VC Guru Mendelson on MI’s Entrepreneurial Ecosystem (And Why There’s Hope)
If the turnout at yesterday’s Michigan Growth Capital Symposium is any indication, our fair state is on the upswing. The conference, in its 31st year, had roughly 450 venture capitalists, entrepreneurs, academics, and government officials in attendance. Jason Mendelson, called “the Elvis of innovation” by this very publication, gave the keynote speech titled, “The Velocity of the Midwest Venture Capital Ecosystem: Sleeping Giants or Momentary Blips?”
Mendelson is the managing director and co-founder of the Foundry Group, a Boulder, CO fund that makes investments in early-stage information technology, Internet, and software startups. He grew up in metro Detroit and graduated from the University of Michigan. Upon finishing law school at U-M, he realized he was frustrated with what he saw as Michigan’s prevailing attitude—fostered by the auto industry—that seniority was all that mattered. Nobody seemed to care what the new guy had to say, even if the new guy had a potentially million-dollar idea. So he decamped to Silicon Valley and went on to serve as managing director and general counsel for Mobius Venture Capital.
Mendelson was in Silicon Valley for the first tech bubble, and he was still there, he says, after “the keg ran dry.” He describes Silicon Valley as an ice-hearted entrepreneurial machine, and not one other cities should necessarily seek to replicate. In his description, Silicon Valley is a place so consumed with competition that virtually the only pleasure in life comes from relishing in the setbacks and failures of others. It’s a toxic place that nobody much likes living in, he claims. Not surprisingly, he fled to Boulder in 2006.
Once he and his partners established the Foundry Group, they decided they would need to “level up” Boulder’s entrepreneurial scene by leveraging the University of Colorado, working to attract capital from outside the region, establishing rigorous entrepreneurial mentorship and development programs through the TechStars accelerator, and cultivating a community where collaboration is key. Now, Mendelson says, Boulder, a city of about 100,000 people, is ranked fourth in the nation in terms of new company formations and companies getting funded.
Before setting up shop in Boulder, Mendelson came to Ann Arbor in 2005 as “a VC with a checkbook.” He came ready to invest in the software/IT space, but he found … nothing. Not one company piqued his interest enough to cut a check. He came back in 2009 and found the seeds of an entrepreneurial ecosystem had been planted. His advice at the time was to forget trying to be a top-tier market and, instead, be a better Boulder.
To create a thriving entrepreneurial ecosystem, Mendelson says, you need a creative class of people (especially on the technical side), strong universities spinning off people and ideas, financial capital, management talent, an engaged community with a real desire to see each other succeed, a supportive legal environment, a culture of risk-taking and respect for failure, and a history of success. The community must also be led by entrepreneurs, he stresses.
In 2005, Mendelson says Ann Arbor had a strong creative class and a university good at spinning out people and ideas, but most of those people were leaving Michigan. In all other areas of his scorecard, he found Ann Arbor to be lacking. In 2012, however, the only areas he finds lacking are financial capital (though he finds the increasing number of local firms and out-of-state capital to be encouraging) and a history of success.
Mendelson says a few attributes offer significant cause for celebration. One is bang for your buck. For every $28,000 in venture capital invested in Michigan, one U.S. job is created. (In California, it takes $75,000; in Massachusetts $70,000; and in Illinois $40,000.) Another is the number of undergrads getting involved in startups—a small but crucial step. But perhaps the biggest indicator of a positive future, he says, is that Ann Arbor’s entrepreneurial success is spreading to other parts of Michigan.
He has completely reversed his previous of stance of “pretend Detroit doesn’t exist,” and says the work of Dan Gilbert and Detroit Venture Partners in particular is transforming downtown Detroit into a tech hub that the presence of a new Twitter office will only intensify. Across the state, the institutional investor base is growing, universities continue to excel in the area of research, and local companies such as HandyLab and Accuri Cytometers have been sold for large profits.
Mendelson says “the money is paying attention,” and all that is left is to generate a few more success stories, have patience for what he sees as a 10- to 20-year process, and, most importantly, continue to put geography ahead of self interest.
“In Silicon Valley, what’s missing is a genuine desire to see others succeed, and very few people give back to the community,” he says. “In Boston, they’re having a rough time. The entrepreneurs are sick of the b.s. and lack of mentorship, so they’re leaving.” In Michigan, Mendelson adds, it’s “stunning” how much progress has already occurred—a noticeable change from just a few years ago. His final advice to Michigan entrepreneurs? “I’m bullish on Michigan’s prospects. Stick together and continue to help each other out. Know what you’re still lacking and embrace it head on.”