companies," he says.

Michigan certainly could benefit from expanded technology business in the region.  But only the angels can determine if these new banking and investment methods will help the tech sector of the Michigan economy. 

Let’s hope there are enough to go around.

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Leia Menlove is an Ann Arbor-based writer whose work has appeared in the Ann Arbor Business Review and Mind, Body & Soul Magazine. Read her Concentrate article Art Counts In Washtenaw County.

Photos:

New Bank of Ann Arbor branch

Michael Cole, founder and vice president of the Technology Industry Group at Bank of Ann Arbor

Dwight Carlson, President and CEO of Ann Arbor-based Coherix

Photographs by Marvin Shaouni
Marvin Shaouni is the managing photographer for Metromode & Model D.