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Three Reasons Why Entrepreneurs Should Consider Detroit

It is not news that in the summer of 2013 Detroit filed the largest municipal bankruptcy in U.S. history.1 In spite of the bankruptcy proceedings, which formally concluded when Judge Steven Rhoades confirmed the City’s plan last November, Detroit received a lot of press as a burgeoning hub for entrepreneurial activity. While many may still think it is counterintuitive to locate in post-bankruptcy Detroit,2 below are three reasons why entrepreneurs should take a serious look at the City:

 

Cheaper Rents:

 

Silicon Valley is the Mecca of entrepreneurship, and standard practice for young entrepreneurs is to live and locate their business there. However, due to the tech boom, the median monthly rent for a one bedroom apartment in the Valley is $2,300, and the median home price is $1,050,000.3 For other emerging hubs of entrepreneurial activity, like Seattle, Portland and Denver, the median home prices are $565,000, $375,000 and $335,750, respectively.4 In Detroit, the median home price is $38,000 and the median monthly rent for an apartment in Midtown or Downtown runs from $900 to $1,100.5

 

As far as commercial space goes, monthly rental rates are 70% cheaper in Detroit than Silicon Valley.6 Also, low cost incubators like TechTown, a co-working space in Midtown, offer entrepreneurs the opportunity to share office space with other businesses for monthly memberships costing from $250 to $375.7 So far, TechTown has raised over $107.26 million in start-up capital and contributed 1,190 jobs to the local economy.8

 

For cash strapped entrepreneurs, getting on the ground in Detroit offers the opportunity to focus less of their finances on space and more towards business operations.

 

State and City Sponsored Funding:

 

The most common complaint surrounding entrepreneurial activity in Detroit is the difficulty in securing early-stage funding.9 The vast majority of investors are located on the coasts, and local investors are generally more hesitant to invest in small tech companies with little to no track record.10 In order to combat this problem, both the State of Michigan and the City of Detroit have developed funding initiatives for young companies. Examples at the State level include the Michigan Pre-Seed Capital Fund, which supports high-tech start-up companies as they near commercial viability by offering access to early-stage capital up to $250,000, and the Pure Michigan Venture Match Fund, which provides a match of the investment for for-profit Michigan-based companies that have received an equity investment commitment from a qualified venture fund for commercialization and growth purposes.11 To date, the Michigan Pre-Seed Capital Fund has invested $20 million in 89 local companies.12

 

Detroit Mayor Mike Duggan introduced the recent Motor City Match.13 The program will match entrepreneurs who need space for their start-up businesses with landlords who have space to rent in the city’s major commercial corridors.14 Ultimately, the State and City government function as conduits and facilitators for creating new businesses and jobs within the City.

 

Supportive Business Infrastructure

 

Michigan has been ranked one of the Top 10 states for corporate tax competitiveness due to its 6% corporate income tax, and its $500 million in annual business savings through the elimination of industrial personal property tax.15 Beyond substantial state and local tax benefits, Detroit is home to a workforce well equipped to supply the needs of tech entrepreneurs. Michigan has more engineers per capita than any other state.16 You can find talent just as adept as those you will find in Silicon Valley, but at significantly lower rates.17 With a huge infrastructure update like Rocket Fiber, internet which is 100 times faster than any current residential connection, the start-up scene has the ability to conduct business faster and more efficiently than ever before.18

 

Ultimately, if Detroit is able to preserve these advantages, and continues to attract talent – both locally and from out-of-state – the City should continue to thrive as a viable destination for young entrepreneurs looking to escape costlier markets.


  1. Monica Davey, Detroit is Out of Bankruptcy but Not Out of the Woods, New York Times (Dec. 10, 2014), http://www.nytimes.com/2014/12/11/us/detroit-bankruptcy-ending.html

  2. Ashley Woods, Why This Startup Chose the Midwest Over Silicon Valley, Huffington Post (Jan. 25, 2014, 4:01 PM), http://www.huffingtonpost.com/2014/01/03/wisely-midwest-app_n_4473715.html

  3. Madeline Stone, Silicon Valley is Unaffordable Even for Software Engineers, Business Insider (May 28, 2015, 10:32 AM) http://www.businessinsider.com/silicon-valley-unaffordable-even-for-engineers-2015-5

  4. Id. 

  5. Id. 

  6. Id. 

  7. Frank Witsil, TechTown Opens A Space For Entrepreneurs To Work, Detroit Free Press (Jan. 7, 2014, 4:44 PM, http://archive.freep.com/article/20140107/BUSINESS06/301070104/techtown-coworking-renovation

  8. Impact, TechTown Detroit, http://techtowndetroit.org/about-us/impact/ (last visited Sept. 23, 2015). 

  9. Laura Schreier, Far From San Francisco and New York, Silicon Prairie Emerges, CNBC (Feb. 5, 2013, 9:45 AM), http://www.cnbc.com/id/100427478

  10. Id.  

  11. Equity Funding Programs, Michigan Economic Development Corporation http://www.michiganbusiness.org/start-up/capital/#equity-funding (last visited Sept. 23, 2015). 

  12. Id. 

  13. John Gallagher, Motor City Match Program Launching This Week, Detroit Free Press (Mar. 28, 2015, 11:55 AM), http://www.freep.com/story/money/business/michigan/2015/03/28/duggan-motor-city-match-entrepreneurs-jobs-economy-degc/70496760/

  14. Id. 

  15. Why Michigan, Michigan Economic Development Corporation http://www.michiganbusiness.org/why-michigan/ (last visited Sept. 23, 2015). 

  16. Allison M. Berryman, Study: Michigan Tops U.S. With Number of Engineers Per Capita, DBusiness (Jan. 9, 2014), http://www.dbusiness.com/daily-news/Annual-2014/Study-Michigan-Tops-US-with-Number-of-Engineers-Per-Capita/

  17. Woods, supra note 2. 

  18. Tom Walsh, Rocket Fiber Gives Nation New Reason to Rethink Detroit, Detroit Free Press (Mar. 15, 2015, 1:14 AM), http://www.freep.com/story/money/business/columnists/tom-walsh/2015/03/14/superfast-internet-detroit/24776669/

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