Detroit Deals Stay Sluggish in Q2, Ready for Some Magic

Detroit startups have less than sunny results to report for fundraising in second quarter of 2011. There were just two startups in the area that inked investments from April through June, and those deals added up to a meager $2.21 million, according to the MoneyTree Report, compiled by the National Venture Capital Association and PricewaterhouseCoopers, with Thomson Reuters data.

The money went to Ferndale, MI-based Myine Electronics, which nabbed $1.84 million from an undisclosed group of investors, and $380,000 for Law Enforcement Intelligent Devices of Auburn Hills, MI. That funding came from Ann Arbor Spark and other undisclosed investors.

The $2.21 million is about 50 percent more than the amount raised in the first quarter of 2011 ($1.5 million), but it represents a drop in deals, which hit three in first quarter. All in all, it doesn’t paint a very rosy picture for Motor City fundraising for this year.

To compare that to other cities in our Xconomy network, Boston-area startups raised just over $1 billion in Q2 and San Diego companies pulled in $198 million. Detroit isn’t the tech hub that the others are, but this was even a poor showing relative to its own past history.

The year before saw a similar slow start in Q1 for Michigan fundraising. The region saw absolutely no deals in Q1 of 2010, but made up for it later that year by raising $45.9 million in second quarter, $24.25 million in third quarter, and finishing off the year with $7.34 million in fourth quarter. It also kicked off slow in 2009, with $1.59 million raised in the first quarter, but made it up with an average of $19 million raised per quarter in the remainder of that year.

Maybe Detroit is just a second-half player. I think it’s safe to say its luck could change later this year. That conjecture is not just wishful thinking, but has something to do with Detroit Venture Partners’ announcement that Earvin “Magic” Johnson (yes the NBA hall-of-famer, also a Michigan native) had joined its investment team and has pumped millions of dollars into the fund.

Less than a week later, Detroit startup Are You a Human? announced it had nabbed $750,000 in Series A funding, led by DVP, with participation from First Step Fund and the student-run Frankel Commercialization Fund at the University of Michigan. The company is working on an alternative to the ubiquitous CAPTCHA human-verification test that is designed to block spammers on the Internet. Seems like no small task. We’ll have to keep our eyes on whether any other cleverly named startups can help pump up the city’s funding pot in third quarter.

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