What About A “SmartZone” In TC?

CannonFive years ago, a handful of other community-minded business leaders and investors embarked upon an endeavor to launch an angel investment group – Northern Michigan Angels (NMA) – that would invest in entrepreneurs primarily in northern Michigan. Since that time, membership has grown and invests total approximately $1.5 million in 15 companies (primarily startups).

NMA’s hope is to ultimately be involved in launching companies, creating jobs and improving the economic prosperity of the region along with receiving a financial return for our investment. We like the idea of investing locally, where global and national financial markets can not play havoc on large company stock holdings. We also want to have the ability to visit face to face with entrepreneurs and provide advice along the often tumultuous journey of a startup.
The group has been excited to see the growth of entrepreneurs in Traverse City with what appear to be viable business ideas, especially in the technology realm. A new organization in town called TCNewTech meets monthly for mini pitch sessions and sharing of ideas.

Since NMA’s founding, however, one of the disappointing discoveries has been the lack of companies in northern Michigan that would be considered “investment ready” by most investor standards. But what if Traverse City was a “SmartZone?”

One need only ask someone from one of the 15 SmartZones, or “Technology Parks/Business Incubators” as they are commonly referred to by the State of Michigan, to learn of their success over the past 13 years since SmartZone legislation was passed.

What exactly is a SmartZone? According to Michiganbusiness.org, “Accelerators (Smart Zones) mine technology from universities and private enterprise, assist companies and entrepreneurs in building business structures around the technology, conduct product development and help companies secure necessary start up financing.”

In other words, the SmartZone assists the entrepreneur who has an idea that is technology-based to transform the idea into a product or service, commercializing the idea and assisting with patents, market research, website development and go-to-market strategies, to the point where the entrepreneur/company is ready for funding and to be launched into business.

When I talk to people about an incubator or accelerator (which are often very similar entities), they often think of shared rental space for a desk/office. In fact, most incubators (think Start Garden in Grand Rapids) do provide facilities to be shared by entrepreneurs. However, based on research of several successful accelerators/incubators over the years, participants often state that much of the benefit derived from involvement in an incubator is from the collaboration with others enrolled in the program and the advice and mentoring received from experienced mentors provided through the program. An incubator is much more than rental space for a desk or office.

Aside from two SmartZones in the Upper Peninsula, all of the remaining 13 SmartZones are located across the southern region of Michigan’s Lower Peninsula, with none located north of Mount Pleasant. I have spoken to a few business leaders in the area desiring to possibly launch a privately-funded accelerator. This idea is gaining momentum and ideas are being shared.

One important distinction between a privately-funded accelerator and a SmartZone technology park is the ability through the Smart Zone to access capital on behalf of the entrepreneur through the Michigan Economic Development Corporation and programs such as the Business Accelerator Fund, which provides up to $50,000 per company, and Invest Michigan, which will co-invest up to $300,000. The other advantage is the funding available for SmartZones coming from future tax increment financing (TIF) in the designated district for the SmartZone, which will help to sustain the incubator down the road.

While there are vital resources available to entrepreneurs through the Traverse City Area Chamber of Commerce, SCORE, the SBTDC and others, a multiple-week intensive incubator program would be a next step for many entrepreneurs desiring to launch and scale their business quickly to get ahead of competition. Many of the companies that NMA has invested in have participated in an incubator such as Start Garden and GR Current in Grand Rapids, Bizdom in Detroit, MMIC in Mount Pleasant.

Through the passing of recent legislation (Public Act 125/House Bill 4226) on July 15, the State of Michigan has increased – from three to nine – the number of distinct geographic areas for which the state treasurer can approve tax capture. The legislation was necessary to allow the existing Smart Zones to establish one satellite location located in a separate community. Satellites mostly operate autonomously and the establishment of a Satellite allows the SmartZone to extend the term of the tax capture for 15 years. Communities desiring to establish a Satellite must apply through an existing SmartZone and, amongst other requirements, be able to demonstrate the ability to raise $200,000 per year in funding to cover the first five years of operations.

A SmartZone would be “smart” for Traverse City. This idea is gaining momentum along with the establishment of a privately-funded incubator. The public and private sector working together in a collaborative effort to promote the launching of small businesses would benefit the economic development of our region for years to come.

Deanna Cannon is a founding member and executive director of Northern Michigan Angels and owner of Cannon & Company CPAs in Traverse City.