California's Innovation Model … Michigan?

Ron Leuty
San Francisco Business Times

If California wants to get its innovation game back, says venture capitalist Tom Baruch, it should look at Michigan.

That wasn't a misprint — much-maligned, Rust Belt-tagged Michigan.

We’re talking about my ancestral homeland here. I grew up in the southwest part of the state, where the recession and oil embargo of the 1970s drove unemployment in my little town above 40 percent.

I lived in funny-named places like Kalamazoo and Ypsilanti — both home to state universities and large auto plants — owned a home in one of the state’s innovation hubs, Ann Arbor, and worked in Oakland County, the biggest beneficiary of Detroit’s decline.

My dad, my brother, a sister, in-laws and a Facebook page full of friends — some of whom took me to task for recently leasing a Honda instead of buying from Fords — still call the Great Lakes State home.

Bottom line, I know my Soapy Williams from my Soupy Sales, my Benton Harbor from my Keego Harbor, my … well, you get the point.

So I had to ask Baruch again. “Which state?”

“Michigan,” the founder of San Francisco’s CMEA Capital repeated. “Now I’m not that close to it, but you see it more in programs and policies. They’re protecting small businesses, providing tax breaks — lots of breaks — and they’re providing worker training incentives.”

Also, Baruch noted, Michigan has a strong delegation in Congress that has helped funnel federal stimulus program cash in an effort to transform the world’s auto capital into a green-auto hub.

“(State government has) tends to be less antagonistic and more of what you might call ‘participatory’ in bringing together assets within the state, including the universities,” said Baruch, whose firm has bankrolled the likes of cleantech companies Codexis and Solyndra.

Maybe Meg Whitman should talk to Baruch. (See Detroit Free Press cartoonist/blogger Mike Thompson's take on Whitman's comments here.)

It is important to note that Michigan has a Democrat as governor, a split Legislature — a Democrat-controlled House and Republican-led Senate — a general fund deficit of more than $300 million and a nearly $500 million shortfall written into the next fiscal year's budget. That combination of politics and budget problems would spell stalemate in Sacramento.

CMEA Capital's Tom Baruch.

“California’s tough,” Baruch said. “In California, getting support from the state government is challenging. The funds are just not there.”

Baruch heard a lot about Michigan and other states, like Arizona, earlier this month at the first meeting of Commerce Secretary Gary Locke’s National Advisory Council on Innovation and Entrepreneurship. The group of heavy-hitters includes AOL co-founder Steve Case and University of Michigan President Mary Sue Coleman.

“There’s a lot going on in Michigan,” Baruch said, calling out A123 Systems Inc., which earlier this month opened North America’s largest lithium ion battery manufacturing plant near Detroit.

CMEA is an investor in A123.

It seems too good to be true, so I queried Stephen Rapundalo, president and CEO of the life sciences trade group MichBio. He outlined a handful of programs — from regional SmartZones that provide, for example, mentoring, incubator space or wet labs for startups to a pre-seed capital fund offering $250,000 alongside an investment partner and a pre-seed microloan program giving up to $50,000 to get companies ready for outside investment or customer sales.

There also is a tax credit that provides an incentive for large companies to invest in small, emerging tech companies' R&D projects. The large company can claim a credit against the state’s business tax equal to 30 percent of the contribution, up to $300,000.

“It seems to be working in multiple technology industries beyond just the biosciences, including alternative energy (batteries, wind, solar, biofuels), aerospace, defense mfg., etc.,” Rapundalo wrote in an email to me.

“I keep telling many people who muse about Michigan’s economic doldrums that they only need to look at some other states like New York, California to see state budgets that are in far worse shape than ours,” he continued.

In the end, policies and programs that support innovative startups comes down to leadership, Baruch said. California and the nation as a whole are failing to tap the cadre of experienced entrepreneurs, he said, who could lead a “Peace Corps of Innovation” and inspire a new generation of innovators.

“If you have leadership, you can have a big impact with very little money,” Baruch said.

And Baruch didn’t just fall off the pulp truck.


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