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The Venture Capital

Ann Arbor’s innovative ecosystem worth of emulation

Page 28-29

By Melissa Anders

 

There’s a long list of ingredients in the recipe for Ann Arbor’s continued entrepreneurship success. It’s not a quick dish, but rather a multicourse meal prepared, tweaked and perfected over several years.

And at the top of that ingredients list is something unique to Ann Arbor: the University of Michigan. But while the university’s research and technology transfer programs fueled the city’s dynamic startup culture, the city has developed and leveraged various assets and techniques that other areas can emulate.

“The community at large has to create an environment and a culture that encourages entrepreneurship, welcomes it, and supports it.” — Skip Simms, Senior Vice President, Ann Arbor SPARK

Since 2001, U-M’s tech transfer office has recorded 1,161 license/ option agreements, 1,749 patent applications, 126 startups and nearly $211 million in royalties and equity sales.

Success at some of these startups bred more success, attracting like-minded go-getters supported by one of the state’s largest entrepreneurial support networks. They also caught the eye of investors who have flocked to the region, providing the capital that’s crucial to growing startups.

The Ann Arbor area is home to about 80 of the 220 venture capital-funded and angel investor-backed companies that were active in Michigan in 2013, according to the Ann Arbor-based Michigan Venture Capital Association. More than 20 of the MCVA’s 55 venture capital, private equity and angel investor member groups call Ann Arbor home. So, how did it get this way?

“There’s no one single thing,” said Skip Simms, senior vice president at Ann Arbor SPARK. “The community at large has to create an environment and a culture that encourages entrepreneurship, welcomes it, and supports it. From there, once you have that – that is not easy to accomplish either – it takes a lot of people from a lot of different perspectives and with a lot of different resources to agree to collaborate to make that happen, to create that culture.”

Once that’s established, several factors make it drive. “It’s technology, money and people. All three of those ingredients are important,” said Paula Sorrell, vice president of entrepreneurship, innovation and venture capital at the Michigan Economic Development Corporation (MEDC).

Groups like SPARK, the New Enterprise Forum and others that assist entrepreneurs are crucial, Simms said. While similar organizations exist throughout the state, they’ve been active in Ann Arbor for longer, nearly 30 years in the case of NEF. Entrepreneurs there have created informal networking groups, further contributing to the sense of community.

Ann Arbor has also taken advantage of state programs like the SmartZones, which allow the city to use tax increment financing to support early stage technology companies. While other areas of the state used the same funding mechanism targeted at technology development, Ann Arbor was unique in making sure the money was geared toward helping startups, Sorrell said.

The MEDC launched its Business Accelerator Fund about two and a half years ago that emulated Ann Arbor’s approach. All startup incubators can take advantage of the funding, but Ann Arbor had a leg up because it had been doing it for a number of years, Sorrell said.

Ann Arbor SPARK’s incubator is physically small, but it’s one of the most active in the state as far as companies and programming. It put less money into infrastructure and more into services, something that Sorrell recommends other communities do as well.

“A lot of the elements that exist in Ann Arbor exist in Detroit already. They’re growing, the investment community has noticed, and the ultimate sign is when investors start writing checks … That’s the clearest sign you’re doing something right and the culture and environment is maturing.” — Skip Simms, Senior Vice President, Ann Arbor SPARK

 

“I bring that up a lot,” she said. “Port Huron, for example, developed TechPort, and they did everything that we recommended in terms of they set up a small space, they involved local community funds to design and support it, run on a shoestring budget, connect with Michigan State University for technology continuity and partner in several areas.”

Building a robust entrepreneurial scene requires cheerleaders, too. Someone needs to spread the word to not only attract more startups, but to lure venture capital firms and other sources of funding.

“It takes people to not be afraid to publicize their success, to talk to others, to encourage them to take a similar path, to take the risk,” Simms said.

Other areas of Michigan – from Grand Rapids to East Lansing or Midland – have begun making similar efforts in the last several years to promote entrepreneurship. And no place is that more apparent than in Detroit.

“A lot of the elements that exist in Ann Arbor exist in Detroit already,” Simms said. “They’re growing, the investment community has noticed, and the ultimate sign is when investors start writing checks … That’s the clearest sign you’re doing something right and the culture and environment is maturing.”

Michigan and Detroit are on the right path to become the top place to start a business in the next five to 10 years, said Charlie Moret, president and CEO of Invest Michigan, a Detroit-based nonprofit

that manages the MEDC-backed Michigan Pre-Seed Capital Fund. “I think Michigan just gets it right. It’s a combination of public, private, philanthropic partnerships that are really making a difference and starting to move the needle,” Moret said. “The state of Michigan, through the MEDC, is doing some incredible innovative work that’s supporting the whole entrepreneurial sector.”

The private sector is starting to get more engaged in supporting startups and entrepreneurship, but it’s in the early stages, Simms said. He thinks the private sector needs to step up and take over some of what the state has been providing, as well as supporting startups as customers.

“Startups are Michigan companies, too,” he said. “So getting Michigan companies to buy from startups is also an important element to the overall success of entrepreneurship, which will lead to the ultimate goal of diversifying our economy, making it more stable, and more importantly, making it grow.”

Melissa Anders is a metro Detroit freelance writer.