John Gallagher

Detroit Free Press

A 10-year effort by the Michigan Economic Development Corp. to promote entrepreneurship in the state has produced new jobs and tax base, but the state's innovation economy still lags in important ways and more investment is needed, a new report has found.

The MEDC, the state agency dedicated to promoting economic growth, has just released its 10-year assessment of the performance of its 21st Century Jobs Fund, the state venture capital fund set up in 2005 to promote entrepreneurship and venture investing in Michigan.

While generally positive and reporting good results for the roughly $260 million that the fund invested in specific firms and programs, the report also notes that Michigan continues to face multiple challenges to promoting innovation.

Among those: Michigan has not seen significant growth in university start-up activity over time compared with the nation. And even with the sizable growth in the level of risk capital investments, Michigan still falls below the national average of venture capital investments. So, there’s lots of room for improvement.

As a result of those challenges, Michigan's economy remains “at a crossroads” and, the report said, investments in innovation and entrepreneurship should continue.

Completed by TEConomy Partners LLC, the report includes 11 recommendations that can be considered by the MEDC or local agencies through Smart Zones or other approaches.

“Michigan’s economy has made impressive gains as companies grow, creating more and better jobs,” MEDC CEO Steve Arwood said. “It’s important for us to have outside groups study what we’ve done to create an environment for economic success and measure the effectiveness of programs so we know how we can continue. We want our state to be thriving not just in the short term, but for decades to come.”

Among key findings:

Since the 21st Century Jobs Trust Fund was created in 2005, it has invested $261.6 million assisting nearly 1,400 companies and new start-ups. Of those, 1,073 companies are actively operating as of 2014.

Those companies directly employed 11,000 people in 2014, with estimated wages and benefits of nearly $879 million. The direct effect of the jobs is estimated to generate $3.2 billion in output and support nearly $48.4 million in state and local tax revenue.

The state's jobs fund is not the only entity investing in innovation in Michigan. The number of venture capital funds operating in the state has more than doubled in 10 years and the amount of money those venture firms have invested in Michigan companies has grown considerably.

But the report cautions that national venture-capital funds are monitoring Michigan’s policy makers and, if investors think the state is not committed to supporting entrepreneurship, they will take their money elsewhere. "As a result, the risk capital climate is very fragile and can easily be disrupted," the report warns.

The report thus underscores a real policy dilemma for Michigan's leaders. Should the MEDC as an arm of the state double-down on these investments and put even more money into innovative firms? Or should the state back away from bankrolling such efforts and let the market develop as it will without state help?

Contact John Gallagher: 313-222-5173 or gallagher@freepress.com. Follow him on Twitter @jgallagherfreep.