This year’s Michigan Growth Capital Symposium on May 15 and 16 will be something of a homecoming for Michigan alumnus Jack Miner as well as an opportunity to show off a new cohort of emerging biomedical technology companies spun out of Cleveland Clinic.
“Getting out of our network in Cleveland and going into Ann Arbor was very helpful for the startups that participated in last year’s MGCS,” says Miner, the former director of the University of Michigan’s Venture Center who accepted a position as managing director at Cleveland Clinic Ventures in September 2016.
“Our companies met new investors and heard new thoughts and ideas that either validated or gave them different perspectives on their current funding strategies,” he explains. “Although no checks were written for our startups in 2017, we’ll be back again this year to participate. It’s all about a continuation of multiple contacts and multiple shots on goal. The experience is really valuable.” Miner also will be sharing his insights during a panel discussion on the evolution of technology transfer and the role of venture capital at this year’s MGCS.
Having straddled both sides of the fence, geographically speaking, Miner sees many parallels between Ann Arbor and Cleveland. “The Cleveland Clinic feels a lot like the University of Michigan in terms of our size and impact on the region,” he remarks. “Both cities have entrepreneurial ecosystems, repeat entrepreneurs and early-stage funding. However, the systems seem to be more mature in Ann Arbor than in Cleveland.”
Michigan-based organizations, such as the Michigan Economic Development Corporation and Ann Arbor SPARK, have similar counterparts south of the border, such as the Ohio Bio Validation Fund, Ohio Third Frontier Program and JumpStart. As with any good economic-development matrix, these groups often share information with one another.
Several Ann Arbor-based venture capital firms have taken stakes in health-care startups funded by Cleveland Clinic Ventures. “As a venture capital fund within Cleveland Clinic, we do syndicated deals with out-of-state investors, such as Arboretum Ventures and Venture Investors,” Miner says. “Returning to Ann Arbor gives me an opportunity to talk about our mutual portfolio companies as well as other new developments in our respective ecosystems.”
There are distinct differences, however, between the way startup ventures are launched and funded at the University of Michigan versus Cleveland Clinic.
“The volume of startups coming out of the U-M is five to seven times greater than the volume coming out of Cleveland Clinic,” Miner says. “However, the funding associated with Cleveland Clinic startups is significantly greater than the funding for U-M startups.” The reason, he explains, is that public universities are restricted from investing in private entities. Thus once an early-stage company is spun out, the University can no longer make any investments in it.
Things work differently at Cleveland Clinic. “Since we are a private nonprofit organization, these startups are our companies and we take an ownership position and continue to make investments in them,” Miner explains. “Our startups are likely to be much better funded than those that come out of the U-M, but our volume of companies is significantly lower.” Another advantage is that Cleveland Clinic Ventures has a limited partner of one, composed of the 3,200 physicians on staff who share a common goal, whereas a traditional VC fund has to deal with multiple institutional investors, who may have differing investment objectives.
Cleveland Clinic Ventures’ approach can become a double-edged sword, however, when it seeks outside venture capital investment to augment the funding provided through its endowment. “The fact we own the company and invest in it makes our equity stake much higher,” Miner says. “As a result, it is more challenging to the investment community to make an investment in a clinic-based company. We try not to let that be a prohibiting factor, and we are always willing to dilute our equity stake for an investor who has the qualifications to advance a company.”
Cleveland Clinic Ventures tracks the internal rate of return and the return on investment of its investment portfolio. “Both our IRR and ROI are comparable to those of a high-performing venture capital fund,” Miner reports. “We’ve done well, but we want to deploy more capital at the same performance level and help Cleveland Clinic advance its “Patients First” mission.”