Attracting out-of-state capital is critical for Michigan’s economy

Maureen Miller Brosnan

Maureen Miller Brosnan is executive director of the Michigan Venture Capital Association, based in Ann Arbor.

It is undeniable that Michigan’s investment community boasts some impressive numbers. According to the 2017 MVCA Research Report, 54 startups received $222 million from Michigan venture capital firms and there was $4 billion of capital under management in 2016. As Michigan’s entrepreneurial community continues to grow and thrive, the investment community is actively fundraising and expanding their networks to keep up with this boom in activity.

But, with this progress, it is clear we still have work to do to ensure that there remains a robust continuum of capital to support Michigan companies at all stages of growth.

An estimated $504 million of venture capital investment will be required to adequately fund the growth of Michigan’s existing startup companies in the next two years. While Michigan has seen nearly three times the number of venture capital firms investing in local startups, for the last two years, the state has experienced a decline in venture firms located in the state. 

The 33 venture firms in Michigan estimate that funds needed for new investments, coupled with the need for follow-on funding for their 141 Michigan-based startups, exceeds what is currently available, reflecting the need for additional funds to help Michigan’s many venture-backed businesses succeed.   

With tremendous business development happening in the entrepreneurial community, having a strong venture capital community in Michigan will play a critical role in attracting and securing much needed out-of-state investment capital.

Local venture investment professionals are often the first to identify high-growth, high-potential businesses, partner closely with growing businesses, and provide important connections to key stakeholders. Michigan’s entrepreneurial and investment community is becoming more recognized nationwide and is uniquely positioned to attract significant amounts of capital from outside of the state, largely due to a combination of research, talent, ideas and diverse leadership.

Currently, every dollar invested in a Michigan startup by a Michigan venture capital firm attracts $4.61 of investment from outside of Michigan. This data shows that entrepreneurs who are backed by both in-state and out-of-state venture investment have an advantage because they can leverage the expertise and investment of local investors to grow their business while also raising funds from out-of-state venture professionals to take their business to the next level, resulting in greater economic opportunities in the state.

State legislators must pay attention to the needs of Michigan’s entrepreneurs and investors to keep its competitive advantage and build a stable, diverse economy. There is enormous potential and talent in the state, but we need to support the venture capitalists who invest in and support our entrepreneurs. If Michigan wants to keep building on the momentum of our vibrant entrepreneurial and investment community, we need to ensure our high-growth, high-potential companies have access to the early stage capital they need to continue building businesses in Michigan, keeping them in Michigan, and ensuring Michigan’s economic health in the long run.

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

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Comments

David Waymire
Sat, 06/03/2017 - 10:25am

Venture capital follows talent. Michigan ranks in the bottom 20 in college attainment. We need to attract, prepare and retain college grads, who are the drivers of creative ideas, to attract VC. Big deal: the % of high school grads in Mi going to college (2 or 4) has dropped from 66 to 61 percent in last three years. National avg.: 69.

duane
Sat, 06/03/2017 - 5:07pm

"State legislators must pay attention to the needs of Michigan’s entrepreneurs and investors to keep its competitive advantage and build a stable, diverse economy. "

A case was not made for why it is a 'must' because there was no suggest of how. The common theme of articles on Bridge that are related to legislators is about spending more of other people's money, unless there is indication of other ways to address a concern then the merits of a 'must do' drops to the bottom of the wish list.

If all that we are talking about is taxpayers money then it sounds a lot like subsidizing the venture capitalists [who have moneys to invest for a return].

If there were a case for how current state service could be made more effective in attracting those with good ideas and a willingness to sacrifice to make their idea to turn into results, that would be worthy of attention and consideration. If there were a description of how local communities could make themselves more appealing, how new innovative service could draw these entrepreneurs in, if specific infrastructure innovations could draw them in, etc. with a bit of reason why they will work and how to measure if they are working than there is a new path create that doesn't start in the taxpayers wallet. My community has a lot of natural appeal [especially for living], not even the Chamber of Commerce has any ideas of how to reach outside the local community and draw in the innovators.
All of these these approaches will have costs/spending needs, but they will have creativity [much of what the venture capitalists value], they will have accountability [something lacking in all other requests on Bridge and in Lansing], and they will let taxpayers verify that promises are being delivered on.

The reality is that people of all types and purposes go where they feel the culture will support what they do, money is not a culture. What are the key factors that demonstrate the needed culture/environment, make a place uniquely prepared for innovators, a place where innovators what to have/bring families?

Michigan Observer
Sun, 06/04/2017 - 4:48pm

Ms. Miller Brosnan says, " we need to support the venture capitalists who invest in and support our entrepreneurs. ", but she fails to offer any concrete suggestions as to how that might be done.