Xconomist of the Week: Ramsinghani On Microinvesting in a Company Town

4/19/12Follow @XconomyDET

There is a lot of talk these days in post-industrial American cities like Detroit about transforming the “brawn economy” into the brain economy. Detroit Xconomist Mahendra Ramsinghani, who runs Invest Detroit’s First Step Fund, is on the front lines of that battle to economically recalibrate.

“As a community, generation after generation got up and went to work every day for the Fords or General Motors,” Ramsinghani explains. “Now we’re forced to think differently. That’s helping some and hurting others.”

The First Step Fund is a revolving loan pool supported by the Invest Detroit FoundationTechTownAnn Arbor SPARK, and Automation Alley. Its mission is to provide microfinancing and mentorship to emerging and newly formed small businesses in southeast Michigan that have successfully completed  training programs through qualified business incubators. The fund makes investments of $10,000 to $50,000 in startups and is particularly interested in businesses that are owned by women and minorities. The fund began making investments in 2010, tough times that Ramsinghani says demanded not only swift action but creativity. “We knew we couldn’t do what’s always been done or we wouldn’t make progress,” he says. “We’re looking for passionate, viable companies that are very early stage, a little more mature, and everything in between.”

The mindset of Detroit, Ramsinghani says, has been to build robust products that last a lifetime. Compare that to Silicon Valley, where some of the biggest companies have made their fortunes by building a website, social network, or a mobile app. “That requires a different skill set,” Ramsinghani says. “Our industry here goes in 50- to 100-year cycles. Silicon Valley’s goes in 10-year cycles. It’s not that one is better or worse—each one plays an important part. But we need to understand our DNA and build our ecosystem around what we have.”

What Detroit has, in Ramsinghani’s opinion, are startups like Warren, MI-based Coliant Corporation, which makes the Powerlet products that enable motorcyclists to charge devices like cell phones on the fly. The company was started by a former auto engineer who “refused to accept his fate” of unemployment. Detroit also has startups like First Step loan recipient Wedit, which offers brides and grooms an online approach to capturing and editing their wedding videos. Both companies leveraged local strengths—a region rich in auto suppliers and investors who want to keep young talent in the state after they graduate from college—to make something new. “These are the kinds of rebirthing stories that I find fascinating,” Ramsinghani adds.

Ramsinghani was recently part of a delegation of economists representing local nonprofit foundations and government entities that visited Turin, Italy to learn how that city turned itself around after losing approximately 100,000 auto-sector jobs. Turin, often called the Detroit of Italy, was a company town that revolved around Fiat. Turin has diversified its economy by focusing on entrepreneurship and high-tech sectors the way Detroit is trying to do now, but Ramsinghani says what he found most compelling was the way government, the universities, the foundations, and investors were willing to work together. “They developed a master plan and they stuck with it for 15 years,” he says. “They found unity in adversity, and that’s probably the biggest lesson we can learn.”

Where Turin lags behind Detroit, Ramsinghani says, is in the amount of risk capital available for investment—about a tenth of what we have here. Turin will soon be sending its own delegation to Detroit to learn more about the strategies used in Michigan to increase venture capital.

Ramsinghani came to his position leading the First Step Fund after living in Ann Arbor and Lansing, where he served as the Director of Venture Capital Initiatives for the Michigan Economic Development Corporation (MEDC). While at the MEDC, he developed strategies for bolstering Michigan’s venture-capital supply chain and helped shape the legislation responsible for deploying millions of investment dollars through the MEDC’s seed-stage venture funds.

Last year, he wrote a highly regarded book called “The Business of Venture Capital,” a collection of insights from global VC leaders. The idea for the book came from all the time he spent “sitting at the feet” of people who have been in the investment game longer and listening to their advice. “The ground rules never change,” Ramsinghani says. “You’re still asking someone to part with their money and allow you to manage it on their behalf.”

Ramsinghani, who is exceedingly kind in an almost fatherly way, thinks of his investments like kids: The tricky part comes in deciding who needs immediate attention and who needs room to breathe. He has been personally involved in the financing of more than 30 startups, but he hopes that’s just the beginning.

“Detroit is still looked upon by the rest of the world as a place of ruin, or the rust belt,” Ramsinghani says. “To some extent, it will take time to get rid of those biases. I see a lot of good opportunities in southeast Michigan. It’s easier to help entrepreneurs be successful than it was 10 years ago, but it’s still a challenge.”

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

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