Chris Rizik - Post 1: So What's the Problem?
Posted By: Chris Rizik
Posted: 6/25/2009
We all know it's been a tough year to be a news junkie in Michigan. Not because of a dearth of news, but because of the abundance of bad news assaulting us from all sides. I won't go far into what you already know, which is that we are sitting in the most uniquely troubled economic time of our generation, and the effect of this on everyone around us is both palpable and troubling. Michigan has a problem, and our business and political leaders are rightly spending an awful lot of time proposing ideas to get us out of this mess we're in.
Tanya Muzumdar asked me to be this week's blogger because I sit with an unusual view of our region, its current state, and its future due to my three principal business roles. I am the chairman of NextEnergy, the accelerator and economic development organization that was formed by the state of Michigan earlier this decade to help develop Michigan into an international leader in alternative and advanced energy technologies. I am also the founder and publisher of SoulTracks.com, an internationally popular soul music website that serves a special role in connecting emerging singers (themselves small businesses) with potential audiences. But, to me, my most important role is as CEO of the Renaissance Venture Capital Fund, an innovative new venture capital "fund of funds" that was organized late last year by Detroit Renaissance and some of the leading corporations in the region as a way to spur entrepreneurial development in Michigan.
All three of my roles involve non-traditional and (hopefully) innovative ways of addressing business challenges our region faces. And we Michiganders are a pretty traditional lot in many ways, with a century of unparalleled success leading to a certain conservatism, even stodginess, in how we approach change. We've had such prosperity for so long, there was little reason to fix a machine that didn't appear to be broken. But broken it is, and we find ourselves seeking ways to both mend our problems in the automotive sector and, finally in earnest, promote other areas in which to develop and expand our economy. There are a number of tools and approaches we'll need, from tax reform to retraining, in order to accomplish this, but I'll spend my blog time this week talking about one of the most important elements: venture capital.
"Venture Capital" is seen by some as either the panacea for all problems our state faces or as a wolf in sheep's clothing – especially when it is confused with other investment vehicles that have often been associated with quick money, job losses and financial instability. In truth, venture capital is neither an immediate fix for an ailing economy nor a get-rich quick scheme. But true venture capital is an important – even essential – long-term, market-driven economic development vehicle for regions looking to grow, particularly in new technology fields and industries.
Recent studies have shown that companies with venture capital origins are now responsible for 10% of the jobs in the US and 18% of GDP. On average, these companies pay more taxes and create many more jobs (with much higher compensation levels) than their "old economy" counterparts. Not bad for an industry that is less than 40 years old. Companies ranging from Apple to Google to Starbucks were able to achieve their goals, especially during their early years, with the help of far-sighted venture capitalists.
Venture capital has been growing in Michigan over the course of this decade to the point where last year nearly a quarter of a billion dollars was invested by venture capitalists in Michigan-based companies. But even that accounts for less than 1% of the venture capital invested nationwide, and we have a long, long way to go to experience the kind of impact that Boston and Silicon Valley have seen.
Fortunately, we have in Michigan some of the basic tools that could make our state successful in venture capital: Strong research universities that are creating world-class technology, the richest collection of engineers in the world, and a skilled workforce that knows how to manufacture. What we have traditionally lacked is more intangible: an environment that cherishes risk-taking, management that has experience running fast-growing companies, and a nimble, aggressive approach to work. And perhaps more than anything, we lack sufficient venture capital dollars to invest in those ideas that are germinating in our universities and garages.
We formed the Renaissance Venture Capital Fund with the belief that venture capital can be a transformative force in our region, and that by bringing together capital and talent from our existing business, philanthropic, governmental and educational leadership we can accomplish a level of entrepreneurial success that has eluded us for the last half-century.
Our immediate challenge is to try to address our region's weaknesses and increase the amount of venture capital activity quickly, before we lose the incredible talent and educational resources that provide us the distinct advantages described above. In the next few days I hope to first demystify what venture capital is and then lay out a challenge for our region on how to use this important tool to move us toward a more economically prosperous future.
TOMORROW: WHAT IS VENTURE CAPITAL?