Lead to Succeed - Jim Baker and Jim Tenzillo of Michigan Outdoor Innovation Fund

In this episode of Lead to Succeed, host Steve Arwood talks with Michigan Outdoor Innovation Fund’s Jim Tenzillo and Jim Baker. The conversation covers how the fund is fueling early-stage companies focused on improving the outdoor experience through technology. With a statewide focus and deep roots in the Upper Peninsula, the fund has already backed 20+ startups and is helping make the U.P. a hub for innovation. Learn how flexible financing, targeted investment, and a new second-stage fund are opening doors for founders, and what it could mean for the region’s economic future.

Learn more about InvestUP at https://www.investupmi.com. Connect with us on social media at https://www.linkedin.com/company/invest-up-mi/.

Transcript

Steve Arwood   19:34
 Welcome to another edition of Lead to Succeed, where we talk to leaders in the Upper Peninsula that are doing unique things, doing new things and literally bringing our UP audience up to date on what's happening with businesses, institutions, and other activities that drive the economy of the UP. I'm pleased today to have Jim Tenzillo and Jim Baker. Jim Baker is the Managing Director of the Michigan Outdoor Innovation Fund and Jim Tenzillo is a long time venture capitalist and consults to the fund and the opportunities that the fund has in the Upper Peninsula. Welcome guys, Jim and Jim. All right. So I don't know if I should say Jim or should I use last names cause you both answered at the same time, but we'll go with Jim Baker.

 Jim Tenzillo   20:19
 Thank you.

 Jim Baker   20:20
 Thanks for having us.

 Steve Arwood   20:31
 First, Jim, I think this is a little unique for our audience to the Upper Peninsula. The fact that InvestUP and you have created a fund, a venture capital fund. I don't know if it's a venture, but you've created a fund, aAnd you've targeted those who have unique market opportunities in the outdoor space. So maybe just as we start, if you can give us a kind of a genesis in this, how this got thought up and then kind of bring us up to date with where the fund sits today, that would be great.

 Jim Baker   21:11
 Sure, it is a pre-seed venture fund. We make equity-based investments, venture investments into early stage companies that are leveraging technology for high growth in applications related to increasing accessibility, enjoyment, sustainability or safety of outdoor experiences. And it's a beautiful Nexus of InvestUP's interest in growing the economy of the Upper Peninsula and leveraging the assets that the Upper Peninsula has with the outdoor experiences. So how can we do that in a way that?

That results in the growth of companies across the state of Michigan. We only invest in companies that have a substantial presence in the state of Michigan and also so we get to double benefit. Companies achieve their objectives and those objectives result in increased visitation to the great recreational opportunities to the Upper Peninsula. So that really relates to the genesis. We want to have an increased level of start-up activity across the state, including in the Upper Peninsula and we want to see some of that focus on how we increase the quality of outdoor experiences. So we partnered with the Michigan Economic Development Corporation through a program they had.
 About 2 1/2 years ago related to the creation or recapitalization of non-profit early stage venture funds and applied for the fund through InvestUP and were successful. We had an original infusion of $3,000,000 and we are now up to a total of 5.6 million total fund availability. We've invested about 2 million of that so far in some high quality companies across the state of Michigan.

 Steve Arwood   22:55
 When you said you wanted to do a pre-seed venture fund in the Upper Peninsula, those of us that are very familiar with the Upper Peninsula and Michigan Tech and and all the, you know, the great, ideas and technology and stuff that comes out of that region, what what is the downstate folks say. Were they like, what are you doing? Did it take a lot of explaining or did it make a lot of sense? I guess it is an interesting question.

 Jim Baker   23:27
 It didn't take a lot of explaining. We do get some questions around the narrowness of the outdoor focus, but I think when we talk about our breadth of interest in companies that are, I think everybody was thinking, you know, hiking tour companies, etcetera. So we have to explain that there's a lot of technology companies that are doing electric RVs, we have golf companies, etc. For what we're doing up here, we haven't, we have always participated very well with regional partners across the state in the economic centers of the state. We've been able to access companies, start-up capital for our companies across the state, but having a partner that is grounded in the UP with boots on the ground in the UP, everybody sees as a valuable addition to the innovation ecosystem. We're going to develop companies that will get investment from lower Michigan funds. Lower Michigan companies will get investment from our funds. A rising tide lifts off ships, if you will, and the investment community sees our addition to that community as a great value add for the entire state.

 Steve Arwood   24:39
 Jim T I've figured it out. We got Jim B and Jim T.
 You're an Illinois native. You live in Michigan now, and you've been in kind of this venture space and advising for most of your professional career. What drew you to be interested in helping this fund? What was the catalyst there?

 Jim Tenzillo   24:56
 Yeah, I've had the pleasure of working with Jim Baker for I think since I moved to Michigan back in 2016. So the opportunity to work with him and then I've always naturally been drawn to kind of the underdog story or places where there's a lot of opportunity that hasn't been seized yet. It's kind of one of the many things that drew me to Michigan. And then when I found out that there was no venture fund up in the Upper Peninsula, I think that was really interesting to me as well. In my prior fund, I'd made a couple investments in the UP and one of them, Orbion Space Technology, is one of the most promising Michigan startup companies period, regardless of where they're located. So I've just seen the talent, the technology that comes out of there and then you know it's just the outdoor space too. I was a little skeptical that we'd have enough deal flow. I'd say I've been proven markedly wrong. We've had a ton of companies that have come through our pipeline and we funded some really high quality ones  And it's a fun sector to invest in.
Steve Arwood   26:24
 You know, it's interesting because when this idea first came about and we were talking at Invest about how this could go, I thought at the time that in my long.
 Experience here in Michigan and a fund targeted at these opportunities or financing targeted at these opportunities was pretty novel. But then I thought through the intersection of mobility, electrification, all the other issues that translate immediately to any activity that we do.
 Like my level 2 ebike which you know, I mean that's that's a common but other things that just.
 Make sense that just doesn't fit into like a take this to a venture capitalist and see what they say. So on that, you know, how do people get to you? I mean, if I have, I mean, how, how are you? You know, obviously you got the funnel and you know.
 Stuff comes in and stuff goes out, but how's that working? How do people know about you?

 Jim Tenzillo   27:43
 Yeah, I would say it's a small community. So if anyone has anything remotely related to the outdoors, we've built up, I think a brand that's fairly well known now within a year around the state. So we get a lot of referrals from partners just around the state, smart zones, and other economic development funds.

 Jim Tenzillo   28:02
 I sometimes operate out of a new lab and there's a lot of mobility, hard tech startups that are operating out of there, many of them with outdoor use cases. So there's a high density of founders there.
 Yeah, we work closely with the Innovate Marquette Smart Zone, which they've specialized, you know, to some degree to outdoor technologies. So we get some referrals from there as well. Am I missing anything there, Jim?

 Jim Baker   28:34
 No, I think and then otherwise just active in the community, active at events and it's a boots on the ground business. You meet people, you know people, you get referrals from people. Of course we have a website and we do press releases, but it's really about being out there and meeting people and I think.

 Jim Baker   28:54
 We have a real solid team kind of UP versus Lower Peninsula rivalries notwithstanding having Jim placed in Lower Michigan, having me placed up here and partnering on managing the fund. We have access within a few hours of any company.

That's moving something in Michigan and so we can get introductions real quick and we can have conversations very efficiently and move forward. So it's a tight community and referrals happen quickly.

 Steve Arwood   29:16
 Yeah. So let's go through a little bit about how you invest and and and and what that looks like. Could you give me a Jim B, you know, kind of a snapshot of the intake process, the diligence, the amount of investment that's placed?

 Jim Baker   29:28
 Yeah.

 Steve Arwood   29:43
 How that investment works, is that, you know, was it just passive or your active management, you know, what's the return expected? Could you just give us kind of a, you know how that works?
 In the front.

 Jim Baker   30:00
 Yeah, I'll start. I'll start with some of the basics and then I'll hand it over to Tenzillo on some of the instruments that we use. But so we make investments and so there's a handful of questions from people looking for grants. We're making investments.

 Jim Tenzillo   30:01
 Yes.

 Steve Arwood   30:04
 Thank you.
 All right.

 Jim Baker   30:17
 And we want to see a return on our investment. We're a pre-seeds fund, we're a non-profit fund, so we're not solely focused on leverage returns. We do have an economic development mission, but it is an investment and we're looking for a return. So we start with looking at what's the status of the company, where are they at in the path of traction to a product in the market?
 Market and a product in the market with customers, whether that's a business to business or a business to consumer, do you have some traction? You don't have to have sales, but can you convince us that you're on a path to achieving sales? So can you make what you're trying to make? Is it possible? Can you sell?
 Or.
 People who care about what you're. So we look into that, look into your base financials. How are you looking from a cash position? What's your plan to get to the market? How much cash are you going to need? How much time are you going to need? And we also look at what are you talking about? What are your conversations with other investors? We leverage the investors across.
 Across the state, leverage each other's diligence processes, leverage each other's interests a lot. And so that we look into, you know, what's the plausibility this company is on a path to growth and ultimately.
 Some type of exit, typically an acquisition that turns into liquidity for our dollars because we're going to take partial ownership in a company in the form of shares or a convertible note and we need that cash to come back to us in some form.

 Jim Baker   31:49
 So what's the path to that return on our investment in terms of, we've done some, I think very novel things in terms of the funding instruments and they're very applicable to the outdoor where we don't have quite the scale where you might see in some of the other sectors the outdoor is.
 Is a bit of a niche. There's a significant economic opportunity, there's a significant growth opportunity for companies, but it's not automotive, it's not big, big cash. And so we've had to be a little bit novel and I think Jim is the other Jim is a lead thought leader in terms of how we make investments that are founders. Friendly, but also on a path to fund liquidity. And so maybe I'll let him talk about the types of instruments that we use.

 Jim Tenzillo   32:37
 Yeah, thanks, Jim. Yeah, I think the genesis of all this, as Jim outlined, is that not all start-ups should be taking venture dollars and it's kind of venture has become kind of the hammer that's hitting all the nails.

And every start-up's a nail. So you know, some of the instruments we've worked with include revenue-based financing where companies are, you know, maybe they have no plans on raising venture fund funding. Maybe they're just not venture backable. There's no, there's no, they're not on a trajectory to to 100X and and.
 Either IPO or get bought out for hundreds of millions of dollars or billions of dollars. So with those companies where the exit's a little murkier and they could still drive job growth, they could drive revenues, they could operate at break even and profitability and.
 Maybe they just need an injection of cash to prove how to go to market strategy or get some additional validation. So if they have revenue, we'll underwrite the revenue in the form of a debt instrument that repays back after a grace period based on.

 Jim Tenzillo   33:45
 A multiple of their a percent of their revenue just to ensure that we get some cash back so we can continue recycling and investing ourselves. You know, I'm also looking into some other instruments. We haven't, we've done two of these revenue share deals, but we're looking at some mezzanine.
 redeemable equity, exploring other options that are less dilutive to founders and offer faster liquidity or just liquidity in general to the fund.

 Steve Arwood   34:14
 Once you invest in the company, and I'm sure you know, I find this over at the, you know, in my work with the build fund that you know every deal's different, right? I mean, I call them snowflakes. Nothing. Nothing ever looks the same.
 What do you advise? Do you have a position on an Advisory Board of the company or are you kind of hands off at that point and or do you actively work with the company?
 Um, in some fashion.

 Jim Tenzillo   34:55
 I would say we're somewhere in between. We're not taking board seats or board observation, but I would say that if our companies need anything, whether it's guidance or finance connections to funding or.
 We're always an e-mail and a call away. So we try to support with future fundraising and then help with go to market strategy to the extent that we have the availability and capacity to do that.

 Steve Arwood   35:24
 What's the size of a typical investment monetarily? I mean, just give me a thumbnail sketch there.

 Jim Tenzillo   35:31
 Yeah, our first check is 50,000 to 150,000 generally. So in that range we can invest up to 500,000 in a given company. We haven't yet just due to our, you know, we're only a $5.6 million fund.
 Um, but we do have that capability.

 Steve Arwood   35:48
 How, how many go back. I know Jim, you said this earlier, but your portfolio now has how many companies in it. I've seen the list. It's a very interesting list. I've got to hand it to you guys. That just happened like there must have been a need.
 Because you moved quickly.

 Jim Tenzillo   36:11
 Yeah. As of yesterday, we have 21 portfolio companies and we've made 28 investments, I believe.

 Steve Arwood   36:16
 OK. And just one kind of final question on the management of the fund, what's like the what's like the call period on these investments is this is a short term, how do you work that out you know I know that early revenue.
 It is precious, but you know you have to give it some grace because if you bring it back too quickly, you know the company's stuck. So what typically is your investment timeline here with these companies?

 Jim Tenzillo   36:53
 I would say if we're doing equity, it's whenever they can drive their company to an exit or offer some sort of liquidity to investors via a secondary with some of these other alternative debt instruments or mezzanine investments.

 We're typically put in a five-year maturity, but with that said, Jim and I have been around enough start-ups to know that, you know, it never goes as planned. So we're pretty flexible and try to meet the founder where they're at. So it's not a.

 
 Jim Tenzillo   37:26
 It's outlined as five years because we have to put something in documents, but we're willing to work with the founders to make it work.

 Steve Arwood   37:32
 Yeah.
 I haven't followed it real closely, but Jim Baker, there recently was some legislation enacted that gave you more permanence to this fund, more sustainability I guess long term. Did that grow the size of your future fund or did it just?
 Keep your fund in a cash balance over time.

 Jim Baker   37:58
 Yeah, it added capital which allows us to continue to invest. The Michigan Innovation Fund last fall passed through the legislature $60 million in total with funds allocated to the early stage, the nonprofit pre-seed funds across the state, including us as well as some programs.

 Steve Arwood   38:07
 Mhm.
 Mhm.

 Jim Baker   38:18
 Act.
 For which the RFP just closed yesterday, but that gave us we started with $3,000,000 and we actually were on a pace to go through that pretty quickly. We added a million in some dollars that MEDC was able to find and give us and then this Michigan Innovation Fund gives us 1.6. So it's.
 Keeping fuel in the tank so that we can keep driving to our destination. We're with the turnarounds to liquidity, we're going to need some more infusions to keep going at particularly at the pace we've been going, but we have another 18 months of runway in terms of investments right now.

 Steve Arwood   38:50
 Yeah.
 So switching gears a bit, what's next? I mean, this is, I mean, from its inception to where you're at, it appears to be a huge success in terms of filling them, filling a market that didn't exist.
 But it's also interesting that it's something that the Upper Peninsula can leverage longer term in terms of economic development. I mean, we have Michigan Tech now becoming an R1.
 We have a renewed interest, I think, in the Upper Peninsula from other places around the country. We talk about doing national attraction campaigns. Should we be out looking?
 You know, companies or ideas that maybe fly over the Midwest in general and try to use some of these tools that we've now created to attract these folks to, you know, building companies in the Upper Peninsula, not necessarily getting companies funded, but getting.
 Companies in the Upper Peninsula, what are, what are your thoughts on that? I mean as we look longer term and how do we leverage what you're doing into an economic development strength?
 Either one of you or both of you at the same time. I know I see you unpacking all that going on. I said this was going to be easy.

 Jim Baker   40:20
 Yeah, I mean there's a, there's a, there's a lot there. So yeah, Michigan as a state has under invested in its entrepreneurship and innovation ecosystem for a while and I don't think that's too controversial of a statement. It's generally accepted that we've under invested and so we're on the steep hill in terms of building a truly vibrant startup innovation and entrepreneurship ecosystem. So I think you know one of the dimensions of what's next is you know what can we do where wherever the capital comes from to grow investment capital for the state, the state lags our competitors, it lags our.
 Our peers, it certainly lags our aspirants in terms of the availability of capital. One of the metrics of that is even the time it takes our companies to raise capital is much longer than the time it takes companies to raise capital on the coasts, which then affects ultimately their viability and their growth trajectory. So more capital availability is critical to getting companies established and growing on a pace that they need to to be competitive and I think a more vibrant statewide network. Again, I think people are thrilled that the UP is now officially part of this. I think with Michigan Tech and R1, we're now officially part of the research universities for Michigan, which used to be the University Research Corridor, which is where we have always collaborated across the state. I think we have a strong culture of collaboration across the state. It's the kind of Midwest nice, let's find a way for everybody to win. But now that we're formally in those organizations and part of that community as opposed to.
 On the edge of that community, the amount of collaboration is going to increase and the economic impact from that collaboration can accelerate. So the underinvestment issues notwithstanding, I think there's a really exciting moment in time for the state of Michigan and particularly the Upper Peninsula to really harvest some low-hanging fruit, and get some companies going, get some companies growing, get people with high quality, high wage jobs, jobs that are that can be done. A lot of these start-up jobs can be done anywhere. And so we have the sense of place up here, right? Who doesn't want to live here unless you don't like snow, right? But we have a great place and Orbion is a great example, right? They've been able to recruit top talent from across the globe because they want to work for an exciting company that's doing really cool things and you get to live as the Houghton city manager says you get to live where everybody goes for vacation. So put all those things together. There's a moment in the summer. Yeah, well, skiers in the winter, right. So. So I think, you know what's next is the short kind of. Flippant answer, but how do we address the capital gap, the Midwest capital gap, the Michigan capital gap? How do we help companies connect with networks to be successful and grow faster?

 Steve Arwood   43:17
 You gotta leave in the summer.

 
 Steve Arwood   43:40
 Yeah, Jim, T are you've worked with us for years if you were able to go somewhere and target some people and you know, nationally, and, paint the canvas if you have, lifestyle, opportunity, access to capital, R1 university, no climate issues other than the climate issues, but no floods, no earthquakes, no big fires. Where would you go and say as a venture capital guy and say to an audience you really ought to look at the Upper Peninsula because you've got so many startup opportunities up here. Where would you target?

 Jim Tenzillo   44:36
 Oh boy, you're asking me to pick an enemy around the country to go to poach off of.

 Steve Arwood   44:42
 Well, not poach, but I mean if it's access to capital and we start-ups and people are looking for a great lifestyle, I mean, I don't know if they know about us I guess is what I'm kind of trying to say and if they did know about us, is it too soon?

 Jim Tenzillo   45:02
 That's a great question. I don't know if it's too soon. I mean this Michigan is like you for all the reasons you outlined and others. It's a great place to live, build a family, vacation, work, play, et cetera.
 You know, where my head went initially was Fayetteville, AR, which is becoming like an outdoor tech hub. Because I think Michigan, you know, back to Jim's point, we haven't, there's no shortage of opportunities in a variety of industries. I'm just closest to outdoor technology. No one geography owns that in the country and Fayetteville, AR is probably the closest. Maybe Boulder would be a distant second, but Michigan, this fund I think is one-of-a-kind around the country. This combined with the resources that the state has put around outdoor, you know, we have an outdoor recreation office at the MEDC. We have a number of large outdoor companies. We have one of the largest RV companies just over the border in Indiana. The pieces are right here to become a hub for outdoor technology. It's a matter of can we get some capital, can we get some other resources behind it?
 Capitalize on the opportunity, but again, outdoors, just that's just one opportunity that I see daily because I'm in it. But yeah, so I mean I would go, you can go anywhere. I can, I can make a pitch to someone in San Francisco, come build your company in Michigan because you can get the same talent for a fraction of the price and you don't have to deal with a potential earthquake. 

Steve Arwood   46:57
 And it doesn't take you 2 hours to get to the office.

 Jim Tenzillo   47:01
 Exactly. Yeah. I can go, I can go to Florida and without getting too political, we'll just go with the weather. It's not.

 Steve Arwood   47:09
 Yeah, I know I have a home in Florida and it's it's it's witnessed Ian. So I know what I know and what the aftermath of that looks like not only in damage but the lingering cost that everybody that lives there has to bear.

 Jim Tenzillo   47:28
 Exactly, yeah.

 Jim Baker   47:28
 I'll add, we have a version of a case study and one of our portfolio companies is Voltaic and they're an electric boat company. They were out in Oregon and they came to Michigan. Now is the outdoor fund going to be able to recruit a company to Michigan? They say, well, we will come to the state if you will make an investment. We don't have enough money to do that and that's not the case right answer anyway, right? Companies need to be where they need to be successful. But Voltaic's a perfect example. We have a substantial manufacturing supply base in this state, right? So they're going to make a boat, and in order to be able to design and build their boat, Michigan's a great place to be.
 Also, the employees of the company want to be able to enjoy the product that they're selling. So, where better to be an electric boat company than in Michigan? You've got cool places to go to use your stuff. You can recruit people because just the scenery and the accessibility to outdoor settings and you have this established manufacturing supply base. So they moved to Michigan because of that and we happened to invest in them. Again, they didn't move because we invested in them. They moved because it made sense for them to be here and I think part of that sense is we have some cash to put into him.

 Steve Arwood   48:45
 Yeah, and any outdoor product that is being manufactured for, I mean serious outdoor use, what better place to big lake, test your boat and you don't have to go very far to find rough terrain to test your vehicle. So yeah, it's a good one.

 Jim Baker   48:55
 Yep. And up and up here we see on the development side, you can throw your boat in the portage canal anytime and you're not going to have to wait for the launch. And if something goes wrong, you're probably not going to hurt anybody because you can't see anybody.

 Steve Arwood   49:15
 Oh, so what's next? Just continuing to make the investments you're making, continuing to, you know, place your funds and growing companies. Any other?
 Things going on with the fund that aren't directly related to that or is that kind of where we're at?

 Jim Baker   49:46
 So through Michigan Tech and in partnership with InvestUP, we are actively raising a second stage fund. So we have a pre-seed fund with the outdoor investment of the Outdoor Innovation Fund and we're 1885 Capital is the name of the fund and we are currently fundraising for a seed stage fund that would be the next source of capital. So a larger fund, larger check size and a bigger part of the funding ecosystem. So that's a specific thing that's next that we're working really hard on. I think it's a critical element to our ecosystem and we're thrilled about the partnership with InvestUP and the leadership of Michigan Tech to try to make it happen.

 Steve Arwood   50:24
 How's that being received? I mean the second fund you're out looking to raise funds. I mean you're getting a lot of interest, and what's the target?

 Jim Baker   50:43
 We haven't cashed any checks yet, but we've got a lot of enthusiasm. We have had very, very positive conversations. We're going to have some meetings with some prospective heavy leads very soon. So, so very positive we could. I am always careful to not get too optimistic, but we could be making investments as early as the first quarter of 2026. I think that's as if everything goes perfectly and nothing, not everything ever does, but we could be making investments out of that fund very soon

Steve Arwood   51:16
 And you may have said it, I apologize. What's the target of raising for fun?

 Jim Baker   51:21
 The target's 15,000,000.

 Steve Arwood   51:23
 15 OK, good. Well, gentlemen, we appreciate all you do. This is interesting. I think a lot of people that watch this podcast will go, wow, that's something that we didn't.
 You know, we weren't really fully cognizant of it happening here in the great Upper Peninsula. And to our audience, if you have any interest in what's going on here, these two gentlemen are experts and have a lot of years experience. So I'm sure that neither one of you would be upset.
 If somebody got a hold of you and said we are, yeah, great. Well, I want you to know that I appreciate your time and all you do and the support of investing in the Upper Peninsula. It's very much appreciated. Have a great day.