Detroit's Startup Ecosystem is Missing 3 Things

I’ve now been in Detroit for 882 days. Or roughly, 2 years, 5 months, and 1 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.

Since I moved to Detroit, I’ve noticed many things about this southeast Michigan startup ecosystem. From my perspective, there are 3 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, Brad, along with his partners at Foundry Group, have transformed Boulder into a top startup ecosystem in the country.

Brad’s basic thesis is that startup communities need to be led by entrepreneurs.

I agree completely with Brad’s thoughts and view myself in a bit of a hybrid role–both an entrepreneur and a service provider (e.g., 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 2 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 3 Types of Funding to Detroit

1. Accelerators that leverage the region’s strengths Two of the more well 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 based 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 take 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 2 with over $100M 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 3 to town in a variety of capacities. You could say I focus on biz dev for Detroit’s startup ecosystem in my “free time”. I’m even speaking at SxSw on this topic of startups and turnaround economies.

Where do you want to be in ten years? Status quo? Or one of the heroes that rebuilt a city through entrepreneurial fire?Ted Serbinski

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 3 funding sources to Detroit.

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