19 March 2013

Tom Walsh: Venture firm taps into Ann Arbor's ideas and talent

Story originally appeared on Freep.

Silicon Valley is so yesterday. Ann Arbor is the place to be for technology and entrepreneurship these days.


Or wishful thinking?

It sure was the gist of some online buzz after this recent quote from Silicon Valley serial entrepreneur (and University of Michigan graduate) Steve Blank bounced around the Twitterverse:

"Silicon Valley is out of A players. Don't start your company here," Blank said March 6 at the Weather Underground Startup Trek, an annual two-day tour of the San Francisco Bay area technology scene by students for U-M's Center for Entrepreneurship.

"Start it in Ann Arbor," Blank added. "You won't find the talent you need here; it's in Ann Arbor."
Eight days later, another hotshot Silicon Valley star, venture capitalist Scott Chou, was in Ann Arbor speaking to students at the Ross School of Business. Chou had a slightly different spin on the Silicon-Valley-to-Ann Arbor comparison when I talked with him Thursday.

"The path to Wall Street still goes through Sand Hill Road," Chou told me. Translation: The big blockbuster public stock offerings -- think Google, Facebook -- still get critical funding from the venture capital community clustered around Sand Hill Road in Menlo Park, Calif.

But lots of the talent and many of the innovation ideas behind breakthrough companies come from places like Michigan, which has lots of engineers and major research universities nearby.
So where should a VC spend his or her time these days?

For Chou and his three partners in Michigan eLab, the answer is both Michigan and Silicon Valley. They have offices in Ann Arbor and San Mateo, Calif.

Michigan eLab was launched last summer in hopes of tapping into technology ideas from U-M faculty and other innovators in the region, and growing companies with the mentoring and funding connections of Chou and partners Doug Neal, Bob Stefanski and Rick Bolander. All have Silicon Valley experience, and all but Chou have strong Michigan connections.

Chou said others may have sentimental reasons for focusing on Michigan, but not him. He hopes to make a ton of money with the kind of "home run" investment that all VCs dream of.
So far, Michigan eLab has raised nearly $10 million, including $2.25 million in January from the Michigan Economic Development Corp. Chou said the firm hopes to raise another $5 million in the next few months and do a closing of its first fund with about $15 million, which it will then start investing directly into companies, mostly in information technology.

Michigan eLab talked last summer about an initial fund-raising goal of $40 million -- and it still plans to get there, Neal said. But money flowing into the VC industry nationwide has been slow of late. On the plus side, he added, there's been surprising interest by companies from California and elsewhere that want to open software engineering offices in Michigan, because the talent pool is good and the cost of living reasonable.

Chou, author of the book "Maxims, Morals and Metaphors: A Primer on Venture Capital," put it this way last week to students at the Ross School: "Everything is cheaper here. It's a source of disruptive innovations. It's a core center for research innovations -- one of the top-funded universities in the country. There's a lot of groundbreaking ideas and few venture capitalists here."

And when Dan Rosen, a first-year MBA student at U-M, asked Chou what he looks for in building a successful portfolio, Chou said, "For venture, it's all about the home run. The results are heavily skewed toward the Facebooks and the Googles. I think you have no choice but for every deal you do to have home run potential."

The ideas and the engineers may come from Ann Arbor, and really big money to scale the company may come from Silicon Valley. Chou sees Michigan eLab as a bridge to those home runs.

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