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industry, which is a 47 percent increase over five years,” Brosnan said. “It’s driving a significant portion of Michigan’s economy.”
Brosnan said that going forward, the MVCA is working to develop a public-private approach to keeping the state’s startup ecosystem supplied with enough cash in a legislative environment that is currently allergic to “picking winners and losers,” which is how some conservative politicians characterize funding for resources that support entrepreneurship. For the first time since it began tracking these numbers, the MVCA experienced a drop in membership in 2016, she said, and that combined with fundraising shortfalls could signal that investors are finding Michigan less hospitable than other parts of the country. If investors begin to pull out of Michigan, it will create a dire access to capital situation, Brosnan noted.
“The uncertainty makes it more difficult,” she said. However, Brosnan is encouraged by the results so far of her trips to Lansing. The more educational outreach the MVCA does with legislators, she said, the more receptive they become.
Where there’s still a bit of a disconnect in the ecosystem itself is in the area of diversity, and who is able to access the opportunities and capital that startups need to succeed. Diversity in tech and VC has become a national conversation in part because of the community’s conviction that it operates as a pure meritocracy, only funding the ideas that are most worthy. Unfortunately, the MVCA’s data reveals that’s not entirely true.
The MVCA collaborated with the University of Michigan’s law school to analyze local diversity data compared other states and the country at large. Of the 128 venture professionals working in Michigan, 28 percent qualify as diverse, which is dramatically higher than the industry’s national diversity rates. Twelve of the state’s 141 venture-backed companies had a minority CEO in 2015, and 14 had a female CEO—figures that also exceed the national benchmarks. The news gets worse from there.
Michigan-based VCs invested $282 million in 74 local companies in 2015, and just $6.8 million of that money—an embarrassingly paltry 2 percent—was invested in portfolio companies led by a woman, person of color, or an LGBTQ person. Eighty-two percent of the state’s venture-backed portfolio companies are led by white men.
One organization trying to address some of the gaps illuminated by the MVCA report is Inforum, an effort backed by the Michigan Economic Development Corporation (MEDC) and the largest professional group of female STEM professionals in Michigan. Rachele Downs, Inforum’s vice president of entrepreneurial strategies, said the organization’s goals include addressing the lack of women in high-tech verticals and helping women who are working in technology to better leverage their networks. It also offers technical assistance programs like Ingage and Master Class to help women understand the process of building a successful startup.
“There’s a benefit to providing gender-specific forums,” Downs explained. “Women might not feel comfortable discussing their ideas in a mixed-gender environment. We get them ready for prime time, and they can get information, connect to the community, and improve their access to subject matter experts.”
With the MVCA’s report confirming a stark level of bias in Michigan’s investing landscape, Downs said a lot of Inforum’s work involves coaching women and helping them hone their pitches to VCs, making sure they have the value proposition down and can tell their startup’s story in a way that highlights the positive momentum investors seek.
One hears this a lot, the idea that women startup founders need to modify what they’re doing to appear more, for lack of a better term, attractive to investors. So I asked Downs and Denise Graves, the MEDC’s director of university relations, who was also on our conference call, if there was ever any discussion among entrepreneurial service providers about teaching investors how to be more open to ideas from people who don’t look like them. (Sensitivity training is not my favorite phrase or concept, but something along those lines.)
After a pause, Downs said, “No.”
“That would just be poking the bear,” Graves added.
Instead, Inforum’s approach is to diversify Michigan’s investor class by teaching women how to get involved with angel investing. “That’s a big focus for 2016,” Downs said, noting that more than half of Inforum’s members are eligible to become accredited investors. “Diversity in Michigan’s venture and angel communities outpaces the nation, but we still have a long way to go. I don’t believe a fund just for women is necessarily the answer. Encouraging more women to get involved in investing will organically change who’s making the decisions and who gets money.”
So far, Downs said, 55 women entrepreneurs have graduated from Inforum programs, founding 27 startups, creating 101 jobs, and raising $15 million in follow-on funding.
“That’s why the work we do [with investors] involves delivering repeated messages on missed opportunities,” Downs said. “You have to frame it as a business issue as opposed to a social justice issue. You have to meet people where they are. There’s a huge opportunity yet to be realized, but there’s no silver bullet.”
“It starts with a change in mindset,” the MVCA’s Brosnan echoed, adding that the National Venture Capital Association recently decided to include diversity data in its annual report. “People don’t recognize that they have a diversity problem. Now that we know the numbers, we have a diversity opportunity.”