Silicon Valley Transplant Calls for Stronger Startup Ecosystem

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I’ve now been in Detroit for 882 days, or roughly, two years, five months, and one day.

As an ex-Silicon Valley guy who co-founded and sold a company, I have a good sense of what makes the valley tick — and how it turns out bombshells like Whatsapp, (a mobile messaging service that was recently acquired by Facebook for $19 billion).

Since I moved to Detroit, I’ve noticed many things about this southeast Michigan startup ecosystem. From my perspective, there are three critical pieces we need (or rather, need much more of).

Building a Startup Community

Brad Feld wrote a book on this subject: Startup Communities: Building an Entrepreneurial Ecosystem in Your City. After 20 years in Boulder, Colo., Feld, along with his partners at Foundry Group, have transformed Boulder into a top startup ecosystem in the country.

Feld’s basic thesis is that startup communities need to be led by entrepreneurs. I agree completely with Feld’s thoughts and view myself in a bit of a hybrid role — both an entrepreneur and a service provider (i.e., I’m a venture capitalist). I moved to Detroit because I believe there is an entrepreneurial gold rush in Detroit (and the greater Midwest).

And what Detroit needs is more investors backing founders to discover startup gold in the region.

Discovering the Missing Ingredients

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 basic 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. What it is missing is lots of value-add funding sources.

Attracting Three Types of Funding to Detroit

1.     Accelerators that leverage the region’s strengths

Two of the better known accelerators in Detroit are Bizdom and Techtown. I mentor both and sit on the board of directors for Techtown. The region needs both of these. But it also needs an accelerator that truly leverages the strengths of this region, such as automotive, manufacturing, or urban renewal. What Detroit needs is our own Brandery (which I’m also a mentor of), which leverages the strengths of Cincinnati: the most designers-per-capita and home of P&G’s headquarters. Or, the just-announced Techstars: Disney in Los Angeles, which leverages the many consumer and film resources in the region.

2.     Seed funds that can write checks quickly

Michigan has some angel groups and pre-seed and seed funds. I’ve co-invested with many of these groups and the vast majority takes too long to make an investment decision. Seed-stage startups (pre-revenue and pre-product) are an experiment and should be funded quickly. They shouldn’t go through the same process a Series B startup goes through. Fortunately, funds like Detroit Innovate and the new Michigan Pre-Seed Fund 2, managed by Invest Michigan, can invest quickly, with larger check sizes. And Detroit needs much more of this. We need our own seed funds like 500 Startups or Lerer Ventures.

3.     A-round funds that invest locally

When startups uncover their repeatable business model, they need more capital to scale, repeating this process for huge growth. While there are a handful of Michigan funds that have the capacity to lead a Series-A (including Detroit Venture Partners), there are only two with more than $100 million under management and headquartered in Michigan — Arboretum Ventures and North Coast Technology Investors. What does that mean? There aren’t enough local funds with enough capital to take a startup to the mega-growth rounds we see on the coasts.

Contributing to Detroit’s Success

Every startup ecosystem has to start somewhere. Detroit has a good base, but we need more, lots more.

I’ve been working on many initiatives to bring more of the above three to town in a variety of capacities. You could say I focus on biz development for Detroit’s startup ecosystem in my “free time.” I’m even speaking about startups and turnaround economies at the upcoming South by Southwest in Austin, Texas.

Get the word out. Tweet about this article; send it to your colleagues. Leave a comment, or shoot me an email if you have ideas to attract more of the above three funding sources to Detroit.

I look forward to 10 years from now, and looking back and saying, “Remember when.”

Ted Serbinski is a Partner at Detroit Venture Partners, where he leads investments in early-stage software startups. This article was originally published on his 52 Startup Lessons website.

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