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Report: Michigan No Longer a Flyover State for Venture Capital

Wednesday, July 19, 2017   (0 Comments)
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Via CrainsDetroit.com

 

While Michigan has become a  hot spot for startup funding, Detroit has been boiling in recent years, according to a new Michigan Venture Capital Association study.

The 2017 Detroit Entrepreneurial Study revealed Detroit's startup community has grown 50 percent in the past three years, now making up a quarter of the state's fledging companies. Last year, 14 of the city's 35 startup companies attracted more than $62 million in seed investment, the study found.

"Michigan is no longer a flyover state for investors. For every dollar invested in startups by Michigan investors, $4.61 is coming from outside of the state," MVCA Executive Director Maureen Miller Brosnan said. "We are doing an amazing job of recruiting capital, that's what it takes to get the entrepreneurs going."

She credits the advancements to research talent and ideas emerging in the city, powered by renowned institutions such as Michigan State University, the University of Michigan and Wayne State University.

IT is a leading sector making up 43 percent of startups, followed by life sciences at 23 percent, advanced manufacturing mobility and consumer products at 8 percent each, and businesses services and advanced services at 8 percent each.

Some emerging startups in Detroit include  Quikly, a digital marketing platform for retailers, and Lunar Labs, a telecom startup.

This is the first year the venture association measured the mobility sector separately from IT, in which it was lumped for the past 10 years.

The state is trying to become the mobility capital of the world, Miller Brosnan said. The MVCA is a nonprofit trade organization that helps foster the amount of capital and talent available to venture and angel investors.

"In Detroit, in particular, you have a lower commercial cost of living than say Silicon Valley," she said. "A lot of people want to bring their businesses here and grow here."

With 33 venture captial firms across the state of Michigan, most are headquartered in Ann Arbor followed by Detroit and Grand Rapids with five each. Detroit Venture Partners LLC and Fontinalis Partners LLC are the two top venture firms in Detroit, Miller Brosnan said. Colorado-based Techstars is another top investor, which also runs an accelerator program.

"Detroit's evolution toward becoming a premier hub for entrepreneurial and investment activity in Michigan has been a long time coming. The talent and networking opportunities in the city provide new startups a strong base to grow and make an immediate impact on Detroit's economic resurgence," Detroit Venture Partners partner Gabe Karp said in a statement. "We've already seen the positive impact made by the influx of entrepreneurs investing in the future, and it's only going to accelerate going forward. We expect the startup landscape to continue to grow and define Detroit as a nationally recognized startup destination."

Outside the venture firm arena, there are 10 angel groups affiliated with MVCA with about $16 million available for startups across the state. Oakland County has the largest number of angel investors, which is "a little harder to get your arms around," Miller Brosnan said.

"If you invest early and they make it, the return is amazing. That's what venture capitalists are all about. These are people who are successful themselves and are entrepreneurs, achieved some kind of financial successs and want to get started again. Invest and help others grow their business."

To support these growing companies, Detroit will need to focus on improving access to capital to fund its fastest-growing businesses and bolster the city's economic prosperity, Miller Brosnan said. The growing demand for early-stage and additional seed money exceeds what is available.

The study found that 58 percent of companies are in the startup/early stage, 21 percent are in the seed stage, 18 percent are in the growth/expansion stage and 3 percent are in the idea/preseed stage.

"These findings reflect the need for additional funds to ensure the success of Detroit's many venture-backed companies," she said.


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