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Michigan’s Venture Capital Ecosystem is Thriving

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Michigan’s Venture Capital Ecosystem is Thriving
by Fredrick Molnar, Vice President of Entrepreneurship and Innovation at Michigan Economic Development Corporation

Now more than ever, our recovering economy needs entrepreneurs. And now more than ever, those entrepreneurs need supportive ecosystems to thrive. Robust entrepreneurial ecosystems were once considered to be the exclusive domain of the Coasts, but now entrepreneurs in record numbers are keying in on Michigan’s strengths. With access to capital, highly skilled talent and low cost of living, no other state provides the breadth and depth of entrepreneurial support that Michigan does.

Early funding is critical to the success of startup companies and entrepreneurs, and according to Crunchbase, Michigan is the fastest growing state for venture capital investment. In fact, investments in Michigan have skyrocketed from $300 million in 2016 to $3.1 billion last year.

While buoyed by major investments including Orbion Space Technology who raised $10 million in Series A in 2019 and $20 million in Series B in 2021, StockX’s $110 million Series C round in 2019 and $275 million Series E last year, along with Cisco buying Ann Arbor-based Duo Security for $2.35 billion in 2018, Michigan’s venture capital ecosystem is not entirely dependent on out-of-state backers.

The Michigan Venture Capital Association 2021 Annual Research Report notes that Michigan venture investors helped back nearly every Michigan venture-funded startup, demonstrating the health of the state’s entrepreneurial economy. That report also found venture capital funds under management of firms headquartered in Michigan in 2020 was $2.8 billion, an increase of 28 percent over the last five years. Together, these data points signal ample community support.

Moreover, the state’s venture capital ecosystem has evolved over the past decade to offer industry-specific resources. The Biosciences Research and Commercialization Center (BRCC) provides startup and gap funding to Michigan-based life sciences and medical device ventures entering the commercialization phase of development. The Michigan Economic Development Corporation (MEDC) supported BRCC to help start the investment fund in 2011. Since its inception, it’s been able to grow into a self-sustaining fund through investment returns and continues to support companies.

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And companies statewide have benefited. With the support of BRCC and Invest Michigan, Fifth Eye, an Ann Arbor-based startup that developed technology to interpret a patient’s electrocardiogram and detect future instability before a patient shows any signs of distress, raised an oversubscribed $2.36 million Series Seed round. This enabled the company to close the first portion of a $11.5 million Series A funding round in less than 12 months.

While access to capital is key, another differentiating feature of Michigan’s venture capital ecosystem is the state’s deep talent pool. Michigan’s educational system incorporates entrepreneurial programs and innovation hubs to prepare future startup talent and entrepreneurs. A variety of talent development initiatives across the state help ensure companies investing and operating in Michigan are getting the skills and talent they need.

The Technology Transfer Network (T3N) is a great example. T3N is a statewide university network designed to support, through key talent programs such as mentors-in-residence, the commercialization of university technologies through licenses and startups. Likewise, the Ann Arbor SmartZone SPARK accelerator program supports the growth of an entrepreneurial ecosystem through the creation and management of services, tools and resources specifically designed for entrepreneurs. This includes the MI STEM Forward internship program that pairs qualified students with startups to give young professionals the chance to build their resumes and growing companies access to talent that can advance their growth. To date, more than 100 companies and 300 interns have benefited from the program.

Equally important, Michigan’s affordable cost of living and quality of life enables the venture capital ecosystem to thrive. Michigan’s cost of living comes in at 10% below the national average, ranking it as the 4th most affordable state in the country. Surrounded by 20 percent of the world’s freshwater and home to more than 11,000 lakes, entrepreneurs are quickly coming to recognize that Michigan is the ideal place to live, work and play.

While Michigan’s entrepreneurial ecosystem is thriving statewide, a microcosm can be found in the city of Detroit. More than 23% of the state’s venture-backed startups are located in the city. Between 2007 and 2020, TechTown, Detroit’s SmartZone accelerator, served 4,500 companies at its Midtown hub and in neighborhoods across Detroit, Hamtramck and Highland Park. These businesses created 1,600 jobs and leveraged more than $172 million in start-up capital.

For good reason, Michigan is fast establishing itself as a top entrepreneurial ecosystem nationwide. The state’s comprehensive and innovative supports are second to none. By supporting this startup ecosystem, Michigan is ensuring entrepreneurial ideas evolve into companies that generate good paying jobs, increase the tax base and grow the economy. And as we rebuild following COVID-19, that’s more important now than ever before.