Detroit Obsession Obscures Growth of Michigan’s Innovation Economy

The following guest post comes from Koleman Karleski, a managing director at Chrysalis Ventures, a venture capital firm investing in early stage healthcare and technology companies in the Midwest and South.

By Koleman Karleski

Not surprisingly, the 2010 census data concerning Detroit’s shrinking population set off what has become a familiar call-response routine between doomsayers lamenting lost glory and civic boosters touting a renaissance.

For the record, I agree with the boosters, but we shouldn’t let this dialogue drown out the promising buzz building between other economic centers across the state.

While the Motor City has struggled to shift gears over the past decade, cities like Ann Arbor, Grand Rapids and Kalamazoo have quietly developed local innovation ecosystems that resemble those of early Silicon Valley and Boston’s Route 128 Corridor.

More importantly, the business leaders in these various hubs are beginning to work together to nurture an entrepreneurial environment that spans the state. This will ensure that Michigan’s fortunes won’t be tied to one single city, region or industry.

Venture capital investment numbers in Michigan bear this out. According to the NVCA MoneyTree Report (based on data by Thomson Reuters), venture capitalists invested nearly $155 million in 31 Michigan companies in 2010. Only about half of that money went to Detroit companies. Between 2004 and 2009, the state’s biotechnology sector attracted $439.6 million in venture funding.

In addition, a number of innovative young companies have elevated Michigan’s profile among national venture capital investors and corporations alike. Former start-ups HealthMedia, HandyLab and Accuri have already been snapped up by larger companies – a sign of success in the high-tech world.

So how do local innovation hubs develop? Most often, they coalesce around a top-notch research institution. In Ann Arbor, the University of Michigan fills this role. U of M is currently among the top 10 universities for spinning new technologies into start-ups, according to the university’s technology transfer office. In fact, Ann Arbor has one of the highest rates of patent density – a rough measure of how much innovation is taking place in a given area – in the nation.

In Grand Rapids, a small but active community of angel investors has come together around the Van Andel Institute, which focuses its research on major diseases such as cancer, osteoporosis and Parkinson’s disease. In Kalamazoo, the Southwest Michigan First Life Sciences Fund is playing an active role in attracting life sciences businesses to the region and helping them grow. As a result, my firm is seeing a robust early stage investing scene developing there, too.

Innovation ecosystems also draw nourishment from well-directed government support. Led by the governor, Michigan has taken aggressive steps to help more of the state’s innovators and entrepreneurs gain access to the capital they need to create high-growth companies. The first Venture Michigan Fund has already committed $95 million for investment in Michigan start-ups, while fund-raising for VMF II has netted $120 million. Add in $120 million from the 21st Century Fund and $200 million from the InvestMichigan! Growth Capital Partners Fund, and you have a fairly impressive investment pool for entrepreneurs and investors to tap.

More importantly, these funds represent unique public-private partnerships that optimize the strengths of each sector and put money in the hands of those who can use it best.

Government support also takes the form of successful business incubator organizations. Guided and funded by entities like the Michigan Economic Development Corporation (MEDC), these organizations help entrepreneurs turn their ideas into growing businesses by providing consulting, business services and office space at affordable rates.

One of the poster children for this approach is the Business Accelerator Network of Southeast Michigan.  A collaboration between Ann Arbor SPARK, Automation Alley, Tech Town and OU INC, this network has invested approximately $18 million in area start-ups and has helped generate more than 1,000 jobs in the state, according to a recent study led by the Kauffman Foundation.

Cooperation across regions and economic sectors once seemed like a rarity in Michigan. However, hardship has a way of engendering renewed focus and new collaborations. Fortunately, the fruits of both have started to frame the discussion about Detroit’s future in new terms.

We’re all still rooting for a rebound, of course. But whether the Motor City can regain its mojo as Michigan’s primary economic engine seems less important than whether it can join these other venture hubs in creating a new state of innovation in Michigan.