Chris Rizik - Post 4: Can We Really Pull This Off? Our Challenge
Posted By: Chris Rizik
Posted: 6/30/2009
So can we really successfully use venture capital to transform Michigan? As I mentioned in an earlier blog, Michigan has an incredible advantage via the world-class research and development going on here -- more than nearly any other state – and a high concentration of sought-after engineers. But Michigan, like other Midwestern states, has a shortage of experienced entrepreneurs to take the lead. Those who are here (and those former Michiganders who have succeeded elsewhere and are interested in returning) must engage in the process, leading and serving as mentors to the talented young people coming out of our colleges.
The good news is that there are literally thousands of smart young men and women with great ideas and boundless energy, if not a lot of experience. With strong mentorship and the right incentives, in 20 years we could create four new generations of entrepreneurs, increasing geometrically our capabilities to establish and grow innovative, powerful companies in Michigan.
There are seeds of this transformation taking place now, as groups like Automation Alley and Ann Arbor SPARK are creating programs to help retain and recruit successful entrepreneurs. But much, much more must be done to address the "management talent" issue on a statewide basis.
The other major missing ingredient is money. There is a chronic shortage of venture capital in Michigan and it is getting more pronounced. Last year, a record quarter of a billion dollars was invested by venture capitalists in Michigan. But demand by Michigan entrepreneurs for venture capital dollars is more than five times the amount available, and the gap is growing. Using historical data, that current unmet need alone is a lost opportunity for some 50,000 long-term jobs paying an average annual salary of over $70,000. And the capital gap is getting worse.
To the credit of our state government, over the past decade more than $300 million has been pumped into venture capital by the state; but it is politically difficult for term-limited lawmakers to place sufficient emphasis on an industry that will yield its biggest results years after those lawmakers have left office. For venture capital to help our state reach the goals of a diverse economy, good jobs and high standard of living, it is going to take a particularly brave and patient state government, willing to make a sustained commitment to a system that will yield results primarily benefitting our children (or at least our younger siblings).
And it will also take a much greater financial commitment by other organizations that routinely deal with longer time horizons – foundations, university endowments and resident businesses – to help provide the key financial support that will turn our venture capital community into a powerhouse.
Some of these groups have already stepped forward and boldly taken leadership roles investing in our state's fledgling venture capital industry, but others have largely stood on the sidelines. A number of Michigan's most important institutions have used their resources to invest in venture capital, but only outside of the state borders. It will take a more uniform, meaningful commitment to Michigan venture capital by these community leaders if we really want success.
Eight Michigan corporations helped create the Renaissance Venture Capital Fund that I am honored to lead. Our fund is the first of its kind in Michigan; with millions of dollars committed by these leading corporations, we are investing in the state’s best venture capital funds and are attracting great venture capital funds from other parts of the country to set up shop in Michigan. The result is more venture capitalists looking to invest in more young companies in the state, beginning a process that will strengthen us as a state and lead to the types of growth and job opportunities that have eluded us for too long.
What we are doing at the Renaissance Venture Capital Fund is necessary and positive, and it is already being viewed as a model for other parts of the country. But it is not sufficient by itself. To be truly transformative, venture capital in Michigan needs dramatically more engagement by the business, philanthropic, educational and political leadership and the commitment of hundreds of millions to billions more dollars – dollars that can lead to financial returns for these investors and the "double bottom line" of diverse economic growth for our region.
In the end, here is the hard truth: There isn't an easy or short-term fix for our economic problems. But if we have the commitment and patience, venture capital can be a major long-term driver to make our economy one of which we're both excited and proud. If we had started in earnest down this path in 1990 we would look like an entirely different state today.
But we didn't and it doesn't do us much good to look back except to increase our resolve to do the right thing now. We need firm commitment from our regional leadership to work together toward a common goal and to put their resources where their mouths are. We know it will take 15-20 years to get there, but we have to stop delaying. Let's start the clock today.