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Michigan’s tech scene sown, but will it maintain startup crop?

Aug 12, 2016

The Next Idea

July automotive sales were up only 0.7%, bringing back memories of when Detroit’s Big Three struggled to stay afloat not too long ago. Both serve as a reminder of what keeps the state’s economy alive: diversification of industry.

In 2005, former Gov. Jennifer Granholm allocated $1 billion for the 21st Century Jobs Fund to support Michigan’s startup economy, an effort to bring diversity to the state’s economy.

Sarah Schmid is a reporter with Xconomy Detroit-Ann Arbor, and joined Stateside to discuss the results of the Michigan Economic Development Corporation’s (MEDC) report on the state’s new startup ecosystem. The results, Schmid said, have been largely positive.

“When you’re a state trying to invent a startup ecosystem from nothing, basically, it’s pretty amazing what we’ve been able to achieve over these past 10 years,” she says.

Establishing a fund of funds for Michigan startups has drawn attention from investors outside of the state – investors who are rewarded money under the stipulation that they invest in Michigan companies. This completely changed what Michigan meant to nationwide investors, Schmid added.

“It’s been a very effective way to not only encourage Michigan investors to participate in funding startups, but it’s also drawn a lot of out-of-state money,” Schmid told Stateside. “Frankly, Michigan was not on anyone’s radar 10 years ago.”

The money comes from venture capitalists (“a.k.a. rich people,” Schmid said) who are willing to invest in startups in exchange for support from state tax dollars. To continue sustaining the startup ecosystem that’s been formed, Schmid believes the state needs to continue running these fund of funds – perhaps with some changes, like making them a public-private service.

“The report was pretty clear; despite the successes, we’re at a crossroads. And if we don’t continue to fund these programs, then it’ll all be for naught," she says.

Investors remain “cautiously optimistic,” she added, but are still interested in supporting the technologies being developed in Michigan, also noting the rise of the state as a testing ground for autonomous vehicles.

So, what’s next?

Supporters of Michigan’s fund of funds program need to convince state legislators to give tax money to startup investors, while issues like road funding persist. If not, Schmid predicts the startup ecosystem could face its end.

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