By Don Gardner
The following was originally published as a blog by the Macomb County Department of Planning and Economic Development and is published with their permission.
According to research from the University of Michigan, 50% of companies that start a new business in the state, ultimately leave the state.
That’s a startling, scary statistic.
City Side Ventures, an angel investment, or early-stage investment company, is trying to change that.
Established in 2015, City Side has invested in 52 startups since its inception, 78% of them located in Michigan. They are hoping to double that number by the end of the year. Other offshoots in Michigan include Birmingham Angels and the Great Lakes Angel Fund.
In December 2022, the group established EastSide Angels to connect the east side of the state, including Macomb County, with the vibrant and emerging startup ecosystem across the state of Michigan. It’s a membership organization designed for active investors to help start-up companies. It currently has eight founding members and hopes to have 100 by the end of the year.
Chairman and CEO Doron York spoke at Velocity in Sterling Heights on March 8 about the value of angel investing opportunities.
“When it comes to investing, Michigan is a conservative state in general. So we decided to build something against the grain and break the mold,” York said. “By 2027, we want to have 500 Michigan start-ups funded. Start-up companies don’t leave the state because Michigan is not a good place to do business. They leave because they can’t find early-stage money. And when they leave the state, guess what, they don’t come back. So we want to stop the bleeding. We want to stop them before they leave and say wait a minute: “If you’re as good as you think you are, maybe you should keep it here.”
According to its website, City Side Ventures is a drive venture group composed of experienced business builders, serial entrepreneurs, disrupters, and technologists. Its goal is to become a premier investment group that is committed to taking Michigan’s early-stage angel investing to a new level.
April Boyle, the senior advisor for entrepreneurship and innovation at Velocity, is excited about the opportunities the EastSide Angels can bring to Macomb County.
“Velocity is thrilled to welcome EastSide Angels to Macomb County. It is a goal in our three-year strategic plan framework that we attract capital and funding opportunities for entrepreneurs in our community,” Boyle said. “This is just the beginning of more investment coming to Macomb County to assist our start-ups and growing companies. Along with our robust programming, mentoring, and world-class work and event space – Velocity has everything an emerging company needs to start, build and grow.”
EastSide Angels offer early state capital and provides essential central start-up services, interim management, and business advisory services. Its primary industry focuses are automotive and mobility, software as a service (SaaS), wearable technology, medical tech and telehealth, agriculture and food tech, financial technology, technology in motion (TIM), blockchain software, artificial intelligence, digital media, and intelligent commerce.
Through the use of collective (syndicated) capital resources, EastSide Angels provides startup companies with access to faster, easier, and less costly capital and closing rounds with a higher rate of velocity than traditional funding processes – pitch-to-punding in 60 days or less.
“I’ll meet people in a coffee shop, and I’ll ask, ‘what do you know about angel investing?’” And they will say, ‘Oh, it’s too risky.’ But if you do it the right way, it’s actually less risky than the stock market.”
York said about 50% of the companies they invest in are pre-revenue – they are not yet in the marketplace. That being the case, there is not much history to go by. Because of that the EastSide Angels plan is to invest in the “driver”, not the car.
“The question is do we believe this founder can drive,” York said. “You can have the best car, the best technology, the best sponsors, but at the end of the day, if I don’t have the best driver, you’re not going to win races. So we trust the driver and belief that they have the grit to get the job done. It’s very much a human calculation over a financial one in early-stage investing.”
Of the three types of capital investment, (angel, venture, and private equity), angel is the one that produces jobs and businesses, York said. Venture capital rearranges the capital and private equity rearranges the assets.
Angel investors, York said, have different motivations. Some want to create jobs, some want to support the community, and some want to simply pass along the experience that they have. Some want to pass along the wealth trail, some want to fulfill their ego and some simply want to make money.
But he said 90% of all venture deals are done by angel investors. Only 10% are done by venture capital, but those are the ones that make the headlines as big-money deals.
As a general guide for startups, York said EastSide Angels will be looking for about 10% ownership of the new company, will contribute about 20% of the investment, is looking for at least one of the founders to be working on the new company full time and expects that at least 20% of the money committed to the project would be committed by other investors.
“Angel investing creates jobs. So if the economy slows down, the only way to recover the economy is to create a pool of money for businesses,” York said.
York added angel investing, which features high risk/high reward, is the fastest-growing asset class, with the average age of the angel investor in his thirties. The average age used to be in the fifties. He said they are not afraid of angel investing as the generation before them was. And being part of an angel group as opposed to a single entity reduces the overall risk.
York said City Side gets dozens of pitch offers a week, so the number of potential startups isn’t the question. Getting the investment capital together is the solution.
“In order to make a dent in Macomb, we must have a large community of people who want to play the game,” he said.
Don Gardner is a communications specialist for Macomb County Planning and Economic Development who specializes in writing about Macomb County’s business environment. Please visit www.macombbusiness.com for more information.