Seattle Is #3—Where Does Michigan Want To Be?

4/30/10

Seattle has, from my point of view, carved out its position as the No. 3 biotech market in the U.S. behind Boston and the San Francisco Bay Area. Michigan is currently an outsider looking in. Where does Michigan want to be in this hierarchy, and what will they need to do to get there?

Michigan will not supplant either Boston or the San Francisco Bay Area in spots #1 and #2. (Neither will Seattle, San Diego, Washington DC, North Carolina’s Research Triangle, or anyplace else for that matter…) So what can Michigan do to get into the echelon of the above mentioned geographies?

First, create a business tax structure which is friendly to startup, R&D oriented, money-losing businesses. I personally know nothing about the tax code in Michigan, but it will have a significant head up on Seattle at least if companies which are high tech/biotech and are losing money and spending R&D dollars to completely offset their tax burden with the R&D dollars spent in Michigan. Venture capital investors hate cash burned in their companies for things like taxes that yield no productive technology or product development. This is small potatoes in the grand scheme of the budget of a state. The taxes collected from such companies in the state of Washington do not make a dent in the state budget, but they do make an appreciable and negatively noticed dent in the budgets of Washington startups.

Second, set up a state-backed mechanism to support venture capital investment in biotech startups in Michigan. The State of Wisconsin Investment Board, which manages public employee retirement funds, has done something like this. Michigan’s program can be equity based, as in investments by state pension funds into companies that locate in Michigan, or it can be grant funding that matches venture investment dollars at some rate. It could even take the form of investment in top tier venture funds, but not into their main funds. Instead, the state could approach top tier venture firms with the idea of investing in a “side fund” that would strictly invest in companies that would locate in Michigan. However, the state would need to avoid the pitfall of having any say in the investment decisions or limiting the scope to only technologies generated in Michigan. Both create money-losing situations that do not yield sustainable successful companies.

Third, invest heavily in the state’s research institutions. In the case of Michigan, this means the University of Michigan (at the exclusion of Michigan State) if the expectation is that viable biotechnology is going to be developed based upon those investments. Those investments should focus on attracting “rockstar” researchers to Go Blue land. Ann Arbor is a fantastic place—once you attract more of those world-renowned scientists, if the environment of entrepreneurship at a state and university level stays positive, they will stay, and they will create technologies and startups, and their students and post-docs will go on to extend the same.

Finally, create a personal tax structure and state infrastructure that is attractive to anyone thinking about relocating to Michigan. The taxes on individuals need to be on the low side of reasonable. The K-12 public education system (the one thing that most biotech employees think about most in considering whether to move somewhere) needs to be top-notch—among the elite nationally. Highly educated scientists are very interested in making sure their children get access to the very best education possible.

If Michigan succeeds in the four areas above, they have the possibility of creating a biotech utopia. Michigan could even aspire to unseat Seattle in the No. 3 position.

[Editor's note: To help launch Xconomy Detroit, we've queried our network of Xconomists and other innovation leaders around the country for their list of the most important things that entrepreneurs and innovators in Michigan can do to reinvigorate their regional economy.]

Carl Weissman serves as Chairman and CEO of Accelerator, a joint investment vehicle backed by a syndicate of venture capital firms, and as a Managing Director at OVP Venture Partners. Follow @

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  • Ed Fleischer

    Carl, I will respectfully disagree with Seattles #3 ranking. I worked in the Pacific Northwest, and while it is very attractive for Biotech (basic research at UW, Gates foundation etc. & Dendreon) I have to cast my vote to the San Diego county area as #3. With Scripps & UCSD and the plethora of spin offs here, plus Bioegn/Idec and Genentech, I ‘d place SD county a nose ahead of Seattle.
    Regards,
    Ed

  • Ted

    “Finally, create a personal tax structure and state infrastructure that is attractive to anyone thinking about relocating to Michigan. The taxes on individuals need to be on the low side of reasonable. The K-12 public education system (the one thing that most biotech employees think about most in considering whether to move somewhere) needs to be top-notch—among the elite nationally. Highly educated scientists are very interested in making sure their children get access to the very best education possible.”

    So you want an elite public education system, but you don’t want to pay for it? Why not add free cupcakes and jetpacks while you’re at it?

    I used to work with a senior scientist at Upjohn that said he moved to Kalamazoo in the 70′s because they had high taxes. He didn’t want to spend a career working in an area with underfunded public programs (e.g. schools).

    -t

  • Walter Tendler

    San Diego is clearly #3. San Diego is home to the following research (not all inclusive): Salk, Scripps, UCSD, Sanford Burnham Institute & Neurosciences Institute. Public companies with a combined market cap of $40+ billion include Biogen Idec, Life Technologies, CareFusion, Gen-Probe, Isis, Biosite (Inverness Medical) and many others. Pfizer has a large local oncology focused division and there are 200+ private life science companies, most with venture capital backing.

  • Harold

    Seattle is #7 in my mind. Here is the ranking of biotech clusters in US based on several sources.

    1. San Francisco Bay area
    2. Boston/New England
    3. San Diego/Southern California
    4. New Jersey
    5. Washington DC
    6. Research Triangle in North Carolina
    7. Seattle