The new technocracy

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A child uses virtual reality gear at Neurable’s exhibit SPARK’s second annual Tech Trek on June 17.

A child uses virtual reality gear at Neurable’s exhibit SPARK’s second annual Tech Trek on June 17. | John Strobel

The digital economy is changing everything about Ann Arbor, whether we’re ready or not.

By Christine M. Tracy

“If Boston is gold, and Silicon Valley is platinum, to me Ann Arbor is a pearl,” says Phil Brabbs. “You have the Midwestern values, you have the Harvard brains and you have the Silicon Valley innovation. It’s all here at a cost that’s very affordable.”

Brabbs is a 2004 University of Michigan graduate and managing partner of Torrent Consulting, based in Ann Arbor,  which made Inc.’s most recent list of fastest-growing American companies.

Brabbs and Torrent are emblematic of the wave of high-tech growth and innovation sweeping Ann Arbor.

The city is handily beating national statistics on new venture longevity. According to SBA.gov, only half of small businesses survive the first five years and only one-third survive 10 years. Ann Arbor startups more than double the national survival rate, and 29 of the 39 companies initially served by SPARK, the city’s economic development engine, are still in business today, according to SPARK’s data. And these firms bring employment with them; U-M economists George Fulton and Donald Grimes predict an additional 2,020 tech jobs in Washtenaw County by 2017.

Experts agree that two main ingredients are needed to support a thriving tech ecosystem: talent and money. The University of Michigan, Eastern Michigan University, Wayne State and Washtenaw Community College provide the brainpower, and venture capitalists such as Arboretum Ventures, Huron River Ventures, NorthCoast Technology Investors and the Michigan Angel Fund bring the money.

Affordability, quality of life and a supportive community also fuel Ann Arbor’s tech-sector growth. These factors not only help attract new workers and retain young graduates, they’re the reason many IT professionals and software engineers “rebound” and return to Ann Arbor after working on the East or West Coast.

Lorne Groe, CFO/COO of Deepfield, which builds tools to enhance the security and performance of networks, moved back to Ann Arbor after 10 years in Silicon Valley. “We get a lot of people that rebound from the West Coast,” he said. “People go to California. They love it, but a lot of times they have kids and they can’t afford a house. They’re tired of the commute and long hours. That’s what happened to my wife and me.”

SPARK’s trek draws fans of tech

However, tech-sector growth can bring gentrification, stratification and other problems that alter the character of a city and threaten the things that made it attractive in the first place.

Media theorist and digital economist Douglas Rushkoff believes digital companies nationwide often extract value without distributing wealth. “They’re taking money and value away from us and storing it in share price,” he said in a March 2016 interview with CNET. Rushkoff wrote “Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity” to help explain recent events in California’s Bay Area: Local residents literally threw rocks at buses shuttling Google employees to their offices to protest a spike in housing costs. “Google was changing the fabric of the community and not in ways that residents could participate in,” said Rushkoff.

In Boulder, Colo., a citizens group called Livable Boulder prompted local measures that would have increased fees on new development and given neighborhood groups a vote on zoning changes in their area, according to a July 3 report in The New York Times. Zoning has become even more critical now because less skilled workers are often forced to live where there are fewer jobs but housing is cheaper instead of looking for better job opportunities, according to new research by Harvard professors Daniel Shoag and Peter Ganong.

While it’s unrealistic to compare Ann Arbor to Silicon Valley or other larger tech communities, such as Denver or Atlanta, it is realistic to position the city in a “secondary-venture market” with Cincinnati or Madison, Wis.,  according to Adrian Fortino, a partner at Mercury Fund, an early-stage venture capital fund.

Fortino believes Ann Arbor and other Midwest cities need to do more to realize their tech potential. He says many Midwest communities have “early exit disease.”

There can be advantages to cashing out early, though. When Ann Arbor bio-tech startup Accuri sold the company to Becton, Dickinson and Co. in 2011, the firm’s early exit funds were used to support additional investment in the community, Grand Angel Investment’s Jody Vanderwel told MLive.

“What truly takes startup communities to the next level is a combination of patient and ambitious talent and capital that survives for very large exits,” said Fortino. Ann Arbor-based firms Deepfield, Nutshell, DuoSecurity, FarmLogs and LLamasoft are “building the foundation” for the large exits that are necessary to support the city’s tech ecosystem, according to Fortino.

In addition to zoning and diversity, growing tech hubs need strong infrastructure and mass transit, as clogged highways from Atlanta to Austin confirm. In an email interview, interim City Administrator Tom Crawford said the city is doing several things to support growth in the community — not just the tech sector — such as looking for ways to encourage development of more office space, encouraging affordable and workforce housing, and improving mass transportation.

The City Council is working with developers of the space above the Liberty Lane parking structure to build in more affordable housing; the council wants 36 of the 360 units planned for that space to be workforce housing units, according to Crawford.

Meanwhile, the Ann Arbor Committee for the Commons is collecting signatures on a petition that would force a public vote in November on the future of that city-owned lot. If successful, Ann Arbor residents would decide if the library lot space would be publicly held and developed as an urban park.

The council also has approved funding “to participate with other community partners to explore the possibility” of a connector-style rail system to join the northeast part of the city with downtown, Crawford said.

Swisher Real Estate’s Mike Giraud said rental rates have gone up significantly downtown, and he attributes that to the growth of the tech sector. At the end of December 2015, the vacancy rate was 3 percent, a historical low, and “asking” rates went up significantly in the last nine months, according to Giraud, from $21 to $26 per square foot to $28 to $35. There is a point, however, where rental rates and the cost to be downtown causes tech companies to look elsewhere, he said.

Experts agree that planning for this growth is critical to the future of the city.

Private-sector leaders want to be part of the solution, says SPARK CEO Paul Krutko, who is concerned about under-investment in infrastructure. He sees the need for a common infrastructure plan supported by all sectors — private, public, academic and government — as well as energy upgrades to the power system to improve reliability, which is critical to the operation of tech companies. “There’s only so much growth you can pack into downtown,” said Krutko. “How do you make State (Street) and Eisenhower (Parkway) more attractive?”

He believes the evolution in mobility and automotive technologies, such as self-driving and connected vehicles, is the future for Ann Arbor, Ypsilanti and Michigan. Examples: the American Center for Mobility at Willow Run in Ypsilanti and Mcity at the University of Michigan. “We’ll see dramatically different new business models and disruptive technologies like Uber. The evolution in mobility will be a convergence of IT, networking technologies and security, transportation and mobility, and wireless communication,” he said.

Michigan leads the country in research on transportation and Krutko said he hopes the state can become the national testing center for these new technologies. “It’s the shining star on the horizon,” he said.

Speaking of growth and change, Brabbs said, “As somebody who lives in town, I think we have to think how fast we want it to come here. We need a shared vision. We need to have conversations with one another and to connect as a community. If we don’t get in front of what it should look like in 10 years, it will just become what everyone else wants.”

Christine M. Tracy is an Ann Arbor writer. She blogs at ournoosphere.com


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