For High-Tech Startups, Michigan Rise Purchase Order Financing Fills a Critical Funding Gap
With nearly $5.8M deployed, the two-year-old financing program, backed by the MSU Research Foundation, is proving essential for Michigan-based startups.
The Grounded RVs team, joined by a Michigan Rise team member, stands beside one of their smart, modular electric RVs. Support from the Michigan Rise P.O. Financing program helped the company secure capital to fulfill early orders.
Securing the right kind of financing can be one of the biggest obstacles to growth for startups bringing new technologies and products to market. Traditional lenders hesitate to back early-stage companies without a long financial track record, and many innovative manufacturers struggle to access the capital needed to fulfill large orders.
That was the challenge facing Civilized Cycles, Promethient, and Grounded RVs—three Michigan-based startups developing cutting-edge physical products. Michigan Rise, a venture investment subsidiary of the Michigan State University Research Foundation, was positioned to offer a unique financing program.
Traditional Financing Not an Option
Detroit-based Civilized Cycles manufactures and sells the Semi-Trike, a heavy-duty electric cargo bike that has the same carrying capacity as a van, around 200 cubic feet with a cargo load of 750 pounds, all in a bicycle package.
Cofounder and chief revenue officer Marc Liu said he thinks the Semi-Trike is a fundamentally better way than using vans and trucks to move things relatively short distances. Liu is passionate about the company’s vision, but like many technology manufacturers, Civilized Cycles has faced the same funding challenges other innovative tech companies face.
“Access to traditional debt financing was extremely difficult,” Liu said. “Traditional lenders have a very difficult—and in most cases, impossible—time in assessing the risk of our type of debt financing.”
So Civilized Cycles turned to the Michigan Rise purchase order (P.O.) financing program.
“We started a relationship with them relatively early, knowing that as soon as we started getting orders, we were going to need the purchase order financing in order to be able to fulfill them,” Liu said.
The Michigan Rise P.O. financing program provides growing businesses with capital to purchase inventory or materials needed to fulfill large customer orders. Unlike a traditional loan, this type of financing is tied directly to a specific purchase order.
Liu said that Civilized Cycles’ assets are vehicles, but because they’re novel, with no secondary market for them or track record of asset value, lenders can’t just plug information about them into their models and come up with a rate that would be appropriate.
“So going with traditional equipment financing or manufacturing financing ended up being a dead end across the board,” Liu said. “And I think that’s one of the reasons Michigan Rise P.O. financing exists, because there is this gap in the market for innovative companies who are at the cusp of commercialization.”
Managing Risk
Like Civilized Cycles, Traverse City–based Promethient leverages technology to produce an innovative product. The company’s Thermavance system is a solid-state cooling and heating system for both indoor and outdoor seating applications, including marine, powersports, stadium, off-highway equipment, lawn mowers, buses, aviation, and furniture.
Fans at the Detroit Tigers’ Comerica Park will be able to enjoy Promethient’s temperature-controlled seating in the 350-seat Home Plate Club this spring—the first of its kind in professional sports.
Promethient CEO Bill Myers said early-stage businesses don’t qualify for credit through traditional banks because they don’t have the long record of profit and loss that a bank wants to see.
“The Michigan Rise P.O. financing program has been critical for us in this regard,” Myers said. “Access to capital leveraged by the value of the purchase orders that we have in hand is a novel idea. It helps to manage the risk exposed by the state, and it helps the valuation of the company going forward, because you can point to a mechanism that you’ve already got in place, and you’re not paying outrageous rates for it.”
Protecting Startups from Themselves
Sam Shapiro’s company, Grounded RVs, is another Detroit company building a high-value product, in this case smart, modular electric vans for outdoor recreation and work. Because of the high expense surrounding the manufacture of these vehicles, the company found that it needed more than the angel investments they had acquired. Shapiro said the Michigan Rise purchase order financing program allowed them to build.
“Michigan Rise’s P.O. financing was instrumental in financing our early purchase orders that would have otherwise placed a tremendous strain on our working capital,” Shapiro said. “Because of the program, we were able to pay our suppliers on time, focus more resources on growth activities, and ultimately establish the traction future investors were looking for.”
Shapiro said that since the P.O. financing program provides funding for actual orders and doesn’t arbitrarily make debt investments, the program helps protect the startups from themselves.
“Because it’s financed directly against actual orders from customers, it’s relatively low risk for everybody involved, for Michigan Rise and for the startup,” Shapiro said. “It’s a win-win for everybody.”
Meeting a Growing Need
Calvin VanderWal, a venture associate at Michigan Rise, said the value of purchase order financing is increasing as it continues to meet a growing need.
“Support for startups creating tangible products is becoming increasingly difficult to secure in the current fundraising environment,” VanderWal said. “P.O. financing can help early-stage startups fulfill key purchase orders that not only provide the necessary cash flow needed to scale operations but also demonstrate crucial validation points that can help secure additional financing.”
Myers echoed VanderWal’s assessment.
“I think the need is accelerating,” Myers said. “Michigan has been very aggressive in terms of encouraging startup businesses, especially in the tech sector. And so, as we have more startup businesses, as we attract more investment capital for startup businesses in Michigan, I think the need for this kind of program is going to accelerate, because there’s going to be more businesses that will require it in order to just have those operating funds available to allow them to scale here.”
Track Record of Success
Myers said Michigan Rise’s high standards may be behind the success of the P.O. financing program.
“They ask great questions in terms of doing the due diligence, because they want to make sure they’re putting their resources behind a legitimate company that has opportunities and has a story to tell and the possibility to scale that’s realistic,” he said.
The numbers prove the success. The P.O. financing program has provided a total of nearly $5.8 million in loans; the average loan amount is approximately $230,000; and—perhaps what is most significant—none of the loans have defaulted.
Myers said he encourages entrepreneurs in Michigan to check out the Michigan Rise P.O. financing program.
“It’s a great deal that I think more early-stage companies should be taking advantage of,” he said.
Shapiro and Liu concurred.
“I think the terms are super reasonable,” Shapiro said. “They’re very clearly providing actual value and a service that solves a very real problem.”
“For anyone who is manufacturing in Michigan this is an incredible resource,” Liu added. “There’s nothing else like it anywhere else.”
Written by Rich Keener
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About Michigan Rise
Michigan Rise Pre-Seed Fund III, a venture investment subsidiary of the Michigan State University Research Foundation, is dedicated to supporting the launch and acceleration of Michigan-based early-stage startups. Since 2020, its portfolio has grown to represent some of the most promising high-tech, high-growth startups in the state. Michigan Rise Pre-Seed Fund III is made possible through support from the Michigan Economic Development Corporation (MEDC). Learn more at michiganrise.com.
About the MSU Research Foundation
The MSU Research Foundation supports the Michigan State University ecosystem with resources that increase the impact of research and innovation. The Foundation achieves its mission through grant programs that contribute over $15 million annually to the University, entrepreneurial programming and early-stage investments that accelerate technology transfer and startup growth throughout Michigan, and environments where startup businesses and collaborators can thrive. The Foundation’s work is made possible through its stewardship of a flexible and sustainable endowment, nourished by over 50 years of licensing revenues and investment returns. Learn more about the MSU Research Foundation and its impact at msufoundation.org.