Michigan's billion-dollar experiment in diversifying state's economy yields mixed results

projects at eight universities around the state. At least four start-up companies have been formed as a result of these projects but whether any of this research will yield significant benefits in terms of jobs remains to be seen. State officials say the competitions have enabled the development of 344 products and 575 patents. The remainder of the money, totaling $34.6 million, went to 15 organizations. Two are launching start-up companies. Another recipient, the economic development group Ann Arbor SPARK, received about a quarter of the money for a fund that has invested in 42 Michigan businesses.

Speeding up investments

The slow pace of investing has drawn criticism from Greg Main, head of the Michigan Economic Development Corp. Kelly Williams, the co-head of a Credit Suisse division that manages the 21st Century fund, said, however, that amid a weak economy, the number of investments is “quite good.” She also said the fund would have selected more Michigan-based investment firms but the state has few companies that do buyouts and provide a type of debt financing called mezzanine. In addition, one Michigan venture capital firm that was chosen, Ardesta, ended up shutting down.

The 21st Century fund has already made six times its money from the sale of one of the twelve Michigan businesses, HandyLab in Ann Arbor. It lost money in another company, Microposite of Auburn Hills, which sold eco-friendly residential siding products. Microposite shut down last year because of a technical problem with its products. It received $5.8 million from the San Francisco-based venture capital firm Nth Power, a $1.7-million direct investment from the 21st Century fund and $1.5 million from Invest Michigan!.

Yung notes that supporters of these efforts say it is too early to judge the results. They claim that these initiatives were never designed to create huge numbers of jobs in a short time. Ned Staebler, a vice president at the Michigan Economic Development Corp., predicts that the loans and investments will end up making money for the state in the long run.

“There’s some big wins, some wins to come in the future and some that are moving along slower than we hoped,” said Charles Rothstein, senior managing director of the Farmington Hills investment firm Beringea and a board member of the Michigan Strategic Fund, which oversees the jobs fund.

David Hollister, who helped set up the fund when he ran the Michigan Department of Labor & Economic Growth, points out that none of the four targeted sectors has turned out to be a loser. “We didn’t put our money in just one technology,” he said. “I still think it’s a good plan.”

Fund use questioned

Yung quotes critics to say that the initiatives have tied up dollars that the state sorely needs for other uses, such as education. “It should have gone to the state treasury,” said Bill McMaster, chairman of Taxpayers United Michigan Foundation. “It’s really corporate welfare.”

Others believe the efforts have been hampered by some missteps. “Too much of the money was spent on early-stage companies and life-science companies,” said Bill Orabone, a serial entrepreneur and CEO of Ann Arbor-based Polytorx, which was awarded a $1.5-million loan from the competition and has been paying it back.

“The final results of these initiatives won’t be known for many years, long after Granholm has left office,” yung concludes. “But already, enthusiasm for the jobs fund has evaporated because its funding has been dramatically cut to help reduce Michigan’s budget deficit. This year, the jobs fund has $28.5 million to spend, down significantly from the $75 million that it was supposed to receive.”