Detroit scores tops for startups but survey shows it needs to think bigger to stay ahead

Eyebrows and champagne glasses were raised last June when it was announced Detroit was first among the top 100 emerging startup ecosystems in the world, beating out cities like Minneapolis, Houston, Brussels and Hong Kong. 

That upbeat news came from the 2022 Global Startup Ecosystem Report released by Startup Genome, a research firm in San Francisco that analyzed hundreds of cities across the globe and assessed data on nearly 3 million companies. 

Detroit’s top ranking marked a 13-spot jump from the previous year, solidifying its status in supporting early-stage funding and investor activity.  

Startup Genome was intrigued by the results as were two local organizations working to help the economy by serving as catalysts for fostering startups and jobs — the William Davidson Foundation and Endeavor — as they decided to work together and take that research a step further.   

They spent much of 2022 looking at how these fast growing local startups are faring and how the region has supported them along the way. Their findings will be released Wednesday during a virtual town hall held by those three organizations.   

“We’re looking at all opportunities to take our region to the next level and compete on the national and global stage,” said Diana Callaghan, managing director of Endeavor. "Entrepreneurs have driven massive economic development in our region — now we want to see how our region can help supercharge this momentum." 

The headline of their findings: Detroit has had some organic success over the last few years, but other communities are pursuing aggressive strategies with these fast-growing firms, which could threaten the region's top standing.  And to continue competing on the global stage, the local startup ecosystem needs to think bigger, take risks and drive policy to attract more resources, while helping the cause by elevating storytelling about it.

The group hired Justin Mast, founder of Bloomscape, to interview dozens of "founders" as they are described — entrepreneurs who have grown their successful companies — with some — like Dug Song, who sold his Duo Security company for $2.35 billion to Cisco Security in 2018 — to hear their thoughts.

 “Justin asked our region’s top founders: 'What worked for you?' 'Where are we missing the mark?' and 'What suggestions would you have to elevate our region?' ” Callaghan explained. “We wanted to know how our funders, support organizations, philanthropic leaders and government leaders could work better together to give our companies and entrepreneurs an edge in their hyper-competitive marketplaces.” 

Marc Penzel, co-founder and president of Startup Genome, spent three months in Detroit talking with entrepreneurs, venture capitalists and others. Among some findings that will be discussed during Wednesday’s event:  

• The "founders" felt there was no clear strategy leading the region’s efforts and believe support organizations (accelerators and incubators) are disjointed and have provided limited services.  
• The "founders" believe local angel groups and investors have outmoded mindsets and provided limited support to help founders grow and scale. They added there isn’t enough capital here, and investors are reticent to take necessary risks on emerging companies.   

“Unlike other states, we just haven’t been as deliberate about our homegrown strategy,” said Lisa Katz, senior program officer for economic vitality and entrepreneurship at the William Davidson Foundation. “We’re good about supporting community-based companies like those selling baked goods and things that make our neighborhoods thrive. But how do we support firms like another future Duo Security or future Amazon?”  

There are some subtle signs things are pointing in the right direction.  

Penzel said the number of "unicorns" here — startups that sold for over $1 billion — were far fewer here than in New York or Silicon Valley, where they proliferate with investors and venture capitalists supporting startups in their backyards.  

“But the good news is, there have been more unicorns in the past few years than the previous 25 years added up,” Penzel added. These unicorns often highlight the health of an entrepreneurial community. 

Chris Rizik has been laser-focused on helping startups since he opened Renaissance Venture Capital in 2008. He was among those interviewed for this endeavor. 

“We’ve helped attract over $2 billion into Michigan,” he said of his venture capital organization. “But we’ve had to consciously focus on attracting more late-stage capital, because that has been a shortcoming here.”  

Katz said other states like Ohio have a more cohesive approach to helping those entrepreneurs looking to supercharge their firms.  

Katz pointed to success stories like Workit Health, May Mobility, Our Next Energy, the Lip Bar and Air Space Link, as a few of the kinds of companies that will benefit from their efforts as they wave the flag.

“Historically, southeast Michigan has been extremely focused on the automotive and mobility sector,” added Callaghan. “Yet, companies like Duo Security and Rocket Mortgage have had major economic impact in our region. If we worked together to generate more companies like Duo and Rocket Mortgage, we could truly transform our region.” 

Taking it a step further, Callaghan told me if metro Detroit’s ecosystem led to the creation of  60 of these higher-growth companies, it could boost local GDP by over $5 billion annually. 

 She added, “If we work together to support these entrepreneurs, we’d have more companies like Duo or Rocket, which could transform our region.” 

Contact Carol Cain: 248-355-7126 or clcain@cbs.com. She is senior producer/host of “Michigan Matters,” which airs 8 a.m. Sundays on CBS 62. See John Gallagher, Bill Haney, Paul Vachon and Jamie Ruthenberg on this Sunday’s show.