In the venture capital world, sometimes you find the investment, and sometimes the investment finds you.
That’s what happened to Ryan Waddington, BS ’93/MBA ’99, on his continuing hunt for early-stage companies as co-founder and managing partner of Huron River Ventures. The firm invests in clean technology companies that focus on energy efficiency, renewable energy, and advanced transportation.
Huron River’s latest investment is Shepherd Intelligent Systems, led by Adrian Fortino, BS ’00/MBA ’10. Fortino was an engineering classmate of Waddington’s partner at Huron River, Tim Streit, BS ’00.
Fortino needed capital to expand Shepherd’s business. The company uses device-agnostic Google Android technology to help transportation fleets track and manage vehicles for a low price, and it also helps customers order and check the status of rides via mobile phones. The system proved itself during years of use on the U-M Magic Bus system.
As Waddington and Fortino both swirled around opposite ends of the entrepreneurial and financing scene, they were connected with the help of acquaintances at RPM Ventures, an Ann Arbor venture capital firm. The deal highlights the growing entrepreneurial and early-stage venture capital scene in Michigan. In a state hit hard by the 2008 recession, U-M as well as state and local governments are trying to foster startups and the capital that feeds them.
“There are more good deals out there than we can get involved in,” Waddington says. “Right now we’re looking at five investable deals, and we can’t do them all. But [Fortino] found us.”
For Fortino, fishing with familiar faces was a welcome respite from pitches in front of strangers.
“I’ve been through pitches where it’s cold and you have to work long and hard just to get them to crack a smile,” Fortino says. “The familiarity was nice, but the deal happened because we’re a good fit for Huron River. They look for efficiency and optimization, and that’s what we are.”
Fortino is in a place he’s been dreaming about for years. He worked at automotive engineering firm Ricardo Inc. for years and took his Ross classes in the evening. His dad and grandfather both ran their own law firms, and Fortino was bit by the entrepreneurial bug. His goal is to take emerging technologies, turn them into businesses, raise capital, grow them, and manage a profitable exit.
Shepherd is Fortino’s second go-around leading a startup. The first one, search engine marketing firm Boomdash LLC, suffered from a difficult sales process, a complicated business model, and the need to raise equity funding during Fall 2008. As it turned out, a recipe for failure.
But entrepreneurs know failure is a necessary part of the game.
“You learn a lot from something like that, and at least we failed reasonably quickly,” he says.
In 2009 Fortino met Jahan Khanna, BS ’09, the co-founder of Shepherd who developed the tracking technology for the U-M Magic Bus system. It was a success in that space, with 13,000 unique users a week. A year ago, they decided to work with private fleet managers such as taxis, limos, and shuttle services, as well as university bus systems. The municipal market — government-run transit systems — takes too long to crack.
The deal with Huron River came with a little twist. Fortino also had been talking to Sunil Paul, founding partner of San Francisco-based venture fund Spring Ventures, about funding. It turns out Paul is on Huron River’s advisory board.
“That was validation for both of them,” Fortino says.
Huron River and Spring Ventures together invested $520,000, as Shepherd raised a total of $1.25 million — with the balance coming from other investors. Both Huron River and Spring get a seat on Shepherd’s board. The funding allows Shepherd to hit critical milestones, reach new markets, and gain more customers and users.
For Waddington, connecting with Fortino and Shepherd gave Huron River a chance to make its second splash. Waddington had worked in clean-tech funding for DTE Energy Co. and handled investments for a large family office in New York before returning to Michigan and co-founding his firm last year. Huron River’s first investment, Ambiq Micro, makes low-power semiconductors that increase battery life while reducing cost and weight. That technology also was developed at U-M.
Waddingon’s Ross MBA and his background in environmental engineering set him up nicely for his role as a clean technology venture capitalist.
“I get a charge out of working with passionate entrepreneurs who have a good idea but need capital and connections to make it happen,” he says. “To be able to do that in Michigan and with technologies that address major global challenges is a dream come true.”