Venture capital group hunts for $25 million Sloan Fund plans start-up investments

BY JEFF BENNETT
FREE PRESS BUSINESS WRITER

A Birmingham company is bucking the venture capital doldrums by trying to raise $25 million to invest in fledgling tech companies, mostly in Michigan. Sloan Investment Fund I recipients Clarity LLC, www.clarityco.com , a Troy company that develops software to help products respond to voice commands and communications in noisy environments. Amount received: $500,000. Rubicon Genomics Inc., www.rubicongenomics.com , an Ann Arbor biotech company commercializing proprietary technology for the construction and analysis of DNA. Amount received: $500,000. Gradient Technologies LLC, www.gradientantennas.com, an Ann Arbor high-tech company that sells antennas for the automotive and handheld devices industry. Amount received: $300,000. Aereous LLC, www.aereous.com, an Ann Arbor company that develops software that adds security to messages, files and transactions sent over the Internet. Amount received: $500,000. Liquid Medium Inc., www.liquidmedium.com, a Pleasanton, Calif., company that is building a business-to-business exchange for the staffing industry. Amount received: $500,000 . MIG, a Royal Oak company that provides direct e-mail marketing solutions to retail merchants and service providers. Amount received: $500,000. IConvention Inc., www.iconvention.com, a Citrus Heights, Calif., company that gives the event industry an online exchange between event producers, exhibitors, attendees and suppliers. Amount received: $500,000.

Jeffrey and Richard Sloan, managing directors of Sloan Ventures LLC, are expected to announce today that they already have nearly $10 million for the Sloan Investment Fund I. The fund targets start-ups in biotechnology, information technology, Internet infrastructure and other emerging technologies.

The Sloan brothers also are expected to confirm that $3.3 million has been invested in five Michigan and two California companies. Richard Sloan said the fund will act like an angel investment. In the venture capital world, angel investments are infusions of cash given to start-ups. In return, investors receive a stake in the business that could pay off in big bucks if the company is a success. "A unique thing about the fund is that the money comes from individual investors, not institutions like banks and insurance companies," Richard Sloan said.

The minimum investment is $250,000 per individual. The fund's launch comes at a time when the business world is still smarting from last year's New Economy mistakes. At that time, venture capitalists were sinking money into almost any business idea that ended with a dot-com. Many of those Internet companies went broke. But the Sloans say their fund is different because the money is being invested in companies that have patented technology, which provides them with a competitive advantage.

In addition, Sloan Ventures, a 6-year-old company, will offer advice to companies backed by the fund to help reduce the risk of failure. Sloan Ventures, which was founded by the Sloans, operates separately from the fund and helps start-ups find funding.

The fund's success could prove valuable to Michigan, which is lacking in early stage investors, according to the 2000 Michigan Venture Capital Survey conducted by PricewaterhouseCoopers and EDF Ventures, an Ann Arbor venture capital firm.

Last year, venture capital firms invested $232 million in 38 Michigan companies, a 75 percent increase over the $132.4 million invested in 39 companies in 1999.

But in 2000 only 4.5 percent of the funds were invested during the initial startup of a company, according to the survey. The bulk, 53.4 percent, occurred during the first round of investing after the company had begun operation.

Tom Porter, general partner with EDF Ventures, said about 23 percent of the funds invested in 1999 occurred in the early stage. "There is seed money here, but it is the most important stage and it is best for Michigan if there is a fuller pipeline," Porter said. "We need to get a lot of venture capital here that can cover a wide range from the early stage to the larger deals and buyouts."

At the end of 2000, there were 19 venture capital funds managing $2.5 billion in the state.

Porter said new funds, such as the one launched by the Sloans, help promote both the venture capital and entrepreneurial environment. Raymond Gunn, president and chief executive officer of the Troy-based Clarity Co., said early-stage financing is what gives a business idea life.

Clarity develops software to help products respond to voice commands and communications in noisy environments. It received $500,000 from the fund.

"It is everything," Gunn said. "It is an incubation of an entire new economy." New business ideas and products create competition, the need for workers and paychecks, Gunn said.

But if an idea isn't supported, entrepreneurs could leave the area, drop the idea or expose it to a big player, which could steal it.

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