Welcome to Michigan Entrepreneurship 2.0

There are many locally-based organizations focused on entrepreneurship and supporting small business development across the Detroit region. However, the Michigan Economic Development Corporation (MEDC) is a statewide agency which is focused on economic development. It is a public/private partnership that is the state’s marketing arm and lead advocate for business development, talent and jobs, tourism, film, and digital media incentives, arts and cultural grants, and overall economic growth.

MEDC offers a number of business assistance services and capital programs for business attraction and acceleration, entrepreneurship, strategic partnerships, talent enhancement, and urban and community development.

Paula Sorrell, Vice President, Entrepreneurship, Innovation, & Venture Capital, is responsible for making sure programs are in place that help foster an environment of entrepreneurship and where companies can “de-risk” their technologies to become more attractive to private investment.

I recently interviewed Sorrell for her thoughts regarding MEDC, its role in the city and state’s revitalization efforts and programs offered to support entrepreneurship and small business development–particularly, in the technology-based sector.
Lee: Technology-based companies appear to be making an impact in the Detroit’s and the State’s revitalization efforts. Please share your thoughts.

Sorrell: There is a study that shows Michigan is the 5th least diversified state in the country (just ahead of states like Mississippi and Nevada) and we saw the impact during the great recession of how our heavy dependence on the auto industry played out. With two understandings in mind: 1) that a diversified economy is a more stable economy, and, 2) that a knowledge economy is typically reflected by high-paying jobs, the tech companies make an impact in several ways. Mainly, tech companies attract talent and capital. Last year, the state had a record year in attracting private capital from out of the state. We’re hoping to increase that even more this year.

I don’t want to imply that none of the new tech companies we see springing up or relocating to the state have nothing to do with the manufacturing economy. In fact, many of them help strengthen that part of our economy. But we also have a strong biotech economy supported by large companies and pumped with more than $1B in federal biotech research each year. Detroit benefits from both of those industries, as well as the burgeoning IT cluster that started with companies like Compuware and Quicken. We’ve got a strong-hold of advanced materials companies in the Upper Peninsula, and Michigan State’s Agro-bio research is among the best in the country. And all of those people who work in all of those tech companies need other things: restaurants, markets, shops, dry cleaning, etc. We’ve also seen many “authentic Detroit” companies cropping up, which is wonderful to witness…companies like Shinola.

Lee: With respect to economic development (investment, jobs, et al), what trends have you noticed over the past five years and what are your expectations over the next three-five years?

Sorrell: This has been slow, but impactful growth. It’s more meaningful to talk about what we’ve seen over ten years and what has exploded in the past 3-4 years: 1) over ten years we saw VC funds under management in tech companies go from $200 million to $4 billion, 2) we saw the number of early tech companies go from approximately 50 to close to 3,000, and 3) we saw companies grow, expand, sell, re-invest and entrepreneurs willing to do it over and over again.

That’s an exciting cycle with big payouts. Every dollar the Michigan Strategic Fund has put into early stage tech last year resulted in $35 private dollars being invested in the state’s tech companies (three years ago we tracked 17:1 leverage). We are on a roll, but we need to continue the effort. At this point and say “we’re done, let’s sit back and watch” is the wrong approach. We need to keep running…and keep running faster, keep investing, keep innovating…and creating.

Lee: How does MEDC support entrepreneurship? Economically? Training and development?

Sorrell: The legislature approves $25million each year to the Michigan Strategic Fund for tech entrepreneurship. MEDC implements these funds by providing support programs that specifically help grow technologies into companies, including translational research at the universities, tech incubators, early de-risking programs, and business advisory support to move companies forward. In Michigan, a tech company is 2-3 times more likely to receive a federal research grant than the rest of the country because of the help they receive through the MEDC.

A university spin-out has a 75% likelihood of survival after 5 years, which is significant. The ecosystem is robust and supported mainly by MEDC with the goal of attracting private funding. In fiscal 2014, approximately $710 million of private funds were spent in support of tech companies, leveraged by that $25 million. One of our most active partners in the state is the Small Business Development Center, which provides strategic business advice to companies at no cost. Last year they helped companies raise almost $60 million in follow-on funding. Results like this happen because of a talented team at MEDC, and an experienced tech team at SBDC, and other non-profit partners who focus on helping tech companies move forward.

Lee: Potentially coming out of bankruptcy, what are Detroit’s prospects when it comes to developing technology-based small businesses and entrepreneurs?

Sorrell: I get asked this a lot, and really, the tech economy seems to not be impacted by the bankruptcy. Although, the tech entrepreneurs that I talk to in the city mainly portray a transition in city services. Where public services were lacking in the past, they now see cleaner streets, better public safety, etc.

Lee: MEDC has relationships with several universities across the region and state. Please explain the types of relationships and how they assist small business owners.

Sorrell: There are 15 public (4-yr) universities in the state. All have some type of engineering and science programs, and most have entrepreneurial classes or degrees. The largest research institutions are (in order of dollars received): University of Michigan, Michigan State University, Wayne State University, and Michigan Tech. The others mostly have some research dollars but are more focused as teaching institutions. There are really two ways to engage with MEDC/MSF supported university programs:

1) if you are/were an entrepreneur or have a strong technology background, the universities rely on industry experts and business advisors from the community to help move technologies along.

2) If you are a small company who needs lab or other support work done by a university, you can go to www.michigancrn.org, which is the Michigan Corporate Relations Network. People are amazed but yes, our universities DO work together to solve entrepreneurial and technical problems.

Lee: How does Michigan rank compared to other states regionally and nationally and is it gaining ground compared to other states?

Sorrell: When I speak to other states about what Michigan is doing, they can’t believe it. They are amazed at the ecosystem that has been built to support entrepreneurs and the results that have played out. Most states WISH they had Michigan’s great schools and entrepreneurial ecosystem. But when it comes to private investment, particularly venture capital, Michigan still ranks quite low. We’ve gone from 4 Venture Capital firms in the state to 35, and our angel groups are robust and active, but we are still low in venture dollars even among Midwestern states, and that’s where we have the most work to do. I recently received a call from Indiana and an email from Texas, asking about how we manage our tech economy, next week I’ll be speaking in Wisconsin on the same topic. We really have set a new standard here.

Lee: Other thoughts?

Sorrell: We’ve been calling this “Michigan Entrepreneurship 2.0.” We launched programs, saw the impacts, learned from them, and have hit our stride. I’ve been proud to be an active participant, and honored to work with all of our great partners in the state and the amazing people on the team at MEDC. It’s gratifying to see what has been accomplished but we’ve only just begun.