ANN ARBOR ? A group of Michigan faculty, students, alumni, university research and research partner institutions are launching in the second quarter Michigan eLab, a $40 million investment pool focused on financing promising U-M start ups.

In January, Michigan eLab received $2.25 million from the Pure Michigan Venture Development Fund, which received its funding from returns earned from investments made from 2006-2008 by the Michigan 21st Century Jobs Fund. The money came from loans repaid, or company exits, from earlier investments, said Martin Dober, a senior vice president with the Michigan Economic Development Corp.

?Increasing the number of venture funds in Michigan will lead to the development of new innovative companies, greater economic growth and ultimately, more and better jobs,? said MEDC President and CEO Michael Finney. ?We are confident that by co-investing in these promising funds, we can continue to grow Michigan?s venture industry and accelerate the growth of innovative technology start-ups.?

Michigan eLab was founded by a team of passionate entrepreneurs and investors with ties to the University of Michigan entrepreneurial ecosystem and successful track records in venture capital and creating disruptive startups. Located in both Ann Arbor and Silicon Valley, Michigan eLab seeks to improve the entrepreneurial ecosystem by bridging valuable but scarce resources from the Valley to local entrepreneurs in Michigan.

In addition to its experienced partners and staff, eLab has a committed network of technology commercialization experts who are passionate about Michigan and have agreed to be coaches for aspiring new Michigan eLab startup companies.

Michigan eLab has raised less than $25 million, but hopes to close the fund this spring and make the first investment. eLab bills itself as a full venture capital fund that can support a startup beyond the seed round and all the way through to an exit. eLab also provides formal training in entrepreneurship and shared resources to improve capital efficiency for young companies.

?There?s an amazing amount of research and innovation at the University of Michigan,? said General Partner Rick Bolander, a former U-M professor and graduate, who has been a private investor since 1988 and works out of the fund?s California office in San Mateo. ?We have $2.5 billion in high-tech research going on in Michigan. Some $1.2 billion at the U-M alone, about half at the Medical School. We?re just not seeing the commercialization of it in front, like Stanford or Johns Hopkins. We looked at Israel and that small country had $5 billion in exits, while Michigan has only had a couple billion. Something is messed up.?

One was the perception of technologists and entrepreneurs in the state, Bolander said. There wasn?t enough of them and they left after they graduated. He said if Michigan provided these student-entrepreneurs with mentors, coaches and advisors, they might stay.

Bolander said there is a lot of capital in the Michigan Information Technology arena, but not enough of it goes to early-stage startups. What Michigan eLabs is doing is taking the best resources of Silicon Valley and bringing them to Michigan.

?Silicon Valley folks are helping Michigan raise capital,? Bolander said. ?We have office in Michigan that work with entrepreneurs. It?s very consistent with the push by Gov. Snyder to bring talent back to Michigan, in his MICHagain program. It was what government did in Silicon Valley with iCore that made us see this was a great opportunity. We?ve launched the fund and we hope to make investments when have a closing.?

Bolander said he participated with a MICHagain recruiting trip last year by MEDC officials to Silicon Valley, where he met Paul Brown, Vice President of Capital Markets at the MEDC.

?We followed up with Paul who was instrumental in the program and he suggested that we consider a VC fund in Michigan,? Bolander said. ?We spent some time on due diligence and developed a model that we thought could work. With that in place, we applied for the MEDC program last August.?

Certainly there is a ready appetite for entrepreneurship at the U-M, said Doug Neal, a professor who runs the Center for Entrepreneurship in the College of Engineering. Neal is a partner in Michigan eLab. He said there are 2,500 students each year at the U-M taking entrepreneurship classes. Some of them have started companies. For the past several years, Neal has offered The 1000 Pitch, business-pitch contest at the Center for Entrepreneurship. Last year the contest drew 5,000 pitches.

?The objective isn?t commercial success, but to engage thousands of students and show them they can become an entrepreneur,? Neal said. ?We share, pitch, engage, and we do convert. We?ve had many successes that go through the program. We develop companies and get them funded. We hope to create a tidal wave of talent and individuals to look for the next thing in Michigan.?