Why Michigan Could Become A Startup Powerhouse

July 17, 2019

Pete Wilkins - Forbes

Michigan’s unicorns demonstrate a fertile startup ecosystem with unlimited opportunities. A couple weeks ago, StockX became the state’s newest in a quickly-growing cohort of unicorns, which includes two other startups that also earned the elite status this year. In February, OneStream Software announced that it had not only become a unicorn but that it is profitable as well, an achievement that few startups can claim — even by the time they exit. In the same month, electric vehicle startup Rivian also earned a billion-dollar valuation when it received a significant investment from Amazon. The startup secured another large round of funding just two months later from Ford.

Last month, I had the opportunity to visit Ann Arbor during a week-long series of tech events curated by economic development engine Ann Arbor SPARK. This event series brought together people from around the world and afforded me the opportunity to connect with many Ann Arbor and Detroit startup entrepreneurs, investors, and supporters who are strengthening the ecosystem. The startup growth in Michigan has given the entire region palpable momentum and energy. What’s so special about Michigan’s startups isn’t merely its energy, though. Heavily fueled by its decades of cybersecurity software expertise and success — and boasting world-class unicorn companies that span consumer marketplaces, enterprise software, and automotive innovation — Michigan’s ecosystem has evolved in a way that bodes extremely well for the region’s economy, community, and entrepreneurs alike.

The first Michigan unicorn in recent history was Ann Arbor-based cybersecurity startup Duo Security, which claimed the status in 2017. Acquired by Cisco last year for $2.35 billion, Duo is the latest in a long line of successful enterprise cybersecurity startups, whose research and development in Ann Arbor dates back to 1966, when the University of Michigan founded Merit Network, the nation’s longest-running computer network. While they weren’t all unicorns, cybersecurity startup success stories in the city also include Arbor Networks (acquired by NETSCOUT), Deepfield Networks (acquired by Nokia), and up-and-comer Censys (which has already received coastal capital).

Meanwhile, Detroit has become a rising force in consumer brand startups. For example, Michigan’s newest unicorn, sneaker exchange StockX, and the established luxury goods manufacturer Shinola both call Detroit home. The city houses many other direct-to-consumer startups as well, though, including modular but long-lasting furniture maker Floyd, indoor houseplant brand Bloomscape, and curly hair product line Naturalicious. All three of these startups have received funding since 2018, including from coastal investors.

One industry we aren’t surprised to see growing in the nation’s motor capital is, of course, mobility. With deep roots and unique expertise in the automotive industry, Michigan does not just see innovation with electric vehicles like Rivian (one of the unicorns I mentioned above); Ann Arbor-based autonomous vehicle startup May Mobility has gained considerable traction as well. Founded in 2017, May Mobility closed a $22 million Series A round in February of this year. The company has already deployed vehicles in Detroit and Columbus and is using its latest round of funding to expand to other cities. Finally, just last week Ann Arbor-based autonomous delivery robot startup Refraction came out of stealth mode at TechCrunch’s Mobility Session (and did so with venture backing).

Ironically, although entrepreneurship continues to grow in the Ann Arbor-Detroit corridor, one of the key challenges that the region faces is indeed mobility-related. There are extremely limited public transit options between the two cities, which means that one must drive a car between them in order to connect. The ecosystem would arguably see greater collaboration and increased density of resources — which are both critical for scaling — if it were possible for the region’s talent to connect through other mass transit options. Moreover, in a city with the highest car insurance rates in the country, Detroit alone would certainly benefit if startup talent could live there without needing to own a car. This is a key issue that the region will have to solve in order to continue growing successfully.

As an outsider looking in, I see a unique opportunity for Michigan to accelerate its path to ongoing success by uniting the community and building an even more intentional innovation corridor between Ann Arbor and Detroit. By building more collaborative structures across its wide swath of expertise and experience, the state could transform the workforce with new skills, attract investors, and thoughtfully plan to improve life for all citizens — not just those involved in technology.

Organizations in the region are already working hard on helping people transition careers, such as Grand Circus, which helps people transition into tech without going back to college, and Build Institute, which has helped over 1,700 entrepreneurs launch startups (often direct-to-consumer) in the Detroit region. Further collaboration, however, across these cities’ respective non-profits, politicians, investors, and entrepreneurs alike could help the region accelerate its growth path not just in a single vertical or area of expertise but as a broader community.

While the state is not without its challenges, Michigan sees a lot of strong momentum and has the trappings to be a diverse startup powerhouse. This is good news not only for Michiganders but for the broader Midwest ecosystem as well. Helping to rescue the region from its “rust belt” moniker, Michigan is proving that innovation is strong in the Midwest. With further collaboration across cities and industries, Michigan has the opportunity to create a diverse economy that’s poised for greater resilience during times of economic compression. This strength and synergy across Midwestern cities and states will be key as we continue to rise alongside our coastal counterparts.