ARTICLES

Driving Forward: Detroit Rises as a Leading Startup Ecosystem

Detroit's startup ecosystem has significantly advanced over the years, highlighted by achievements and funding in advanced manufacturing, robotics, and AI.
Marc Penzel, Founder & President of Startup Genome, and Lisa Katz, President & Founder of In the Mix, LLC
on septembre 12, 2024

The Detroit region, historically known as the heart of the American automotive industry, is now home to a thriving Globalization-phase startup ecosystem, thanks to an increasing number of large exits ($50 million+) and its healthy early-stage funding environment for AI and advanced manufacturing startups.

In 2022, Startup Genome, in collaboration with Endeavor's Detroit affiliate, conducted an in-depth Ecosystem Assessment to evaluate the Detroit region’s startup landscape. This comprehensive analysis—involving over 45 founder surveys and 18 qualitative stakeholder interviews—painted a detailed picture of the region’s strengths, challenges, and potential pathways for growth. In this article, we build on that assessment by exploring the latest highlights from our 2024 Global Startup Ecosystem Report (GSER).

Sustained Growth and High-Impact Exits

Between our 2019 and 2024 GSER reports, the Detroit region maintained an impressive upward trajectory. The city nearly broke into the Top 40 Global Startup Ecosystems and achieved the #1 position among Emerging Ecosystems in 2022​​—a 13-spot jump from the previous year.


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Additionally, the Detroit region earned a very strong Performance Factor Score in 2024, which measures the impact of an ecosystem based on several components, including value created from exits, market reach, and the attraction and retention of startup-specific talent (e.g. founders, executives with startup experience, venture capitalists, etc.). While there remain challenges on each of these fronts, compared to its peers, Detroit particularly excels with large exits (exits valued at over $50 million). In the past, these included high-profile IPO of electric vehicle manufacturer Rivian, which later moved much of its operations from the area, and the acquisition of Cybersecurity platform Duo Security.

These large exits become a source of founder attraction for resources as global entrepreneurs and investors gain interest in migrating to the ecosystem. Large exits are also an indicator of job creation, as top talent remains seeking new opportunities and international talent is attracted to the region, propelling its rapid growth trajectory in a virtuous cycle of success and economic impact.

In 2023, and despite a difficult year for venture in general, Michigan was home to nearly $700 million in exits driven by 11 companies. Most of this is attributable to Ideanomics, which acquired the electric truck and utility vehicle maker VIA Motors (Auburn Hills, MI), for $630 million. In 2024, Birmingham, Michigan-based software company Onestream publicly filed for an initial public offering to the tune of several billion dollars. Lineage, a Novi-based cold storage giant, filed for its own IPO in late June, with a $30 billion valuation. The future is promising, with 2023 seeing the most capital raised by Michigan-based funds in the last decade, with outstate investors continuing to monitor and support the Michigan startup ecosystem at a relatively consistent level in the last year despite steep downward trends nationally.


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Despite the recent downward trend in global VC funding, from H1 2021-2023, the number of 30-month cumulative large exits in the region remains higher than pre-pandemic levels​​.

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Detroit in the Driver's Seat: Prominent Sectors and Subsectors

The Detroit region's startup ecosystem is home to over 1,500 active startups. Considering the city's automotive legacy, it is only natural that the Detroit area leads the Midwest region in mobility-related ventures. Despite the immense capital and knowledge that these startups require, four Detroit autonomous vehicle and automotive tech startups managed to raise Series A funding between 2019 and 2023. These startups were EVenergi, CYTK.io, Optimotive, and FixMyCar. For reference, despite having a significantly larger ecosystem, only one Chicago-based automotive startup secured a Series A deal over the same period.

Understanding the importance of diversification, the Detroit region has been rapidly shifting its core industries over the years. The region is now known for several diverse sub-sectors, including Cybersecurity, Industry 4.0, AI, and Big Data. In fact, eight Detroit AI startups raised Series A funding between 2019 and 2023, placing Detroit just behind Chicago in this regard. The Detroit region's prominence in these rapidly flourishing sub-sectors bodes well for future growth and innovation in the region.


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Overcoming Global Barriers: Detroit’s Startup Ecosystem Challenges

Like any growing startup ecosystem, the Detroit region faces its own set of challenges. For example, with a Global Connectedness Index Score of 3.5 out of 10, Detroit-based startups are less globally-oriented compared to peer ecosystems​​. Enhancing global connectivity is crucial, as it allows startups to access international knowledge, talent, and markets, fostering faster revenue growth and higher chances of successful scaling.


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Another need is greater access to capital. A 2022 assessment by Startup Genome found that Detroit has the highest dropoff from Seed to Series A among peer ecosystems and that local investors are rarely able to lead sizeable rounds. A focus on boosting the size of pre-seed and seed round funding, spurred by efforts such as the proposed earlier-stage Innovate Michigan Fund, can help ensure a steady deal flow for later-stage investments and exits. That being said, a number of companies get started in Michigan, but find they need to leave the ecosystem to secure additional growth capital and experienced startup talent. There needs to be a concerted push by public and private sectors to support quality deal flow, bolstered by leading-edge support services and better access to a stronger funding continuum.

Growth in the number of founders emerging both organically within the state and being attracted from other ecosystems (domestic and internationally) would support stronger VC-investable companies, generating even more large exits and growth-stage (Series A and beyond) funding and further unlocking Detroit's potential to become a competitor on the global stage.

To this point, Startup Genome analysis of other U.S. and global ecosystems found that startup ecosystems that take action by enacting a broad range of policies grow faster than other ecosystems. Advancing policy/advocacy efforts will drive more federal, state, and local funding into early-stage investment and target support for high-performing employee stock options and those requiring technical assistance.

States like Ohio, Indiana, Pennsylvania, and Utah have seen increased growth in overall available (and more patient) investment capital, along with higher numbers and size of various funding rounds. This is due to policies that attract in- and out-of-state investment and provide companies with the right support, including quality technical assistance, that help them grow where they are founded. A recent Citizens Research Council report underscores this message and notes that $1 in R&D investment generates at least $5 in social benefits, greatly exceeding the private gain to investors.

The Road Ahead

The Detroit region's startup ecosystem has evolved into a robust and diverse innovation hub. The 2022 Ecosystem Assessment by Startup Genome and Endeavor highlighted the region's potential, and these insights have since spurred significant progress. Despite challenges, such as enhancing global connectivity, the region's successful exits and key sector funding underscore the ecosystem’s growing attractiveness. Continued strategic efforts and public-private collaboration will position Detroit as a premier international hub for high-growth entrepreneurship, leveraging its industrial heritage to create a home for industries of the future. Other Michigan communities that also are progressing in their startup journeys, like Grand Rapids, Lansing, Traverse City, Marquette, and Houghton, could soon follow suit with the right vision and support statewide.


This article was co-written by Marc Penzel, Founder & President of Startup Genome, and Lisa Katz, President & Founder of In the Mix LLC, in collaboration with Forrest Wright, Research Assessment Lead at Startup Genome.


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