In August of this year, the Michigan Department of Labor & Economic Opportunity published its recommendations for investing the money of the state’s American bailout plan. One of the recommendations was to fund the Startup Resiliency Initiative, which would bring $ 200 million to the state’s early-stage tech ecosystem.
As a justification for the investment, the proposal cites a sharp decline in venture capital investments from 2019 to 2020. Of the $ 200 million, $ 140 million would be used for direct capital investment, with more than half of that $ 140 million going directly to venture capital and angel investor firms. With this proposal likely to be scrutinized by state lawmakers in early 2022, I believe it is imperative that the Michigandans oppose public funding of private venture capital firms. Instead, we should demand opportunities for ordinary workers and entrepreneurs to invest in their own technological capabilities.
The $ 200 million investment is based on the alleged loss of venture capital available for “new investment” in Michigan over the past five years, particularly 2019-2020 due to COVID-19. Although these numbers, provided by the Michigan Venture Capital Association, paint a very different picture than other MVCA and Michigan Economic Development Corporation press releases covering the same time period.
Indeed, according to research by Crunchbase, no state has seen a dramatic increase in venture capital funding over the past five years as Michigan. According to Crunchbase, venture capital increased 886 percent from about $ 200 million to $ 3.1 billion from 2016 to 2020. The same study shows a slight decrease from 2019 to 2020 (from $ 3.3 billion to $ 3.1 billion) but nothing to match MVCA’s claims. In addition, the same data from Crunchbase is used in press releases from both MVCA and MEDC.
Why the discrepancy? MVCA and MEDC say there is so much and so little venture capital. We live in a time when venture capital is richest and most successful. According to the National Venture Capital Association, 2020 was a record year for venture capital investments. Why should the American Rescue Plan’s funds, which could otherwise greatly benefit the technology needs of small business owners and workers in other ways, be used to fund venture capitalists whose investments only benefit a handful of tech startups?
I am a professor at Michigan State University and have been studying Michigan high-tech economics since 2017. What I am seeing locally in the most resource-poor communities in the state is not the need for more tech startups, but a fundamental need for technological capacity building in small and medium-sized businesses and digital literacy for everyday workers.
In the village of Benzonia, unpaid volunteers are providing technical support to senior citizens and students at the local library. On the Keweenaw Peninsula, small business owners grapple with the basics of online marketing in a digital environment controlled and dictated by big tech companies. In Detroit, job seekers struggle to navigate predatory online job boards while looking for a living wage.
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We don’t need to invest $ 140 million in public money in private tech startups that have promised to revolutionize our daily lives but mostly just revolutionized venture capitalists’ wallets. Instead, we need to think about what technology will be like for people across the state of Michigan democratically beyond basic broadband infrastructure.
How many digital literacy courses could $ 140 million finance for job seekers across Michigan? What kinds of technological capacity building could $ 140 million in rural and urban communities be provided to business owners who need equal access to digital tools for day-to-day business? What would it look like to take that $ 140 million and create a core group of young people interested in advancing the technology in low-income communities across Michigan?
Michigan needs technology investments. But it has to go to everyday people, not to venture capitalists.
Jean Hardy is Assistant Professor of Media and Information and Director of the Rural Computing Research Consortium at Michigan State University.