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Entrepreneurial Evolution

Entrepreneurship plays a key role in Michigan’s sustainable job growth and economic recovery

By Amy Haimerl

Page 24

As the nation’s economy spiraled and unemployment rates soared, Michigan placed a big bet. It doubled down on entrepreneurship as the key to the state’s future.

In 2006, the state legislature created the Michigan Strategic Fund to invest in homegrown ideas. In 2007, 10 philanthropic organizations pooled $100 million to create the New Economy Initiative as a way to grow small businesses and invest in high-tech, high-growth firms.

In 2012, entrepreneur Rick DeVos, the founder of Art Prize, formed Start Garden, a $15 million fund and entrepreneurship hub, to tap the investment dollars and startup energy on the western side of the state. And more programs, large and small, have followed suit.

A decade later, the evidence is in: Entrepreneurship is one of the three pillars of the 2016 Mackinac Policy Conference. More than $2 billion has been invested and almost 400,000 new jobs have been created. That places the state fifth in the country for job creation, according to the Bureau of Labor Statistics. Unemployment was just 4.8 percent in March — slightly lower than the national average of 5 percent — and a huge drop from Michigan’s high of 14.9 percent in June 2009.

Michigan is now home to 141 venture-backed companies, and 25 venture capital firms have $2.2 billion under management — a 47 percent increase in five years, according to the Michigan Venture Capital Association (MVCA).

And while Michigan has been on the rise, the MVCA found that nationally the number of VC firms is decreasing. Even more impressive, the amount of capital under management nationally fell 37 percent over the past 15 years, while it increased 325 percent in Michigan.

“One of the things that is really happening is that people from outside the state are seeing that Michigan is a great place to invest,” said MVCA Executive Director Maureen Miller Brosnan. “We have a unique mix of talent and ideas. The entrepreneurship community and VC investment has reached a point where we are a big point of Michigan’s economic recovery.”

Now the challenge is to keep that momentum going forward. Investment in entrepreneurship is a long game, not a short con, with successful growth and exits often taking a decade or more. And that’s enough time for legislators, investors and foundations to turn their attention elsewhere just as new investment could accelerate growth to hyper speed.

“We believe that we have a real foothold on turning the Michigan economy around, but venture capital and the community is still fragile,” Brosnan said. “Our hope is that the state of Michigan will continue to be an investor in entrepreneurs and ideas. If we don’t continue to invest and believe in it, it could evaporate.”

For DeVos, the way forward is for Michigan to specialize rather than emulate Silicon Valley. Great apps can come from Michigan — like Detroit Lab’s pizza-ordering app for Domino’s or FarmLog’s crop-assistance software for farmers — but the state has more than just great coders. DeVos is seeing that diversity in the nearly 40 portfolio companies Start Garden has fostered, including Varsity News Network, which bills itself as the ESPN for high school sports, and Silikids, which produces silicone-covered glass cups for kids.

“As we mature, we have to refine our message,” DeVos said. “We have to look at the assets that are unique to us. We make stuff and making stuff is cool again. The population that we have around industrial design, human-centered design, product design, engineering, that makes us unique. We’re moving toward companies and startups and markets where we have a disproportionate amount of intellectual and social capital to win at that game.”

Part of doing that will involve the whole state working together to develop the right support structures and foster specialization. That is the lesson of Automation Alley, a technology business association that was formed in 1999 to coordinate entrepreneurship and advanced manufacturing, among other things, in eight Southeast Michigan counties.

“Old regionalism dies so hard,” said Tom Kelly, Automation Alley’s chief operating officer. “Everyone has tried to be generalists and get all the turf, but that cannot happen going forward, especially with autonomous vehicles. The pond waters may look still, but underneath there is a war happening. If we want that centered in Michigan, we have to work together.”

The New Economy Initiative is working to ensure that the job growth and opportunity translates to Detroit, as well. Since its inception, it has awarded more than $96 million to businesses large and small. This spring, the nonprofit launched its third year of NEIdeas, which grants totaling $500,000 to 32 existing businesses looking to grow.

“We believe that entrepreneurship is the engine of opportunity for Detroit and the region,” said NEI Director Pam Lewis. “Ten years ago, entrepreneurship meant you couldn’t get a real job. But today it’s not just the scientists and researchers, it’s the coffee maker and the metalworker and the mad scientists all having value and contributing to economic growth.”

Everyone agrees that to make the big bet successful and sustainable, Michigan must find ways to keep these new companies — and talent — here.

“In the past, we spun them up and shipped them out,” Kelly said. “The brain power is being produced, but we have to hold on to them here. There has to be a way for the ecosystem to become stickier where there are opportunities for exciting, interesting things. We need to create an interesting career path.”