$58 Million In Funding For Detroit's Venture-Backed Startups

Posted on May 20, 2016

Detroit’s in the news again, and it’s good. Next week is the first ever Detroit Startup Week from Techstars (the Boulder-based tech incubator and accelerator), a five-day celebration of Detroit  and its entrepreneurial community, with events, speakers and exhibits focused on entrepreneurship, led by entrepreneurs and hosted in their spaces. It comes on the heels of the 2016 annual research report from the Michigan Venture Capital Association, which found that Detroit is one of the fast growing entrepreneurial communities in Michigan, a state with one of the fastest growing venture capital communities n the U.S.

To make that assessment researchers looked at the total amount of capital under management, the number of investments made, the amount of venture capital invested and the number of VCs. “The number of VC firms, the amount of capital under management and venture investment has roughly tripled in the last five years, while nationally, these numbers have decreased,” says Emily Heintz, associate director of the MVCA in Ann Arbor.

Venture capital investment is up in Detroit

The state has 36 VC firms within its border—five headquartered in Detroit–and more capital under management now than ever before, $2.2 billion from those headquartered in Michigan and $5.6 billion from all 36 firms in the state. The angel community has also grown substantially. Today there are nine angel groups with 294 investors that put more than $16 million into Michigan startups last year, according to the report.

Michigan also has a surprising amount of diversity in its venture community. Of the VCs employed in Michigan 28% are women, people of color or LGBT—that’s a lot higher than the industry’s numbers nationally.  There are now 128 venture professionals living and investing in Michigan, up 94 percent over the last five years. In the last year 74 companies in the state received more than $282 million from Michigan venture firms, an increase of 48 percent over the last five years.

Detroit in particular, says Heintz, is seeing an increasing number of tech startups wanting to locate there. “The city is a rapidly emerging IT sector and many firms have located themselves there.” Of the 25 active, venture-backed companies in Detroit, 71 percent are in the information technology sector.

The entrepreneurial community in Detroit has also gotten a significant boost from efforts over the last several years to build a support ecosystem for startups and small businesses. Today there are more than 50business support organizations (like incubators and accelerators) in metro-Detroit focused on spurring innovation.

The number of companies basing themselves in the city has increased 100 percent in the last five years, Heintz says. That sounds impressive but the actual numbers are still small: five years ago five investments were made into new ventures in Detroit and last year eight were made. “It’s still small a VC community in general in Michigan, but people are noticing a lot of opportunity in Detroit. Capital goes further, the cost of doing business is smaller and they see a lot of vibrancy that is coming,” says Heintz.

More than one-third of the venture capital firms in Michigan have invested in Detroit startups and there are 25 active venture-backed startups in the city today, a 32 percent increase over last year. Collectively those Detroit companies have received more than $58 million in venture funding, eight percent more than last year.

Innovators like Rocket Fiber—with $31 million in investment to build Gigabit internet infrastructure in Detroit (last November they announced they were capable of offering the fastest residential internet in the world at 10 Gigabit speed) and SPLT, a mobile carpool app that lets people share their commute to work with others, are good examples of the variety of startups coming out of the city. SPLT was in the first class (2015)  of Techstars Mobility, an accelerator based in Detroit geared toward mobility startups (companies transporting or enabling transport of people). The program received applications for its program from every country in the world (with the exception of Antarctica).

People are even writing books about their journeys to Detroit (well at least one is). Journalist Amy Haimerl chronicled her house rebuilding odyssey this month in the new book “Detroit Hustle: A Memoir of Love, Life and Home.” She says the book is about “rebuilding a house and finding a home in this most magical and complicated of cities.” (Haimerl was the entrepreneurship editor at Crain’s Detroit Business, where she covered the city’s history-making bankruptcy trial.)

Bankruptcy aside, the vibe in Detroit today is one of hope and new beginnings. The city, says Heintz, outpaces Michigan in its growth.  “There are great houses for people to move into, lots of new restaurants, startups, venture firms… it’s a vibrant city with lots of opportunity and it’s very startup friendly. You go to local coffee shops and if you throw a rock, you’ll hit a VC,” she says. “There’s a real feeling now that Detroit is coming back.”