The Pandemic Halves Michigan’s Venture Capital Investments
According to the Michigan Venture Capital Association report, the amount of venture capital invested in startup companies decreased from $514 million in 2019 to $257 million in 2020. Despite the sharp drop in the total amount of money put into deals, the number of investments rose from 71 to a record 88 companies.
Although Michigan’s venture capital investors backed more businesses in 2020 than ever before, the funds they put into deals declined significantly as the COVID-19 pandemic dramatically changed the deal flow.
Michael Gross, MVCA’s chairman and managing director of the Farmington Hills-based Beringea LLC, said that “the industry is really strong in Michigan,” and added, “while the average deal size was down, there was just a lot of activity across the entire ecosystem.”
The MVCA report also pointed out that most investments in 2020 went to the earlier rounds, which generally require less capital. Approximately 65% of the total amount invested went into seed and startup phases - which are typically associated with crowdfunding solutions - compared to 48% in 2019. Rounds for companies in the stages of growth and expansion dropped from 23% of the amount invested in 2019 to 17% in 2020.
Although Michigan saw record-breaking venture capital investment with large capital rounds in 2018 and 2019, there were hardly any such expectations for 2020. As a result of the economic effects of the COVID-19 crisis, many investors have decided to wait for the pandemic to wane and the economy to start recovering before proceeding with more significant growth capital deals.
Gross is optimistic that 2020’s low investment amounts could lead to more vigorous activity in 2021. MVCA’s chairman predicts that venture capital companies will return to the market with larger capital rounds in a rebounding and, hopefully, accelerating economy.
The MVCA report also revealed that the 20 active venture capital firms in Michigan collectively had $2.8 billion in capital under management at the end of 2020, a slight increase from $2.7 billion in 2019 and $600 million more compared to the 2015 data.
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