Crain’s Detroit Business
Sept. 8, 2022
Nick Manes
In its latest philanthropic push in Detroit, the billionaire Gilbert family has committed $10 million over three years to help fund the ongoing activities of three organizations pushing to grow the area’s startup sector.
The Gilbert Family Foundation, founded by Rocket Mortgage founder Dan Gilbert and his wife Jennifer, formally launched Venture 313 on Thursday.
The initiative aims to devote a variety of resources — financial and other forms, along with three partner organizations familiar to many in Detroit’s startup community — to “provide Detroit-based founders with meaningful opportunities to participate in the innovation economy,” according to a news release.
The organizations doing the on-the-ground work are Invest Detroit, a Community Developmental Financial Institution (CDFI); TechTown Detroit, a nonprofit that provides programs, education and resources for early- to growth-stage small businesses and tech entrepreneurs; and the Detroit Development Fund, which provides loans and technical assistance to small business owners who cannot get all the capital they need from traditional financing sources.
The nascent Venture 313 initiative will also serve as the successor to Detroit Demo Day, an entrepreneurial pitch competition dating back to 2017 and offering more than $1 million of investment annually for startup-type companies in Detroit, Highland Park and Hamtramck.
“Venture 313 is a year-round, catalytic initiative that will provide Detroit-based entrepreneurs with access to capital, mentorship, and other support they need to build their business and achieve greater economic mobility for themselves and their community,” Jennifer Gilbert said in a news release. “In the largest majority-Black city in the country, we are excited to work alongside such dedicated partners to help bridge the venture capital gap that sees only one percent of funds go to Black founders.”
The $10 million commitment from the foundation will go toward providing investment in primarily seed-stage companies. That funding will come in a variety of forms ranging from grants to loans and lines of credit, as well as investments.
Those investments, ranging from between $500 to $250,000, depending on size, situation and need, will be invested in the form of SAFE Notes. The mechanism, which stands for Simple Agreement for Future Equity, is a common vehicle for early-stage funding, usually in tech startups, and allows an investor to purchase shares at an agreed-upon price down the road.
The use of such an investment mechanism has been on the rise in recent times, according to a report earlier this year from AngelList Venture and Silicon Valley Bank. The use of SAFE notes could suggest “that investors are refocusing around early-stage startups at a time when tech IPOs have slowed and growth stocks are down,” according to the report.
In addition to the direct investment, the Venture 313 initiative will also be be focused on developing still-to-be determined programming for entrepreneurs and offering guidance to help scale early-stage businesses.
Much of that guidance will come from the Venture 313 website and a “Guidebook,” which aims to “empower entrepreneurs to engage in all facets of growing their business,” including “instructions on conducting market research, completing a competitive analysis, working toward the creation of a minimum viable product (MVP), obtaining loans and other funding, preparing for demo calls, and more,” according to the release.
“The venture capital world can feel like a secret club, with its own set of rules and language. A business-as-usual approach will not equip Detroit founders with the tools or funding they need to get in the game,” James Feagin, director of economic mobility for the Gilbert Family Foundation, said in a statement. “We need to be as disruptive and agile as the businesses we are looking to support, and these playbooks and other resources will allow us to grow Venture 313 into a catalytic platform that truly opens the door for Detroit’s entrepreneurs.”
Funding Organizations
As part of its involvement in the initiative, ID Ventures will source high-growth venture deals and invest between $25,000 and $250,000 using the SAFE note mechanism. The early-stage funding organization will also provide business coaching and other programming, according to the release.
“ID Ventures is pleased to be a partner in Venture 313,” stated Martin Dober, senior vice president and managing director of ID Ventures, the venture capital team of Invest Detroit. “ID Ventures is committed to removing barriers and helping Detroiters scale their great ideas into venture-backed companies, and appreciates the Gilbert Family Foundation’s support of inclusive entrepreneurship in Detroit.”
The ID Ventures website shows that the fund has deployed $21 million to more than 200 startups, 54 percent of which have had diverse founders, and the fund has achieved 17 exits.
TechTown Detroit, a longtime small business incubator in Detroit affiliated with Wayne State University, will invest in smaller businesses that are primarily looking to evolve from ideation to the creation of a minimum viable product (MVP).
The incubator will provide grants ranging of $500-$25,000, as well as ongoing support and coaching for entrepreneurs.
“It is critical that we empower founders with the resources they need to turn a passion into a product, and continue to invest in their entrepreneurial journey,” Ned Staebler, vice president for economic development at Wayne State University and president and CEO of TechTown Detroit, said in the release. “The only way to achieve real and sustainable economic development is by investing on Main Street, and we are excited to join the Gilbert Family Foundation and Venture 313 to support the next generation of Detroit startups.”
Executives at the Detroit Development Fund, meanwhile, tout the fund as something of a venture capital fund for businesses that don’t traditionally secure such funding. The fund has provided money to a variety of Detroit restaurants and other consumer-facing businesses, according to its website.
The fund provides working capital, lines of credit and other loans of $25,000-$250,000.
“As a lender, we look at every aspect of a business when analyzing their potential, but often prioritize future growth over finances and big ideas over balance sheets,” stated Ray Waters, president of the Detroit Development Fund. “We are excited to be a founding partner of Venture 313 and collaborate with organizations like the Gilbert Family Foundation who, like us, understand that dreams are worth investing in.”
The push by the Venture 313 partners to deploy capital to early stage startups comes during a period where such investing has slowed, at least when compared with the record highs of last year, according to industry data.
Both deal count and deal values for early stage companies declined from the first quarter to the second quarter of this year, according to a July report from industry publication Pitchbook and the National Venture Capital Association.
The report notes that investors are being increasingly cautious when it comes to deploying capital to untested businesses.
“The increasing cost of capital is leading investors to consider whether startups can efficiently manage their runway through subsequent milestones,” the report reads. “With investors refocusing on the durability of businesses through economic downturns, we expect due diligence efforts to prioritize return on invested capital and free cash flow.”
Chris Rizik, the CEO and fund manager of Ann Arbor-based Renaissance Venture Capital, said the capital being committed for the Venture 313 initiative is something needed in the marketplace, because few traditional VC funds like to play that early in a company’s life cycle.
“If you’re 18 months from revenue, it’s tough,” Rizik said of early stage companies seeking capital.
