Venture Capitalists Get Serious About Detroit

Paul Mersino

Paul Mersino

By Paul Mersino

This year marked the first “Detroit Startup Week” — a five-day festival, seminar, networking mixer and spotlight on the Detroit startup scene. While some questioned whether the city could support a five-day event, they quickly learned that the Detroit startup scene is going strong. The event broke the attendance record for a first year Startup Week City, drawing more people than any other city across the country. 

With talk of startups comes talk of venture capital (VC). While Detroit may not yet be competing with Silicon Valley for VC funding dollars, the Michigan Venture Capital Association (MVCA) and Forbes magazine recently reported that Detroit is one of the fastest growing entrepreneurial communities in the United States. In fact, the number of VC firms, amount of capital under management and venture investments in Detroit have all been reported to have tripled in the last five years, even as those numbers have decreased nationally. 

Early reports indicate that investments last quarter may have been down slightly, however, the MVCA has quoted Bobby Franklin, president and CEO of the National Venture Capital Association, as saying: “By all measures, Michigan stands out as a prime location for innovation to thrive.” 

IT in the spotlight
The most significant venture capital investment in Detroit has been in information technology (IT). According to the MVCA’s Annual Research Report, 71 percent of the active, venture-backed companies in Detroit are in the IT sector. 

Companies creating products and services supporting next-generation mobility are experiencing a high level of investments. Techstars, one of the most well known startup accelerators in the country, started Techstars Mobility in Detroit less than two years ago to focus on “any technology or service that enables people and goods to move around more freely.”

In July, Fontinalis Partners, LLC, a Detroit-based venture capital firm founded in part by William Clay Ford, Jr., to focus on mobility and telecommunications, announced that it has finished raising a $100 million fund to focus on the next-generation mobility sector. According to Crain’s Detroit Business, Fontinalis has made 23 mobility investments so far, investing in companies at all stages of development, from seed to late stage. The new fund will reportedly focus on areas such as autonomous vehicles, logistics, supply-chain software, shared mobility and connected car technology. 

Earlier this year, the Detroit-based law firm Butzel Long held a “Connected Car Symposium,” focusing on the firm’s lead in issues relevant to connected and autonomous vehicle innovation. Attendees included automotive supplier executives, investors and government affairs professionals. This area will likely be an active field for VC funding for some time to come. 

More VC opportunities
These are not the only areas to experience growth in capital funding. Angel investors have been busy in a wide swath of industries, including consumer products, business services, media, advanced materials and manufacturing, alternative energy and life sciences/healthcare companies. The Detroit area has seen a very diverse company and founder base, with many minority- and women-owned companies receiving venture or angel investments.

The increase in Detroit- and Michigan-based venture capital investments has been an important factor in helping raise money from outside the state. VC firms from other states are beginning to take notice of Michigan companies as good investment opportunities. As a testament to the old adage that it “takes money to make money,” the in-state investments are spurring even more out-of-state investments. The MVCA estimates that for every $1 invested in a Michigan startup by a Michigan venture capital firm, $4.31 of investment is made from outside of Michigan. Success begets success, and investments beget investments. 

As the entrepreneurial and investment communities throughout Michigan continue to grow, more startups will receive funding, and more VC firms will start seeing bigger and better returns for their investors, which will create a cycle of continued investment, continued returns and continued successes. 

Paul Mersino is a shareholder and attorney at Detroit-based Butzel Long, P.C. He represents and advises several startup companies, assisting them with legal needs and matching them with potential venture capital funding. He has served as a mentor to startup business incubators and accelerators, sat on a board of directors of a tech startup and served on a board of advisors for a venture capital group