SAN FRANCISCO ? The Fortune 100 companies that made Michigan’s economy the envy of the world forty years ago could become the catalyst to reversing the state’s economic freefall in the 21st century.
Geoffrey Duyk MD, PhD, Managing Director of the Texas Pacific Group Ventures, said the stranded Intellectual Property assets at mega corporations, such as General Motors, Ford Motor Company and Pfizer Corp., could be freed to become investment opportunities for major venture capital funds. Duyk manages a $500 million fund that has made significant investments in many brand-name companies including Burger King, Seagate, J.Crew, Bally, and Ducati.
Duyk will be sharing his ideas on how to revitalize the Michigan economy at the 25th anniversary Michigan Growth Capital Symposium May 16-17 at the Eagle Crest Conference Center in Ypsilanti. He provides a preview of his remarks in a question-and-answer session with Mike Brennan, Editor and Publisher of Mitechnews.Com.
Q: What are the preconditions to increase the amount of venture capital invested in Michigan?
A: It’s been difficult for anybody, except in Asia, to really change the fact that most Venture Capital in the biotech and technology spaces still goes to the Boston and the San Francisco areas, with lesser amounts going to secondary centers like Seattle and San Diego. The big biotech funds have from $350 million to $500 million to invest, at the rate of $15 million to $25 million per investment. VC funds in Michigan and Indiana are much smaller, so what drives investment in the Midwest is angel investments.
Besides the availability of capital, other preconditions include the competency of universities at developing technology and a legacy of entrepreneurship to commercialize it. Boston and San Francisco, which have these traits, are now breeding the next generation of entrepreneurs. But California doesn?t have the history of very large corporations, like GM, that Michigan does.
At the end of the day, there has to be a unique angle – something that you can’t get anywhere else – to attract investment capital.
Q: What is Michigan?s unique angle?
A: Stranded assets in big corporations, with nice Intellectual Property portfolios, which already have had $50 million to $100 million invested in them. The Auto industry is less vertically integrated as well as the pharmaceutical industry. As these companies flatten out, you need to ask are there opportunities to create new businesses that draw intellectual property from them?
If GM made it clear they would aggressively support property in their R&D warehouses, big investors would come and take a look. If one or two great ideas got out of GM, the individuals who founded these companies, because they have local roots, are more likely to stick around and become the next generation of entrepreneurs and investors in Michigan.
Q: Does Ann Arbor have the right stuff to attract national venture capital?
A: Ann Arbor has a big well funded university and a medical center, neither of which are unique. But they are good starting places. So you ask, ?are there other projects the universities can put in place.? Yes. The other advantage in Ann Arbor is there is a surprising concentration of health care and technology assets within driving distance. That?s important to investors.
Another advantage for Ann Arbor is Detroit is a Northwest hub. Venture Capitalists on the East and West Coasts don?t like to be more than a flight away. Right now, investors in Boston and San Francisco could spend all their money without leaving their time zones.
The strength of Ann Arbor is the biotech legacy of pharmaceutical research. Companies like Pharmacia, Pfizer and Parke Davis. What’s left of the old Park Davis now is Pfizer. With 1,500 Pfizer employees in Michigan getting laid off this year, many of these seasoned professionals could become very attractive for emerging companies.
Q: Michigan will provide over the next two years some $400 million to invest in promising technologies, including life sciences, homeland security, information technology and advanced materials. Will that help?
A: Every marketplace has tried this approach. And in general those dollars have not accomplished their end. To make investments happen, you have to put dollars against winners and take dollars away from the losers. When you have a political aspect, you have a strong push to make sure the money is dealt around the table in an even way.
The Michigan investment fund is a good idea, but the thinking on how to deploy the money against fewer better ideas, or how to get GM, Dow and Ford to spin out workers into these entrepreneurial businesses – that’s harder.
To determine if state-investment in companies is successful you need to measure how much outside capital these investments attract? You need to ask, ?Did you create permanent jobs? San Francisco and Boston have a legacy of creating successful companies that now has become a breeding ground for entrepreneurs. If a Bay Area company goes bust, its former employees can find other job opportunities in the region. If a technology or life sciences start up in Ann Arbor fails, there are limited job opportunities. Certainly Esperion was great for Michigan, but it was just one great exit. But Esperion is a good example of trapped assets. People came out of Pfizer and got Pfizer to buy them back.
