The Global Startup Ecosystem Report 2023
A Data-Driven Review of Detroit’s Startup Ecosystem
From a legacy of automobile manufacturing and motown, the Motor City is emerging as a thriving startup ecosystem. With 1,500 active startups across the region, Detroit’s local economy is no longer dominated by large legacy corporations. And investors are taking note. The size of Detroit’s startup exits has increased significantly in recent years, with seven $100 million+ exits occurring since 2018, including two $1 billion+ exits in Cybersecurity platform Duo Security and electric vehicle company Rivian. And in 2019, the city welcomed a new unicorn in StockX, an online reseller platform.
A range of factors have contributed to Detroit's transformation from a manufacturing center to one of America's most promising tech hubs. Foremost is the city’s unique mix of talent sources, flowing from nearby universities as well as large corporations. Next is the range of sub-sectors that Detroit’s startups participate in, with particular strength in Cybersecurity and Industry 4.0.
In 2022, with support from the William Davidson Foundation, Startup Genome and Endeavor collaborated to assess the entrepreneurial climate for growth and tech-oriented startups in the Detroit region. Using a combination of proprietary methodologies, including 50 founder surveys, the in-depth analysis defined priority recommendations. We worked in close coordination with key community partners with the goal of identifying key gaps and opportunities to actively support founders.
Detroit’s Strong Talent Pool
Detroit is uniquely situated as a city with access to strong talent pools while continuing to offer a lower cost of living compared to other major U.S. cities. Wayne State and Detroit Mercy universities, in addition to nearby Michigan State University, provide a steady source of educated talent. So does the city’s hulking corporate sector, anchored by some of the world’s largest auto companies (Ford, Stellantis, General Motors), as well as Rocket Companies, America’s largest mortgage lender.
The result is an educated and experienced community of startup founders. Startup Genome’s 2022 survey of 50 Detroit founders confirms this. The survey found that 88% of Detroit’s founders had a business degree — higher than most U.S. peer ecosystems — and nearly half (46%) had previously founded a startup. As we enter an era when investors increasingly scrutinize the financial viability of startups, founders with strong business acumen and previous experience should fare better.
Detroit has also invested in initiatives that cultivate local talent beyond the local universities and corporations. The Detroit at Work Academy, formed in 2017 by the city government, offers two-week, cohort-based entrepreneurial training. ProsperoUs Detroit, an economic development organization serving lower-income, immigrant, and minority individuals, offers mentor-based training programs for working adults. Additionally, TechTown Detroit offers a “retail boot camp,” which reflects a practical local entrepreneurial need for advanced retail skills. Since launching in 2013, the program has helped over 40 local entrepreneurs to open brick-and-mortar stores and over 80 Ecommerce operations.
A Variety of Sub-Sector Strengths
Detroit’s 1,500+ active startups represent a range of sub-sectors. A sample of the city’s recent successful companies run the gamut, including Airspace Link (air mobility), Autobooks (Fintech), Bloomscape (Ecommerce), The Lip Bar (consumer cosmetics), Our Next Energy (Cleantech), and Workit Health (Medtech). Such range of focus indicates a healthy ecosystem in which founders with varied backgrounds can find their footing and, critically, raise large capital amounts at levels belying the city’s reputation as a smaller ecosystem.
However, specialization is also required for emerging ecosystems to grow local champions into international players. Based on Startup Genome’s evaluation of Detroit’s startup clustering, funding, and innovation strengths, a few promising trends emerge. Industry 4.0 — an area of advanced manufacturing that introduces sensors and software to optimize manufacturing processes — and Cybersecurity both perform above U.S. peers when it comes to funding and exit activity. Two of Detroit’s largest exits, Rivian and Duo, come from these two sub-sectors. These large exits will help prove critical funding and knowledge sources for future Detroit startups as founders and execs return to invest locally.
Detroit also shows strengths in AI and Big Data (AI&BD). In addition to a large number of funding deals (100+) for Detroit AI & BD startups since 2017, the sub-sector also has strong support from local universities and research organizations, which generate patents. Based on Startup Genome’s scoring of Detroit’s university strengths as well as patent development by sub-sector, AI & BD shows strong potential compared to peer ecosystems. This is a promising development as AI & BD can integrate into almost any business, enabling Detroit to build on its existing strengths such as Industry 4.0 and Cybersecurity.
Future Plans for Detroit’s Startup Ecosystem
While Detroit’s emergence as a dynamic startup ecosystem since 2008 should be celebrated, several challenges remain. More support for founders, particularly at the early stage, would certainly help. Compared to peers, Detroit has a relatively low success rate of startups securing seed funding and an even rate of Series A funding. Additionally, startups that do secure Series A rounds show smaller valuations on average than those in peer cities. A lack of early-stage funding can diminish an ecosystem’s potential by causing promising startups to lower their valuations, which caps their long-term scalability, or to leave the ecosystem entirely.
Based on results from Startup Genome’s assessment of Detroit, Endeavor has outlined several focus efforts to better support local entrepreneurs. These actions include convening and aligning the region’s efforts around a more unified strategy, promoting more feedback and insight directly from founders, and advancing policy and advocacy efforts to drive more federal, state, and local funding into early-stage investment. There is also planning for more targeted support for high-performing entrepreneurial support organizations (ESOs) and providing more transparency for founders around accelerators, incubators, and ESOs’ performance. Cumulatively, these efforts will help founders focus their strategy, from picking the right accelerator to obtaining the best funding package, so they can quickly scale in Detroit and beyond.
Given Endeavor’s commitment to these efforts, Detroit’s best days are ahead. Diana Callaghan, Managing Director of Endeavor, says, “We believe Detroit has the potential to become one of the world’s premier locations for high-growth entrepreneurship. This study offers actionable insights to help us get there.”