Mich. hopes tech will help recovery
By: Jennifer Martinez
January 6, 2011 04:36 AM EST

http://dyn.politico.com/printstory.cfm?uuid=580D7924-A87A-987A-F380BB469A0AEE3C

Michigan is best known for making cars, but the state’s technology sector is gaining clout thanks, in part, to local and national politics.

Michigan’s own Rep. Fred Upton has become one of the most powerful lawmakers on technology policy. As the new chairman of the influential House Energy and Commerce Committee, Upton plans to kick off his tenure by leading the charge of Republicans seeking to repeal the Federal Communications Commission’s Net neutrality order.

Another Michigan Republican, Rep. Dave Camp, is slated to chair the House Ways and Means Committee, which handles tax issues that affect large high-tech corporations and entrepreneurs. Tax incentives for small-business entrepreneurs and research-and-development tax credits will be among the items under Camp’s purview.

Michigan certainly won’t have the political pull of other tech-focused states such as California. But by attracting investors and entrepreneurs, it is hoping to generate a new tech-focused economy that will help cities like Detroit recover from the collapse of the auto industry.

“The state itself has been very aggressive and understanding of the importance of technology to an economy that needs help,” said Mark Heesen, president of the National Venture Capital Association. “If you look at folks coming into power, … there’s this understanding that technology for the state of Michigan and their districts is an important consideration.”

New state-run initiatives may be on the horizon now that a former tech executive is at the helm. Michigan’s new governor, Rick Snyder, previously served as president and chief operating officer of computer-maker Gateway and went on to start two venture-capital firms in Ann Arbor. He served as an interim CEO at Gateway in 2006.

Venture capitalists are particularly bullish about the growth opportunities for biotech, medical devices, clean tech and battery technologies.

Additionally, the U.S. Patent and Trademark Office plans to build the agency’s first satellite office in Detroit this year, a move intended to help the agency tackle its backlog of more than 700,000 patent applications. The agency said it selected Detroit because of its proximity to major research universities, large community of scientists and engineers and high number of patent agents and attorneys.

Still, Michigan is far from becoming a tech powerhouse like California, said TechAmerica Executive Director Ed Longanecker.

“Silicon Valley is its own unique environment, and other areas aspire to have that same [venture-capital] environment and that same network of companies,” said Longanecker, who runs TechAmerica’s Midwest office. “It’s taken a long, long time to develop, and I don’t think Michigan [is] anything close to becoming Silicon Valley, but I certainly think there are some positive things happening that will help diversify their economy.”

“The tourists have left.”  That’s how National Venture Capital Assn. President Mark Heesen describes the pared down U.S. entrepreneurial ecosystem after several years of tough exit markets, low returns, and an abysmal fundraising environment.  Further, he expects the fallout from the dot-com bust and its effects on the venture capital community to continue through 2011, as the last of the weak VC players retreat from the industry.

Heesen did have some good news for Michigan’s venture community–the exit market is picking up, with a record number of acquisitions this year and the expectation that that number will climb after the midterm elections.  Fundraising should pick up accordingly, as existing LPs start receiving long-awaited checks and become more optimistic about the asset class.  He also shared a prediction that our state will become one of the most important state’s in the country if Republicans gain control of the U.S. House of Representatives, as Reps. Fred Upton (R–6th District) and Dave Camp, (R–4th District) are poised to take leadership roles on powerful House committees.

Finally, Heesen touted the importance of regional venture funds as locally sourced deals become a key differentiation point in Silicon Valley.  He expects a continued increase in first-time funds and early stage funds, as smaller LPs previously frozen out of the asset class squeeze in.  He said the NVCA is carefully monitoring the European directives that will restrict European money invested into U.S. funds and foreign venture investments in European companies, an issue so important its passage could lead to a U.S./Europe trade war.