A new seed-stage fund called Detroit Innovate, which intends to help launch technology companies in Southeast Michigan and invest in existing young companies, is scheduled to be announced today.
The fund has received $5 million from the New Economy Initiative for Southeast Michigan and hopes to raise at least $10 million from other state foundations.
Detroit Innovate will be based in Detroit and operate as a sister fund to the $5 million First Step Fund. Both operate under the umbrella of Invest Detroit, a nonprofit created by Business Leaders for Michigan that manages $110 million in funds and tax credits to support business expansion and real estate development in Southeast Michigan.
Detroit Innovate will be managed by Adrian Fortino, who has co-founded several companies including SideCar LLC, a ride-share platform that raised $10 million from Google Ventures and is headquartered in San Francisco; and Ann Arbor-based FlockTag, which has raised $800,000 in angel investing to launch its loyalty-card program for merchants.
Fortino said he considered moving to California to help SideCar grow. He has an equity stake in the company but decided in June he’d rather stay in Michigan after being recruited by Mahendra Ramsinghani, managing director at the First Step Fund.
Fortino has since helped vet investments for the fund. Since its founding nearly three years ago, the First Step Fund has invested more than $2.5 million in 47 companies.
Detroit Innovate will target companies in life sciences; digital clean tech, which uses software to reduce energy use or waste generation; advanced manufacturing and transportation; and business-to-business software.
Where Detroit Innovate differentiates itself from the First Step Fund and other funds supporting early-stage companies is that it will also seek out patent-protected technologies at state universities and figure out which best lend themselves to commercialization.
Detroit Innovate will pay the salaries of what it calls “entrepreneurs in residence” to lead the companies it spins off from universities. Fortino said the fund will be willing to invest in technologies at universities such as Michigan State University and Michigan Technological University that are outside Southeast Michigan, but only if they are willing to have the companies be based in metro Detroit.
“We’ll be getting the word out to tech transfer offices and to the engineering schools that we’re looking to form companies based on their intellectual property,” said Fortino. “We’ll work with faculty and guide them to commercialization. We’re going to take a proactive approach that could lead to some exciting companies.”
To lead spinoff companies, Fortino has lined up two experienced entrepreneurs — Nicholas Cucinelli, former president and CEO of CSquaredInnovations Inc., a University of Michiganspinoff that is commercializing laser-based manufacturing of advanced energy materials; and Brandon McNaughton, chief technology officer and founder of Life Magnetics Inc., a UM spinoff that makes biosensors to rapidly speed up the time it takes to detect pathogens in tissue or fluid samples.
Life Magnetics made headlines in April 2011 when the fledgling company announced it had landed two of the biggest stars in local high-tech entrepreneurship, Jeffrey Williams and Sundaresh Brahmasandra,to run it.
In 1999, Brahmasandra co-founded HandyLab Inc., a medical device company that was sold for $275 million in 2009. Williams was its CEO. He later was CEO of Ann Arbor-based Accuri Cytometers Inc., which was sold for $205 million in 2011.
Detroit Innovate will also differentiate itself from the First Step Fund by making larger investments. First Step generally invests $50,000 per deal, while Detroit Innovate plans to invest at least $250,000, in increments of $50,000 as companies hit development milestones.
The $5 million the fund has thus far comes from the first NEI fund of $100 million, which was formed in 2008.
The NEI is exploring the raising of a second fund. The first fund came from a coalition of 10 state and national foundations to bolster economic activity in the region.
