My Farewell Present: Six Observations About Michigan’s Innovation Economy

7/25/11Follow @xconomy

Due to some unforeseen personal issues, I have to end my tenure as editor of Xconomy Detroit far sooner than I would like. But in my relatively short time here, I’ve discovered no shortage of interesting and compelling stories in Michigan. Here are my top six takeaways from my six months in the Wolverine State.

Michigan has been, is, and will probably always be primarily an auto state. The state has tried hard to diversify into high-tech industries, including medical devices, pharmaceuticals, cleantech, and software. But despite the well-publicized troubles in the automobile industry, the business of making cars remains deeply ingrained in Michigan’s economy and culture.

People here say Michigan can become a cleantech powerhouse because of its expertise in automobile engineering and manufacturing. But consider the numbers from the Michigan Venture Capital Association: last year, over 70 percent of the state’s venture capital haul went to life science startups, with only five percent going to cleantech/advanced manufacturing companies. Michigan’s most high-profile exits in recent years have been lifescience firms like Accuri Cytometers and HandyLab. But automobiles/cleantech, for better or worse, continues to dominate the public’s imagination.

The University of Michigan has evolved into a legitimate force in technology transfer and economic development. Under the 10-year leadership of Ken Nisbet, the university’s tech transfer office has spun off over 90 companies and generated about $168 million from royalty/equity income, including the sales of startups like HandyLab and HealthMedia. The U-M enjoys a strong reputation from venture capitalists inside and outside of Michigan. However, some people believe the university needs to squeeze more value out of the $1.2 billion it spends every year on research.

An alphabet soup of organizations want to revitalize Michigan’s economy, but it remains to be seen whether these groups are complementing or competing with each other. Michigan is a fragmented state, littered with pockets of activity and good intentions. In southeast Michigan alone, we have Ann Arbor SPARK, TechTown (Detroit), Automation Alley (Troy), and Macomb-OU Incubator. Are these so-called business accelerators helping to create companies and jobs for the benefit of the whole region or for their own pockets of geographic influence? In other words, can these four disparate groups rise above their own agendas and pool their resources for the good of the regional economy?

Michigan is the land of would-be acquisition targets, not IPOs. Yes I know a weak economy and Sarbanes Oxley have made going public less attractive. But I’m struck how little appetite exists in Michigan for initial public offerings. There was a time not long so ago when ringing the NYSE bell symbolized the ultimate achievement in American capitalism. But Michigan startups are mostly content with being acquired instead growing to a point where they could be the acquirer.

Rich people are stepping up. Much has been said here about how the Detroit area is home to a dense cluster of millionaires, who’ve made their fortunes in the auto business. But until now, most of that money has remained on the sidelines.

That seems to be changing. There’s the anonymous individual who’s donating $100 million to back Stage 2 Innovations, a fund that will help more advanced startups commercialize their technologies. Quicken Loans founder Dan Gilbert has also created Detroit Venture Partners to fund local high-tech startups. He’s also trying to convert the city’s Woodward Avenue into a high-tech corridor.

University of Michigan grads are coming home. The school has tried mighty hard in recent years to woo alumni, especially the Ross School of Business. Those efforts seem to be paying off. In Ann Arbor alone, U-M grads, who cut their teeth in Silicon Valley, Chicago, and New York, have launched three venture capital firms: RPM Ventures, Resonant Venture Partners, and Huron River Ventures. Go Blue!

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