The rise of Detroit is a topic that has come up frequently locally and nationally. I have written before about the elements needed to build an entrepreneurial ecosystem in any city, but in advance of the amazing Detroit Startup Week, I wanted to focus on the opportunity for growth in Detroit’s entrepreneurial ecosystem.
Overall, I believe four basic elements need to grow and work in unison to have a strong entrepreneurial ecosystem:
- Talent – We need experienced, competitive entrepreneurs and investors willing to take risks.
- Research – We need amazing research institutions and innovation corridors spinning out cutting-edge ideas and technologies.
- Capital – We need to ensure there are experienced angel and venture capital investors with capital available to invest in and partner with companies as they grow.
- Community – We need to create meaningful, effective connections between every element of the community and strong entrepreneurial support organizations.
Last summer, I broke down the data in the Annual Research Report for the Michigan Venture Capital Association to explore, at a high level, the entrepreneurial activity in Wayne County. Although there is a long history of local businesses supporting the community in the city, this analysis and subsequent commentary will be focused on high-tech entrepreneurship.
In a nutshell, there has been a 50% increase in the number of Detroit-based startup companies in the last three years. These startups are attracting just under $100 million into the City of Detroit each year. Software companies are on the rise and make up the bulk of venture-backed startups located in Detroit. However, there are some pain points around the lack of experienced entrepreneurs and investors leading the charge – there are a few major players, but because the community is so new, I see mostly extremely early-stage startups mainly attracting extremely early-stage investment. I’m sure it comes as no surprise to anyone familiar with the entrepreneurial ecosystem in Detroit (or the Midwest really) that once companies are trying to raise an A round, that growth stage capital is nearly impossible to come by locally for Detroit startups. Detroit’s entrepreneurial community is booming, and with time, we will grow the experienced talent needed to get us over this current capital hurdle.
On the research institution/innovation corridor side, the automotive industry is a major driver of innovation in the tech community, but that knowledge (and talent) tends to be pretty siloed off from the broader entrepreneurial ecosystem in Detroit. Many times, startups in Michigan are viewed as only a source of technology rather than drivers of the innovation industry that will grow and stabilize our economy, therefore keeping us competitive nationally (something I could rant about for days but that’s another post). Of course, we see organizations, such as Techstars Mobility, forge good connections between the automotive industry and the entrepreneurial community, but it would be beneficial to see more of that bridge building happening.
At EntryPoint, I’m focused on using a data-driven approach to determine how we can support entrepreneurs more effectively and make the meaningful connections they need to enable efficient success. I’m hoping the organizations that support entrepreneurs in the Midwest will use a data-driven approach to determine the needs of entrepreneurs in the region and will be very intentional about the steps they are taking to grow community into the economic driver it can be. My question for the people that are in the trenches of the entrepreneurial ecosystem in Detroit is:
What do you think entrepreneurs in Detroit need in the next five years to continue this growth trajectory?
Managing Director, Techstars Mobility
This is a question I think about often. In fact, four years ago I wrote about 3 things the Detroit startup community needs to grow. I believe it boils down to three things: founder-led initiatives growing the community, creation of more early-stage funding sources, and better storytelling of what is going on locally (e.g., let’s all use #StartupDetroit and make startupdetroit.co the go-to resource for the area).
Startups are simply an experiment to find a repeatable business model. Once found, the business scales by applying this model to find customers and revenue. Eventually, the startup can be acquired, merge with another company, or go public. Experiments, therefore, are the basic ingredient to create a rich ecosystem of startups. And these experiments need two necessary things to thrive: funding and mentorship. The best experiments (or startups) have value-add funding and operational-experienced mentors. Detroit has a wealth of operational experience mentors in the region, but what it is missing is lots of value-add funding sources.
Value-add funding sources include accelerators that leverage the region’s strengths, seed funds that can write checks quickly and A-round funds that invest locally. Techstars Mobility was an experiment to show the region’s strengths could be tapped into for industry-focused startups. It’s worked super well. Can we replicate this with manufacturing or health to continue to diversify high-quality early-stage startups across the region?
Co-founder, Bamboo Detroit
Continued mentorship. It’s been great to see so many companies get started here in our ecosystem. It’s critical we create a culture of founders helping founders, mentoring, and giving back to one another. A culture of mentorship will help others learn from those who have successfully scaled up. At Bamboo, Dug Song of Duo Security, Carla Walker Miller of Walker-Miller Energy, and so many more have offered time to speak, network, or talk one-on-one with budding entrepreneurs. If you are an entrepreneur reading this and have started or sold a company, consider connecting with community leaders like Emily, Bamboo, or TechTown to see how you can connect in meaningful ways. Entrepreneurship is a tough road to take. Having mentors helps steer us forward in the right direction.
Analyst, Detroit Venture Partners
For existing Detroit startups, the biggest obstacle I’ve seen current Detroit companies face is attracting top engineering and senior leadership talent. Detroit needs a better system of connecting successful Michigan expats with current Detroit companies.
When thinking about emerging entrepreneurs, the diversity of talent in Detroit is incredible; however, most of it operates in bubbles.
Detroit needs an inclusive scene for ‘stage one’ or younger entrepreneurs. It’s comparable to hacker houses in Silicon Valley, gaming houses in LA, or homes with built-in studios where musicians go to congregate and create daily.
There are plenty of coworking spaces here; however, there is no hub for entrepreneurs and creatives that might have full-time jobs but prefer to spend their time hacking side projects outside of business hours.
There’s something about the community, creative collisions, and the support of living, working and hanging around people that are all working on different projects. I specify younger entrepreneurs because they tend to have more time for this; however, it doesn’t have to be exclusive.
In fact, the scene could have an advisor component where emerging hackers have an environment to seek guidance from more experienced Detroit founders.
And I purposely would not limit this to only people working on VC-backable businesses. Detroit needs a place for entrepreneurs to discover potential collaborators and cofounders to make high-growth entrepreneurship more accessible.
As the writer, Jeff Goins states, “The concept of the solitary genius is a myth. We don’t do our best work alone.”
I envision many explosive businesses getting started once the tech scene becomes more accessible to greater Detroit. Creating an inclusive scene for tech and creative talent could get us closer to this.
Founder, Venture Catalyst
To get to the next stage as an ecosystem, Detroit entrepreneurs need help at two critical steps – funding to get a prototype launched and acceleration to help them scale once the base customer and revenue targets are met. We are fortunate as a city to have many organizations and programs that are designed and focused on helping people turn their ideas into prototypes like Build Institute and Startup Weekend. If a business is successful and can get financial support at this level, these and other programs like Startup Boost and TechTown Detroit help convert prototypes into revenue producing customers. But this is a first stumbling block that many entrepreneurs never surpass. At the upper end, top performing entrepreneurs can earn spots in high impact entrepreneurship development programs like Endeavor or EO, but there is a gap in support to scale between these entry / mid-level programs and their high performing counterparts that require $1M or more revenue to join. This is where Detroit needs to focus in the next five years.
Detroit needs more paid fellowship-type programs that allow entrepreneurs with vetted prototypes or mid-stage products to be able to focus on business development full time or even half-time for 3-6 months. By doing so, this would enable a higher conversion rate to acceleration, investment and revenue. Techstars Mobility is one such solution, but we need more programs like this in other technology and product verticals. An ideal solution would be to seed such a program with centralized, civic-fund that can be partnered with investment from industry verticals. Even more, we need to focus entirely on cultivating innovation partnerships with corporations to seed the fellowship funding and provide potential customers to scaling entrepreneurs. We have programs like this focused on civic gains, but we need more in entrepreneurship. I am excited to help develop solutions in this space.
Managing Director, Endeavor Detroit
When Endeavor was established in 2015, we were keenly aware of the need to be an active partner in the growth of the local ecosystem. In fact, I recently spoke about community building at the Wayne State University TEDx conference, sharing How to Build a Thriving Entrepreneurial Ecosystem. Anywhere.
Our mission is to continue growing and building the strongest entrepreneurial culture and community for entrepreneurs to thrive in Michigan. To do so, Detroit needs to focus particularly developing the talent and community elements:
- Role Models — we need more founders who have successful exits or who build large companies in Michigan. Budding entrepreneurs will benefit from seeing that success can happen in their backyard.
- A Giving Mentality — beyond having role models in our community, we need them to embrace a pay-it-forward mentality and invest in the future success of others.
- Connectivity —we need to ensure founders have opportunities and outlets to share their professional and personal experiences. We have the knowledge and expertise in our community that can help others navigate business challenges.
EntryPoint advances the entrepreneurial community by promoting inclusion, community engagement and education. The organization works with entrepreneurial support organizations and startups at all stages of growth foster an inclusive organizational culture, expand their networks, and conduct research for education, outreach and advocacy purposes. EntryPoint was founded in 2018 by Emily Heintz, a leader in Michigan’s entrepreneurial and investment community who was part of Crain’s 40 Under 40: Class of 2016 and recognized in Forbes, Axios, and VentureBeat. To learn more, visit http://www.EntryPointMI.com or follow us on Twitter and Facebook (@EntryPointMI).