The Michigan startup scene is growing and venture capitalists see numerous crucial areas of opportunities. What follows is a survey of some of the top VCs in the state and how they see COVID-19 affecting the growth of Detroit, Ann Arbor and all of Michigan’s startup ecosystem. According to the Michigan Venture Capital Association (MVCA ), there are 144 venture-backed startup business in Michigan, which is an increase of 12% over the last 5 years.
The quantity of capital available in the state hit a four-year high in 2019 after avoiding record levels in 2015. The MVCA states the overall quantity of VC funds under management in Michigan is $4.3 billion. Out of that, 71% of the capital has been invested into business and the MVCA states its members estimate an extra $1.2 billion of equity capital is needed to “sufficiently money the development of Michigan’s 144 start-up business in the next 2 years.”
As the VCs state below, life sciences is a big part of the Michigan ecosystem, drawing in 38% of all financial investments made in the state. Information technology can be found in 2nd, receiving 34% of the overall capital invested, with 85% going to those focused on software. Mobility, often believed as Michigan’s mainstay, just received 7% of the capital in 2019. Here’s who we spoke to:
- Chris Stallman, partner, Fontinalis Partners
- Patricia Glaza, EVP and managing director, ID Ventures
- Chris Rizik, CEO and fund manager, Renaissance Equity capital
- Tim Streit, partner, Grand Ventures
- Turner Novak, basic partner, Gelt VC
VCs remain bullish on Michigan’s life science startups
Michigan has long been a center for life science start-ups and the venture capitalists polled expect that to continue. Chris Stallman of Fontinalis Partners points to Michigan’s enduring track record in this field and anticipates this to continue. Tim Streit of Grand Ventures concurs and sees the pandemic as accelerating the sector’s development. In current weeks he states his firm has seen a “variety of appealing digital rehabs offers based in or near Michigan … and the timing couldn’t be more perfect for these type of business to be successful.”
Chris Rizik of Renaissance Venture Capital notes that drug development will continue to drive growth around the country and is a strength of the Michigan community. He also indicates Jeff Williams, CEO of NeuMoDx, as a leader in the life science neighborhood and who has led a number of Michigan’s most effective start-ups.
The noteworthy exception to this are startups straight serving hospitals, according to Patricia Glaza of ID Ventures. She sees this as a tough market in the period of COVID-19, saying “Health centers are bleeding cash without elective surgical treatments and tough to focus on inessential innovations.”
Ann Arbor is becoming a hub for security business
Duo Security’s remarkable exit to Cisco in 2018 is still resonating in the scene. As such, lots of venture capitalists are seeing Ann Arbor becoming a home for security startups.
Stallman of Fontinalis states, “I think the cybersecurity world will be a bright spot as a few of those spillover results from the 2018 acquisition of Duo Security by Cisco take hold (this is still in its early days– workers will reach the end of their work arrangements and will begin brand-new companies, and so on).” Rizik of Renaissance Equity capital said something similar: “The success of Duo Security highlighted Michigan’s growing credibility as a cybersecurity hub. The University of Michigan has actually always been strong in this location, and we now see a number of intriguing startups in this field appearing around Ann Arbor.”
When inquired about leaders in the Michigan start-up scene, almost all of the VCs noted Duo Security creators Dug Song and Jon Oberheide as key gamers. Perhaps Rizik said it finest: “Dug Song is a great leader, who not only developed a monster success for the area with Duo Security, however also has actually committed much of his time to tactically working to help Michigan progress as an accountable, startup-friendly community.”
Michigan is appropriate to gain from remote work
Of course Michigan-based investor would be bullish by themselves state, but almost all of the VCs share the same factors on why Michigan is an excellent location. They list low cost of living, fantastic STEM-focused schools and a neighborhood of founders, VCs and business leaders eager to assist each other.
Couple of VCs mention movement as a bright spot for Michigan start-ups
Remarkably, few of the VCs in the study reference mobility or vehicle as a highlight of the Michigan startup scene, which runs counter to the national story. Stallman sums up the situation in this manner: “The mobility area will see both tailwinds and headwinds. Companies contending for automobile clients may discover that the industry’s challenges have resulted in a much shorter ‘top priority list’ for lots of automakers and providers; on the other side, business assisting to get rid of business risk through innovation in supply chain, automation, workforce performance, etc. will have arguably more chance going forward.”
Chris Stallman, partner, Fontinalis Partners
Just how much is local investing a focus for you now? If you are investing from another location in basic now, are you filtering for local founders?
We have actually constantly been a thematically focused investor instead of a geographically concentrated financier; prior to COVID-19, we had invested 99% of our capital beyond Michigan. With that said, we ‘d love to invest more in Michigan and support more local founders.
What do you anticipate to take place to the start-up climate in Detroit/Ann Arbor/Michigan longer term, with the shift to more remote work, perhaps from more remote areas. Will it remain a tech hub?
Southeast Michigan has actually constantly been a story of 2 various startup worlds: health/life sciences and hardware/software tech. On the life sciences side, this region has a long-standing credibility of development and university research, and I anticipate that to remain largely the same moving forward. It would appear to me that life sciences business may not have as simple of a time adapting to new remote-work environments because much of the innovation work stays lab/clinic/facility-based.
For the world of other innovation, I think there will certainly be more accepting of remote work and distributed groups– this area has always had some degree of that since it’s not unusual to see business with another office somewhere else or a few remote staff members that come from really particular backgrounds that are difficult to hire for in your area. Considering that this area has constantly had a few of that, I might see a case that this new paradigm will be an easier adjustment for this region. Nevertheless, the other side of that is that a lot of tech innovation and establishing an ecosystem has to do with density and serendipitous collisions– for an area that was still on the come-up, losing what ground had actually been gotten over the last few years will no doubt make the spillover benefits of this aspect harder to come by. I worry a bit that angel and seed activity will slow locally (and ideally that the growth in seed funds nationally will balance out that).
Are there particular industry sectors that you anticipate to do distinctively well or inadequately, in your area?
I think a bigger theme that is arising out of this COVID-19 circumstance is that people have a heightened sense of security, security and health. Life sciences will stay durable so long as there’s financing for ongoing research, and I think the cybersecurity realm will be an intense area as a few of those spillover impacts from the 2018 acquisition of Duo Security by Cisco take hold (this is still in its early days– workers will reach the end of their work agreements and will start brand-new companies, and so on).
The movement area will see both tailwinds and headwinds. Business contending for automotive customers might find that the industry’s difficulties have resulted in a shorter “top priority list” for lots of automakers and suppliers; on the other side, business assisting to eliminate business risk through development in supply chain, automation, workforce effectiveness, etc. will have arguably more chance going forward.
In the short term, what obstacles are facing Michigan’s start-up scene?
Detroit has not yet strike a complete emergency from a startup environment standpoint, and that is most apparent in the more limited amount of angel and seed capital offered to business here; and, to a lower level, a more shallow pool of mentors and consultants for founders than what you would discover in SF, LA, NYC, Boston, etc.
. Who are some founders (who you’ve invested in or otherwise) that are leaders in the community?
Here are some of the prominent ones (note that we have purchased any): Dug Song and Jon Oberheide (Duo Security), Mina Sooch (has established and led a number of popular biotech business), Amanda Lewan (Bamboo Detroit), Kyle Hoff (Floyd), Josh Luber and Greg Schwartz (StockX).
A lot of Bay Location developers and founders are wanting to relocate. Why Michigan?
Quality research institutions, access to talent locally and capability to pull from Toronto/Ohio/etc., significant industry (automobile, logistics, production and monetary services) in its footprint, supportive state programs for startups, cost of living, worldwide airport with easy access (when the world moves once again, that is), etc.
. Patricia Glaza, EVP and handling director, ID Ventures
Article curated by RJ Shara from Source. RJ Shara is a Bay Area Radio Host (Radio Jockey) who talks about the startup ecosystem – entrepreneurs, investments, policies and more on her show The Silicon Dreams. The show streams on Radio Zindagi 1170AM on Mondays from 3.30 PM to 4 PM.