The number of venture capital deals plummeted in both Detroit and Ann Arbor areas in the third quarter of 2024, a sign that experts said shows Michigan needs to do more to encourage investment.

“What we need is to be able to be competitive with our neighboring states, and that’s a challenge,” Michigan Venture Capital Association Executive Director Ara Topouzian told Crain’s Detroit Business. “And things like SSBCI (State Small Business Credit Initiative) helps, the Michigan Innovation Fund helps, but it’s not enough.”

Michigan needs better incentives to draw investors to the state, and Topouzian said that will involve better educating lawmakers about the value of venture capital deals.

Go Ad-Free, Get Content, Go Premium Today - $1 Trial

In the third quarter 2024, there were only four venture capital deals in the Metro Detroit region with a total investment of $3.9 million, compared to 19 deals in the second quarter and 20 in the first, Crain’s reports.

It was a similar situation in Ann Arbor, where there were three deals in the third quarter, compared to six in the second and 11 in the first. In total, the three deals generated $66.9 million in investment, though the credit “mostly goes to one startup, ONL Therapeutics Inc., which closed a recent $65 million Series D funding round,” according to the financial site.

Statewide, capital investments involved 20 deals that generated $108.48 million in the third quarter, down nearly $60 million from the $166.55 million generated through 38 deals the previous quarter.

While the decline is not good news for the Great Lakes State, experts told Crain’s there’s some seasonal factors involved, and predicted things might improve in 2025.

Go Ad-Free, Get Content, Go Premium Today - $1 Trial

Do you think the economy will come back roaring quickly when Trump takes office?

By completing the poll, you agree to receive emails from The Midwesterner, occasional offers from our partners and that you've read and agree to our privacy policy and legal statement.

Adrian Fortino, partner with the Mercury Fund focused on investing in mid-America, said he expects the dynamic to change in 2025 with more exits.

“Companies that have been interested in exiting and going public will be able to finally and will be able to be acquired,” Fortino said. “That (mergers and acquisitions) landscape will really free up substantially … and once that happens, you’ll see more funds being more active. You’ll also see more (limited partners) get back into venture, so you’ll see some of those funds be able to raise more money.”

The declining investments are only the latest sign of Michigan’s economic decline under Gov. Gretchen Whitmer that will undoubtedly take more than a quarter or two to reverse.

The number of Fortune 500 companies that call Michigan home has dwindled from 30 in 2018 to 16 this year, as companies like Kellogg moved the bulk of their operations more better places like Chicago and others suffered significant profit losses.

Companies such as Stellantis, which has been headquartered in Michigan for more than 100 years, are now considering moving out of Michigan.

Analysis shows Michigan is 40th in job growth, 39th in median income, and 41st in unemployment, all of which is contributing to residents fleeing to other states with better opportunities.

“Sure enough, around half of the 169,000 people who fled the state in 2022 did so because they found a job elsewhere,” according to a recent Americans for Tax Reform commentary. “Which states did they go to? Sure, the usuals – Florida, Texas, and Arizona – got their fair share of Michiganders, but a nearly equal number moved to Indiana, Ohio, and Illinois.

“If people are fleeing your state for Illinois, there’s a problem.”

Other factors in Michigan’s economic struggles stem from the state’s ranking of 38th in the nation for labor market regulations.

“Every single one of the states growing while Michigan declines has lower employment costs,” ATR reports.

The situation drives the state’s most educated elsewhere, and companies follow.

“It’s a vicious cycle, and the Whitmer administration is doing nothing to stop it,” according to the commentary.

“Rather than address the lack of opportunity, the governor would rather make the state even less attractive for businesses and individuals alike by repealing right-to-work, reinstating prevailing-wage laws, and raising taxes,” ATR reports.

“Policy isn’t the end-all be-all when it comes to the economy, but it can certainly help, and as long as people like Whitmer are in office, Michigan’s job growth won’t break 0.9%,” the commentary read. “In fact, it will likely decline.”