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www.mybaycity.com August 13, 2008
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Governor Granholm says Michigan "needs to invest in growth companies
that create high-skill, high-wage jobs."

Naysayers, Bah!
Invest Michigan! Shows Money to Transform State Economy

Aggressive Economic Transformation Eyed Through Investment Capital

August 13, 2008       Leave a Comment
By: Dave Rogers

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Dan Howes is a nay-saying Detroit News columnist who denigrates the new Michigan investment fund.

Howes is still trying to peddle the negative mantra of Newt Gingrich from months ago that Michigan is in a "one state recession." Where have you been, Dan and Newt? This is not political; you can't score points for John McCain by knocking the Democrats for trying to revitalize Michigan.

We're in a one country recession! And it's our country -- the USA. Both political parties share the blame.

Howes fails to give any credit to Michigan for putting its money where its mouth is.

But, at last, we citizens may be witnessing the kind of financial initiatives that will spark a dramatic rebirth of a once dynamic economy staggered by the downsizing of the auto industry due mainly to global economic trends.

Both public and private money is beginning to flow to new firms sprouting in place of falling smokestacks.

After several years of seeing state economic development spokesman Jeff Daniels on nearly every national television network, state government is doing what all successful businesses do -- take risks with its own money, or at least that of its pensioners.

The state is putting up $300 million of a $58 billion state pension fund to help jump start job-producing industries.

(By law the state is allowed to invest up to 5 percent of pension funds in so-called "risky" ventures.)

Howes foams out an obviously politically slanted column recently saying the new funds "is just a drop in the state's troubled economic ocean."

But you don't start filling the ocean unless you get a few drops in the bucket first. In our humble opinion, this new fund is the smartest thing Michigan could do.

The Detroit News sounds like it's cheering for a further Michigan economic decline just to reinforce its push for a political change. Yow! Pretty rough stuff, and self-defeating for a newspaper that should be inspiring growth.

Howes did toss out a few well-chewed bones to Gov. Jennifer Granholm for recruiting former race car driver Roger Penske, a wunderkind entrepreneur, to chair the "Invest Michigan!" fund.

And he has qualified respect for her feat in gathering support from Dow Chemical, Steelcase, Stryker, Meijer, Quicken Loans, and others to mastermind the state investment fund.

Howes questions whether CEOs of these stalwart companies "truly believe government-sponsored investment programs financed with the retirement dollars of state employees can move the turnaround of a moribund state economy?"

Michigan is in the fifth year of recession, writes Howes, whining "government policy over that same period reads like a caricature of central planning meets Herbert Hoover."

Well, Mr. Howes, I shouldn't have to point out that Mr. Hoover was a Republican who helped to sink the nation's economy and Mr. Roosevelt was a Democrat who, yes, took lots of government money to revitalize the economy.

But, I stress again, this isn't a political argument like Mr. Howes and Mr. Gingrich want to make. Jobs and money are non-partisan.

Here's why Mr. Howes, of the Detroit News, is dead wrong on his right wing blather:

1-Other, bigger, states are investing pension dollars in economic development;

2-Private equity dollars are bolstering the state's economy and hard-nosed business people seldom take chances on losers;

3-If the state did nothing to spark new jobs, wouldn't Michigan residents rightly be outraged?

Says Gov. Jennifer Granholm: "To continue Michigan's aggressive economic transformation, the state will need to continue to diversify its economy by investing in growth companies that create high-skill, high-wage jobs."

"Encouraging growing companies to plant roots in Michigan or existing companies to expand here can be challenging. While some companies are self-funded at early stages, many depend on venture capital to commercialize their products and grow as job-creating enterprises."

Traditionally, Michigan has lacked the capital necessary to help technology companies start and grow.

In the U.S., the total amount of venture capital invested in 2007 was nearly $30 billion, the highest level since 2001. Last year, Michigan received 0.4 percent of all venture capital investment and was ranked 25 out of 50 states.

"We have the opportunity to improve our ranking given our core assets of research, innovation, talent, and commercialization infrastructure," says LeAnn Auer, executive director of the Michigan Venture Capital Association (MVCA).

"The good news is the number of venture capital firms in Michigan has more than doubled since 2001, growing from 7 to 15. Further, the amount of venture capital under management in Michigan has increased by almost 75 percent during the same time frame. As of December 2007, the venture firms headquartered in Michigan had approximately $900 million in capital under management and $100 million available for new investments."

The findings in the Sources of Capital survey indicate that 60 percent of the limited partner institutions would consider investing in Michigan venture capital funds. This 60 percent consisted mostly of public pension funds and endowments. However, many of these institutions indicate they only invest in funds that are $100 million or greater in size.

Overall, Michigan's venture capital community has experienced strong growth with over 40 dedicated investment professionals living in Michigan, according to MVCA.

Ms. Auer continues:

"The recent level of investment activity is promising; however, growth across the early to later stages of capital is still needed. Increased growth in the number of venture capital firms, size of venture capital funds, and further expansion in sector and stage focus would more quickly add value to the economic growth and diversification of Michigan's economy.

Increased growth in the number of venture capital firms, the size of venture capital funds, and further expansion in sector and stage focus would more quickly add value to the economic growth and diversification of Michigan's economy."

The 21st Century Jobs Fund and Venture Michigan Fund -- introduced by Governor Granholm in previous years -- have been excellent initial steps in this process, investing $100 million to create eight private funds focused on Michigan's early stage companies. Until this point, however, there has not been funding available for later-stage capital needs.

The new fund will be capitalized with $300 million from the state of Michigan's pension fund over the next three years. The state will aggressively encourage other institutional investors -- in-state foundations, universities, other units of government, and the business community -- to commit investment capital and immediately grow the size of the fund.

Granholm says: "Creation of this fund levels the playing field. Michigan makes the statement that we are not willing to be just a flyover state -- we want to, and can, compete with the coasts in making capital available to entrepreneurs."

The state of Michigan Retirement System will initially commit, pending satisfactory completion of all due diligence items, $150 million in capital. To protect retirees and assure soundness, a review will be made once this amount is invested to ensure that the fund's primary objective -- a competitive return on investment -- is being achieved. If the state treasurer determines that the fund has met -- or is projected to meet -- its primary objective of competitive returns, an additional $150 million will be committed to the fund.

The state government maintains that Invest Michigan! will be professionally managed by a top-tier investment manager who will be responsible for underwriting all investments. The manager's primary focus will be to make sound, prudent investments that result in competitive returns.

  • To help ensure the success of the businesses in which the fund will invest, an advisory board headed by top Michigan business officials will be created to mentor entrepreneurs who benefit from the fund. The board will assist in making contacts, connections with customers to help ensure success.

  • The state currently invests in multi-state private equity, venture capital, and real estate in addition to stocks and bonds. Invest Michigan! will put Michigan's money to use growing jobs in Michigan by targeting co investment opportunities in Michigan companies -- opportunities which are currently not targeted by existing funds.

  • Co-investments will represent approximately 80 percent of the fund's investments; 20 percent will be invested in venture capital funds that invest in Michigan companies.

  • Invest Michigan! will be structured with a number of features that make it attractive to potential investors as well as to potential lead co-investors and portfolio companies, ultimately enhancing Michigan's company attraction and job creation efforts. Features include:

    - Very competitive management fees;

    - Growth stage and expanding companies targeted to maximize returns; and

    - Diversification by stage of company and by industry segment to help reduce risk and assist in broadening Michigan's economy.

    Other states like New York, California, Ohio, Indiana and North Carolina use public pension fund dollars to invest specifically in their states or regions to great success for both their pensioners' investment returns and their state's economic vitality. For more information, contact mi.gov or michiganvca.org.###

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    Dave Rogers

    Dave Rogers is a former editorial writer for the Bay City Times and a widely read,
    respected journalist/writer in and around Bay City.
    (Contact Dave Via Email at carraroe@aol.com)

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