MVCA Report Shines Light on Detroit’s Startup Growth and Challenges

For roughly the past five years, Detroit’s tech startup ecosystem has been growing at a rapid pace. However, accounts have differed as to just how much growth has occurred. A recent report by the Michigan Venture Capital Association (MVCA) attempts to shine a light on the subject while detailing a couple of key findings.

According to the MVCA’s report, there are currently 35 venture-backed startups in Detroit, representing about 25 percent of all VC-backed startups in Michigan. In the past three years, there has been a 50 percent increase in Detroit startups, and more than half of them are early-stage companies.

In the past year, 14 Detroit-based startups have raised a combined total of $62 million in VC funding. Five VC firms are currently headquartered in the Motor City: Detroit Venture Partners, Fontinalis Partners, Ludlow Ventures, Invest Detroit Ventures, and First Step Fund.

Maureen Miller Brosnan, the MVCA’s executive director, says that in her opinion, the report’s most significant finding is that Detroit continues on an upward trajectory. The organization publishes an annual report on the state of Michigan’s venture-backed companies, but this is only the second time the MVCA has separated the data by city. (In 2015, the MVCA separately studied Detroit, Ann Arbor, Grand Rapids, and Oakland County.)

The 2017 report also details some of the quality of life factors making Detroit an attractive place to locate startups: it has the 13th hottest restaurant scene in the country, according to Zagat; the median cost of a home ($40,000) is 80 percent cheaper than the national average; the cost of living is 21.7 percent lower than the national average; and it is the ninth-best place in the country for leisure activities, as determined by the New York Times.

“There are really good things happening in Detroit,” Brosnan says. “There is talent, a low cost of living, and great minds. If we’re able to bring more capital, I don’t see why Detroit can’t keep growing.”

Despite all of this positive momentum, Brosnan says Detroit companies have the same challenge that all venture-backed startups in Michigan face: a potential lack of follow-on funding. Many Michiganders don’t grasp the difference between seed-stage and late-stage companies and their importance to the state’s economy, she adds.

“In Detroit, over half the startups are in the early stage,” she explains. “They’re earning revenues, but they’re not yet cash flow positive. Those are the companies with great potential.”

Although the follow-on funding gap is something to keep an eye on, she says even if Detroit’s startups can’t raise the money from local investors, they can go after out-of-state VC firms.

“We want to make sure there’s funding at all stages of growth,” Brosnan says. “There are great organizations like TechTown Detroit and NextEnergy that are doing a fantastic job building early-stage companies. I’m hoping they’ll have the resources necessary to continue that.”

Sarah Schmid Stevenson is the editor of Xconomy Detroit/Ann Arbor. You can reach her at 313-570-9823 or sschmid@xconomy.com. Follow @XconomyDET_AA

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