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Arboretum's latest fund is largest in Michigan venture capital history

Ann Arbor-based Arboretum Ventures LLC has finished raising the largest venture capital fund in state history, closing Arboretum Ventures IV LP at $220 million.

On June 18, Arboretum filed a form with the U.S. Securities and Exchange Commission saying it intended to raise $215 million for its fourth fund. In less than three months, the firm surpassed that total.

Its previous fund, raised in 2011, also was oversubscribed. It had been targeted at $125 million and closed at $138 million. The previous largest fund in state history was the $180 million Michigan Growth Capital Partners II, raised in 2013 by Farmington Hills-based Beringea LLC.

Managing Director Tim Petersen said Arboretum will continue to concentrate on medical devices, diagnostics health care IT and health care service companies.

"We'll continue to invest in companies that address the cost of health care, that take costs out of the system," Petersen said. "It's not as if we're running out of opportunities to do that. The landscape is as attractive as it has ever been."
Managing Director Jan Garfinkle added, "We'll stick to our knitting."

Arboretum typically invests between $10 million and $15 million in its portfolio companies over a series of rounds as they hit development milestones, Garfinkle said. That means the company will be able to invest in at least 15 additional companies from this fund. 

Managing Director Paul McCreadie said Arboretum is already in due diligence on six possible investments from the new fund. 

Petersen said the company has invested in 35 companies since being founded in 2002. 

He said the 2003 fund of $24 million and 2007 fund of $73 million both rank in the top quartile of venture capitals funds raised nationally in those years. 

Petersen said new investors include three health care systems that he is not allowed to identify, one of them in Michigan. Returning investors include the Ann Arbor-based Renaissance Venture Capital Fund and the Troy-based Kresge Foundation.

Chris Rizik, CEO and fund manager at Renaissance Venture Capital, said he previously invested in Arboretum's second and third funds: "Arboretum II was our first investment back in 2008. We literally closed on that investment the day after our own first closing." 

Robert Manilla, chief investment officer of the $3.5 billion Kresge Foundation, told Crain's that in 2006, "my team spent considerable time looking for an institutional-quality asset manager in Michigan. After considerable due diligence, we invested in their 2007 fund and have been investors in each of their successive funds.

"I have watched the organization grow from a small Michigan health care venture firm to a nationally recognized health care investor. ... Their 2007 fund is our top-performing U.S. venture fund of that vintage, and their 2011 fund, while still early in its life, is progressing well." 

Other VC experts said Arboretum should be thanked for restoring confidence for investing in Midwest firms. 

Jonathan Murray, who runs the Ann Arbor office of Pittsburgh-based Draper Triangle Ventures, said Arboretum has delivered consistent returns.

"What's really important is they're helping the limited-partner community in Michigan find out it's possible to invest in Midwest companies and make money," Murray said, referring by the term "limited partners" to the institutional investors, including foundations and nonprofits, that some think have been too slow to invest in the state. 

Patti Glaza, vice president of Invest Detroit and managing director of its two investment funds, the Detroit Innovate and First Step funds, said Arboretum's strategy of investing in life sciences firms has proven wise.

Glaza said Arboretum's track record has opened the door for other VC firms by proving that you can have strong returns by investing in Michigan investment firms that have a Midwest focus. 

News that Arboretum has closed on its new fund follows the news last week that Arboretum was part of a $39.5 million funding round in Plymouth Township-based Delphinus Medical Technologies Inc., thought to be the largest single investment in a medical device company in state history.

Arboretum's share of that round came from its third fund. 

This article originally appeared in Crain's Detroit Business.
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