Michigan Innovation Fund

Summary

The Michigan Innovation Fund represents a commitment to Michigan’s startup ecosystem and makes a significant strategic investment in our innovation economy.

Goal: Create a strong and sustainable ecosystem that supports early-stage startups and innovation, leading to broader economic growth and a diverse economy for Michigan. By providing both immediate and long-term investment into startups, as well as ensuring an ongoing cycle of reinvestment, Michigan can create a robust and dynamic environment for entrepreneurship.

The Michigan Innovation Fund supports this goal by helping to ensure Michigan has at least 5 self-sustainable evergreen funds that provide early-stage venture funding now and in the future as well as providing increased funding to key partners in the ecosystem that support startup companies, founders, and funds.

Our Challenge

Michigan is losing significant jobs, talent, and investment opportunities due to the lack of early-stage investment capital to support startups
In Michigan, new early-stage venture capital has decreased significantly over the past several years
Early-stage funding rounds remain extremely challenging for high-potential Michigan startups
Most investment institutions in the state do not have the capacity or sustainability models to develop high-growth potential companies from pre-seed through Series A – the most challenging stage of growth.

How does Michigan compare?

Startups in the Great Lakes Region take an average of 2 years longer to raise their first $500K than startups on the coasts.
For every $149 of academic research expenditures in Michigan, there is $1 of VC investment. In California, the ratio is $7 of academic research expenditures to $1 of VC. This represents a significant under-investment in intellectual property generated in Michigan.
From 2020 to 2022, University of Michigan startups raised $2B in total investment, however almost 1/2 of startups left MI, and raised almost 4x as much. Of those who stayed in MI, 80% of their funding came from out-of-state investors. Only 4% ($82M) of all University of Michigan companies that raised venture capital originated from MI investment dollars.
Out of a sample of 231 high-tech startups originally founded in Michigan, nearly half (50%) left the state.
- Those companies created over 4,300 jobs and had venture capital and liquidity events totaling $3.6B.
- In comparison, the sample of companies that stayed in Michigan created 2,300 jobs and had venture capital and liquidity events totaling $1.4B.

What are other Midwest states doing?

Ohio has 11 early-stage, Pre-seed funds of which 6 are fully funded evergreen funds.
Ohio continues to fund its early-stage ecosystem at about $75M annually.
From 2016 to 2020, Ohio awarded $221M to the 6 regional venture development organizations to help support early-stage investment and their evergreen funds.
During the same period, Michigan has invested about $24M in early-stage, Pre-seed capital.

Summary of MI Innovation Fund Proposal

What is the MI Innovation Fund?

The MI Innovation Fund would support nonprofit and university-backed early-stage venture funds and organizations to bolster Michigan startups, ensuring operational self-sustainability and continuous reinvestment into the ecosystem.

The MI Innovation Fund is a $105M fund to provide funding and programming that:

Creates a fund to award grants to existing nonprofit/university-backed, early-stage venture funds that are building their funds to an evergreen status. This means the exit returns are continuously reinvested into Michigan startups for perpetuity and that the fund is operationally self-sustaining.
Provide funding to strengthen Michigan’s entrepreneurial ecosystem by supporting organizations that provide programming, technical assistance, or other support to promote the growth and development of startup companies, founders, and funds to support an innovation ecosystem in this state.

How will we fund the Michigan Innovation Fund?

The Venture Michigan Fund I and II (VMF) were created via Public Act 296 of 2003 to “promote Michigan’s economic health by assisting in the creation of new jobs, new businesses and new industries in Michigan” and to “invest in venture capital managers with a focus on Michigan-based early-stage companies.” The Fund has seen recent returns resulting in over $105M cash available today. We are recommending that the current available and future returns be reinvested in the MI Innovation Fund to continue supporting Michigan’s startup community. The goals of the MI Innovation Fund align with the original goals of the VMF to support MI early-stage companies.

By harnessing the returns from successful ventures and reinvesting them into a cycle of support for new startups, it sets a foundation for sustainable economic growth. This evergreen approach is designed not only to support the current generation of entrepreneurs but also to foster an environment where innovation can continue to thrive long-term, ensuring Michigan’s competitive edge in the global economy.

How much funding is available in 2024 and what’s the breakdown?

The VMF has seen recent returns resulting in over $105M cash available today. We are recommending the funding be used to create the MI Innovation Fund and be disbursed in 2024 as follows:

85% to support the state’s existing evergreen-focused funds to support long-term sustainability goals. The funds will be required to allocate at least 80% for financial investments in startup companies but can use up to 20% for admin/operations and programming, including technical assistance, coaching, and mentoring.
15% to support ecosystem organizations that provide programming, technical assistance, or other support to promote the growth and development of startup companies, founders, and funds to support an innovation ecosystem in this state.

What would future funding look like?

The VMF is expected to have additional returns available in the future, and the funding will continue to support the MI Innovation Fund goals and ecosystem programming, as well as additional startup investments. The funding split includes:

40% to the state’s evergreen funds for early-stage investing,
40% to other investment-fund programs to support existing and emerging funds, and
20% to entrepreneur and innovation ecosystem programming.

Click here to download a 2-page summary of the MI Innovation Fund.

Impact

This investment in the MI Innovation Fund will have a substantial impact on the state and will lead to:

Five self-sustaining evergreen funds
Investments in at least 500 additional Michigan-based startups/companies
Creation of 5,000 new, high-paying, full-time jobs
Leverage of at least $5B in additional investment
Growth of state and local tax revenue
A stronger sustainable startup community for Michigan

Legislation

Reports and Research

Michigan Evergreen Startup Fund Coalition: Impact Report

ID Ventures commissioned Public Policy Associates (PPA) to analyze the impact of the state’s five nonprofit or university-backed funds that are working to become evergreen funds and summarize Michigan’s investment in early-stage, Pre-eed funds over the past decade.

To address the growing need for early-stage, Pre-seed funding in Michigan, a coalition of nonprofit funds with proven experience and track records is recommending the State create the Michigan Innovation Fund, which would invest more than $100M to support nonprofit early-stage funds in Michigan. The coalition included the following: SPARK Capital – Ann Arbor SPARK, ID Ventures (Invest Detroit), Michigan State University Research Foundation, The University of Michigan Accelerate Blue Fund, and Biotechnology Research Commercialization Corridor (BRCC) at Western Michigan University.

Below is a high-level summary of the evergreen coalition impact to date:

Total Amount Invested: $107M
Total # of Companies Invested: 660
Leveraged Amount: $4.2B
Total Gross Returns: $37.8M
Total Jobs Created: 5,409

Summary of Michigan’s investment:

OHIO – From 2016 to 2020, Ohio awarded $221M to the 6 regional venture development organizations to help support early-stage investment and their evergreen funds.
MICHIGAN – During the same period, Michigan has invested about $24M in early-stage, Pre-seed capital.

Links to reports

Public Policy Associates: “Michig an Innovation Fund: Summary of Fund Data” (April 2024)

Michigan Startup Evergreen Fund: Landscape Scan Report

In 2023, ID Ventures commissioned Public Policy Associates (PPA) to research best practices in select states, including in the Great Lakes and Midwest regions. This review of publicly available impact data was performed to assess what other peer states to Michigan are doing to support high-growth startups in their states. The research primarily included cross-state research in the following states: Ohio, Indiana, Illinois, Missouri, New York, Florida, and Texas. PPA conducted a series of stakeholder interviews with state and local leaders to provide details and help refine findings regarding state efforts to improve venture capital ecosystems. In addition to interviews, PPA examined both the structure of and results from a sample of evergreen funds across the country. From these discussions and examinations, PPA was able to identify several key findings.

This report addresses three topics:

Key findings and recommendations
Statewide models to emulate
State and local examples of evergreen funding in action

Key finding:

Michigan trails behind other states when it comes to providing early-stage, Pre-seed capital to startups.

Links to reports

Supporters

Press Releases

Articles & Links

For More Information

For more information on the Michigan Innovation Fund proposal, please contact:
Jennifer Hayes, Invest Detroit
Jennifer.Hayes@InvestDetroit.com
313-285-2166

For media inquiries, please contact Craig Fahle of VVK PR + Creative at:
craig@vvkagency.com