Editor’s note: This article was published in the Record-Eagle’s Momentum ’22 special publication. For more stories from northern Michigan’s economic engine, click here to read Momentum in its entirety online.
TRAVERSE CITY — Starting a small business from scratch takes brainstorming, planning and financing. The first two flow mostly from the entrepreneur. The last can look like a nearly insurmountable obstacle to someone who isn’t independently wealthy.
Commercial lending institutions rarely gamble with their clients’ money. They loan money to people and businesses with established track records, individuals and firms with a history of paying their bills on time. Bank business loans tend to go toward expansions of existing enterprises, investments in proven and reliable businesses.
So where can an entrepreneur with no track record — only an idea and a plan — find funding to launch a new business? She or he can work years to build up personal savings. Ask relatives and friends for cash.
Or they can seek out people who have money, want to make more, want to help launch new businesses, and don’t mind taking a little leap of faith.
“Most of these startups are not eligible for bank financing — they have no assets. So there’s a real gap. If there aren’t friend and family to fund startups, there’s no funding. That’s true wherever you’re located,” said Deanna Cannon, one of the founders of decade-old Northern Michigan Angels.
A growing role
Angel investors are playing an increasingly large role in funding new small businesses.
According to Forbes Advisor, angel investors are “individuals who offer promising startup companies funding in exchange for a piece of the business, usually in the form of equity or royalties.” Figures vary from year to year, but Forbes estimated that angel investors in 2017 punched about $25 billion into 70,000 companies across the United States.
Angel investing has been around forever, though not with that label. An academic coined the term “angel investor” in 1978 after studying how entrepreneurs raised money. He based the term on the word “angel,” which previously had been used for investors in Broadway plays.
In the late 1980s, angel investors began gathering in informal groups to share research and evaluation efforts. About 10 such groups existed in 1996, which grew to 200 in 2006, according to CNN Money. The number of angel investment groups since has exploded.
Northern Michigan Angels just turned 10 years old. It’s members, which today number about 50, over those years have invested in 41 companies. So far, 16 companies have moved on so Northern Michigan Angels members could exit ownership.
Predisposed to success
Key to a successful angel investing group is the ability to choose startups that will succeed.
“Often times it is a leap of faith,” said Cannon. “In the early stages, you’re betting on the jockey more than you are on the concept, the horse, the idea. Hopefully it’s not just the individual, it’s the team they’ve put together.”
Members of Northern Michigan Angels don’t make that leap of faith without doing research, without determining that the entrepreneur and his or her idea has merit. They expect the entrepreneur has begun the process of forming a viable entity.
“For companies to be ready for outside investors, in an angel-investor-type setting, they really need to have gone through a more intensive kind of preparation, where they’ve really formed a company,” Cannon said.
Startups must already have reached a series of milestones, the entrepreneur must have thought about many moving pieces and set them in motion. A market strategy should be in place. The company generally should have moved beyond the prototype stage, said Cannon.
Northern Michigan Angels is not the only source of angel investment funding in northern Michigan.
Boomerang Catapult was created by Casey Cowell and Lowell “Jep” Grumman five years ago with a very focused goal.
“We fundamentally believe that strong families strengthen our community,” said Grumman.
“We look for investment opportunities that create high-value jobs, jobs that require education and experience. We hope to attract — as is inferred by our name — boomerangs, young people from Traverse City, to come back here and work and buy a house and send their kids to school and strengthen our community.
“That being said, that doesn’t lessen financial requirements for our investment targets. Generally, investment opportunities that will allow our highly educated offspring to return to Traverse City and work.”
He and Cowell both are retired, both desire to help build Traverse City’s economy, and both use their own money to support that goal. Grumman described Boomerang Catapult as an “integral firm,” something like a venture capital company, but one with goals similar to angel investors.
“We are perhaps the only active and visible firm that has an angel identity,” Grumman said.
Together, Grumman and Cowell have invested about $12 million in companies now based in Traverse City, thereby helping create more than 80 local jobs.
Company’s they’ve invested in include Atlas Space Operations, Naveego, Hybrid Robotics, Birch Infrastructure, Geotix, Promethient, Taste the Local Difference, Vortex Studios, Orbion Space Technology, Health Bridge and Uru Sports.
Boomerang Catapult has invested in some of the same companies as members of Northern Michigan Angels. Both, for example, have interests in Atlas Space Operations.
It shouldn’t be surprising that viable entrepreneurial concepts can attract investment from multiple sources. Sometimes, executive talent also is shared.
Jody Trietch has been Chief Financial Officer of Boomerang Catapult for four years. She recently also became executive director of Northern Michigan Angels.
“Boomerang Catapult and Northern Michigan Angels are very similarly aligned in both their missions and areas of interest,” she said.
“However, Northern Michigan Angels will look at investment opportunities throughout the state of Michigan with particular focus or preference for those companies that are located or have a significant presence here in northern Michigan. Boomerang Catapult, on the other hand, has a more narrow focus, where we really want to see our startup investments contributing to the economic development of Traverse City.”
Local entrepreneurial infrastructure has been growing in recent years.
“If it’s northern Michigan, we have an ear on the ground,” said Cannon. “We’re active in TCNewTech, 20Fathoms, and connect with Boomerang Catapult. We’re staying in touch, we’re sharing opportunities.”
Traverse Connect recently sent a contact to Northern Michigan Angels.
“Every month, we host pitch events. We invite, on average, two companies every month to come before us and pitch their ideas,” Trietch said.
Growing access to capital
“The state of Michigan has a really thriving startup ecosystem in itself, with opportunities coming out of the southeast, all of our major universities, the Upper Peninsula,” said Trietch.
Other sources of startup capital have appeared in recent years across northern Michigan.
Traverse Connect established Venture North, a local clearinghouse for grant and loan money.
Impact 100 Traverse City united the financial resources of local women to help fund nonprofits.
Northern Michigan Angels recently chalked up a couple of substantial numbers.
“We reached a milestone in 2019 of investing over $1 million in a year. That was the most we’d ever invested in a year,” said Cannon.
In 2020, group members invested less, $800,000, because of depressed activity because of COVID.
That also was the first year when group membership didn’t grow. It had more than 50 members in 2019, but the number dipped below that in 2020.
In 2021, membership grew to 54. The group’s portfolio as of Dec. 31 included more than 20 startup companies.
In 2021 NMA members invested $1.3 million, a new single-year record. Those investments were in seven different entrepreneurial companies. Two of these companies — Atlas Space and Promethient — are based in Traverse City. Member investments were in a broad range of technologies and services: satellite communications; personal climate control; competence-based HR platform; oral vaccines; metabolic therapies for treatment of cancers; keyless access control; and clinical research management software.
Over it’s 10 years of existence, the group has invested $7.4 million.
Three new sponsors associated with Northern Michigan Angel’s mission in 2021: AccessPoint, a Vensure Employer Services Company; Independent Bank; and Delamar — Traverse City.