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Tue January 26, 2010
Entrepreneurs search for untapped capital
By Kevin Lavery, WKAR News
East Lansing, MI –
Entrepreneurs trying to grow their business need capital and support from people who can take them to the next level. But Michigan's harsh economy is forcing lenders and investors to scrutinize every penny, and the money faucet is all but closed. Still, some investors believe there is a lot of inactive money that can be put into play in mid-Michigan and local entrepreneurs want to tap into it.
Eighteen months ago, Robert Fulk decided to turn his research into revenue. He was part of a Michigan State University team designing a streamlined background check process for employees in Michigan's long-term care facilities. Now, as CEO of Inventure Enterprises, Fulk is marketing his system to state agency directors looking to save time, money, "and headaches, as we see in the headlines every day," Fulk says.
He's looking for "nursing home workers charged in killings, sex abusers working in day care centers, et cetera. We're able to basically connect the dots, make these processes more efficient and locked down."
Fulk's company is one of 14 tenants in East Lansing's Technology Innovation Center. The city gives him physical space and marketing advice. But he's only allowed to stay for three years and Fulk is already planning his next steps. As he nears the end of his research and development phase, Fulk is calling on angel investors for guidance.
Angel investors are affluent people aiming to reap rewards in high growth sectors. Whereas venture capitalists help established firms expand, angels fly in on the ground floor. They usually invest less than $1 million into any given startup. Fulk is talking with several such groups across the state. But, he says, these days, few are willing to take big chances.
"Because of our economy, they've become very risk averse," Fulk explains. "So angels have pushed themselves sometimes farther out of the market, and it makes it harder for startup companies to obtain capital and financing."
Locally, the Capital Community Angels are taking an interest in Fulk's work. The group formed in 2007 and now has 15 members. Compared to cities like Ann Arbor and Grand Rapids, Lansing area investors are few and far between.
Loic Couraud, the group's administrator, says that's not for lack of creative people or ideas.
"I think it has not been in our tradition because this state has been so dominated by one industry that it was old enough to be fully supported by the banking system," says Couraud. "And so that venture capitalist, that angel investing mentality was not part, until recently I believe, of our psychological makeup."
Couraud says the CCA truly wants to spark local job creation and not just gain a personal return. He thinks there may be 50 or more untapped investors in the region with a significant amount of dormant money.
"So, we believe that there is more," Couraud says. "We just need to be better at reaching out to these people."
In this economy, cultivating local investors may be the most viable route for entrepreneurs. That's because traditional lenders are under tighter scrutiny than ever.
Judi Sullivan, president and CEO of the Michigan Association of Community Bankers, represents about 80 percent of the 143 banks headquartered in Michigan, most of which analysts predict will show a loss on their 2009 balance sheets.
"The regulatory environment has become ever so much more difficult," says Sullivan. "Our banks are going to be looking very seriously at the ability to repay the loans. They've always looked at that, but it's become much more intense."
The association says huge corporate banks have put its members in a corner. Don Mann is the association's regulatory liaison. He says the nation's six largest banks control roughly two-thirds of all federally insured deposits in Michigan -- and all six are headquartered out of state.
"So, when the decision makers of those large out of state banks decide are we going to lend venture capital in Michigan and the answer is, we're not going to do that," says Mann.
While the national credit crunch can't be denied, people like Loic Couraud believe Michigan investors need to be bolder risk takers whose equity stakes will bolster the economy. And, entrepreneurs like Robert Fulk say they must embrace failure.
"Some of these entrepreneurs on the coasts or in Silicon Valley and others some have three or four failures behind them," Fulk says. "And those are actually great learning experiences. But here in Michigan, if you have a failure or two behind you in a business, they're not going to want to touch you, and you have to change that mindset."
The Capital Community Angels hope that mindset may already be changing. They say they're confident that even in the event of a double-dip recession, there are ample ideas in this region to turn heads and open checkbooks.
For more on job creation and workforce evolution in Michigan, visit WKAR.org/reworkingmichigan