Businesses having large up-front capital requirements, a novel technology or business model, and intangible assets such as software, and other intellectual property, whose value is unproven, are most suitable for VC. It is most prevalent in fast growing information technology, life sciences or biotechnology fields.
Michigan and Metro Detroit do not rank high for VC under management or as a recipient of VC.
The National Venture Capital Association 2014 Yearbook reports that in 2013 81 percent of funds are held in five states (California, Massachusetts, New York, Connecticut, and Illinois) and five states (California, Washington, New York, Texas and Washington) account for 66 percent of the deals and 79 percent of the funds committed. Facts from the Yearbook about Michigan VC in 2013:
1. Michigan VC firms invested $119 million.
2. $38.7 million or 32 percent was invested in Michigan companies.
3. 58 Michigan firms (72 deals) received $99.9 million with $60.3 million from out of state VC firms and $38.7 million from in-state VC firms.
4. The portion Michigan firms received from in-state VC firms is 39 percent, which ranked 3rd among states.
5. Michigan VC firms invested $80.3 million in out of state companies.
6. Michigan is a net exporter of VC funds.
The Table and Chart display additional information about VC in Metro Detroit and Michigan. The Table compares Metro Detroit with other cities adjusting for size measured as GDP or output. Detroit VC per $10,000 of GDP is $2.67 over 2005-2012 which is substantially lower than all the other cities. This is not surprising since there is not a concentration in information technology, life sciences or biotechnology compared with other regions. Where there is such a concentration (Boston, Seattle and Minneapolis) the figures are highest.
The chart shows VC investments and number of deals in Michigan annually since 1994 from PricewaterhouseCoopers MoneyTree Report. In recent years VC investments in Michigan fluctuate around 50 deals and $200 million dollars.
A robust VC industry in Michigan and Metro Detroit requires innovation in information technology, life sciences and biotechnology. This will be facilitated by research universities in Michigan focusing on these areas, attracting industry and government research facilities to complement university research, and moving information technology research in the automotive sector out to small, spinoff entrepreneurial companies.
Jonathan Silberman, Ph.D.
Laura Tack, Research Assistant