Making it in Grand Rapids: How the GR SmartZone is evolving to better support entrepreneurs

What do entrepreneurs from all walks of life need to make it in Grand Rapids? To answer this question, the city's SmartZone is evolving as part of a bigger conversation about how our organizations serve and support  a sustainable startup-friendly community.
The Grand Rapids SmartZone made its name as an economic development engine that helped power the Medical Mile.

By re-investing tax revenues into incubator space, support services for entrepreneurs, and modernized infrastructure within its borders, the SmartZone has, by most estimates, played an important behind-the-scenes role in transforming Michigan Street near Downtown into a thriving hub for life science startups and other technology-based companies — one that’s attracted more than $2 billion in private investment over the past 15 years,according to The Right Place.

Now the SmartZone is evolving — and so is the way that our government entities and support organizations look at our entrepreneurial “ecosystem” for ways they can help.

In late April, the SmartZone, which is financed by the Grand Rapids Local Development Finance Authority (LDFA), received approval from the City Commission to add 63 additional properties to its Certified Technology Park. It’s an expansion that looks odd from a bird’s-eye view, where the new sites — many of which sit blocks or even a mile apart from each other — add paint-splatter randomness to what was once a fairly neat, discrete “L” shape.
But this shake-up of the existing SmartZone boundaries was part of a deliberate process, says Kara Wood, the executive director of the SmartZone LDFA board, and it came about from a gradual realization that restricting the SmartZone’s borders to the Medical Mile area was preventing it from reaching people from different segments of the community and diverse walks of life.

“Not only did our [personnel] experience [these constraints] when trying to do events and engagements, but it’s become clear to us that innovation entrepreneurship knows no boundaries,” Wood says. “So it’s difficult to work within strict confines when you’re trying to grow businesses and encourage entrepreneurship.”

Grand Rapids’ SmartZone was created in 2001 with the Van Andel Institute at 33 Bostwick Ave NE as its cornerstone and geographic anchor. The SmartZone is now one of 17 statewide, all administered by the Michigan Economic Development Corporation (MEDC). Grand Rapids’ SmartZone captured about $1.72 million in tax revenues for 2014 and 2015, Wood says, but that figure will fall to about $920,000 by fiscal year 2017 due to real and personal property exemptions.

The SmartZone operates using tax increment financing, which involves “freezing” property taxes at a certain point in time — in the SmartZone’s case, the date of December 31, 2000 — and allowing the city to keep that portion of property tax revenue from the Certified Technology Park while the SmartZone captures the annual increases in tax revenue to use as operating funds.

The SmartZone’s original 15-year financing agreement with the city also allows it to capture 50 percent of tax increment revenues from state and local education taxes within the Park. That agreement ends in 2017, but the LDFA recently submitted a proposal to the City Commission for a 15-year extension, Wood says.

Besides the additional 63 properties, the LDFA at the same time received approval from the Grand Rapids City Commission to expand the SmartZone “district” to encompass the entire city of Grand Rapids.

This expansion doesn’t bring in additional tax revenue — the SmartZone only captures and invests tax increment finances in its Certified Technology Park, which includes the original borders plus the 63 added properties — but it does allow the LDFA to work with other groups throughout the city in promoting entrepreneurship.

“We did that for inclusivity reasons, based on community feedback, because we felt as though the original boundaries were excluding people,” Wood says. “And it does present opportunities for us to be more collaborative with other agencies not located in the Certified Technology Park — so it doesn’t mean they’re excluded from participating with us simply by not being part of the expansion.”

The LDFA expects that the SmartZone’s annual tax capture will increase by only about $1,000 to $2,000 annually as a result of the 63 additions, Wood says, since the majority of the properties added are tax-exempt.

The 63 added properties — which include spaces like LINC UP at 1167 Madison Ave SE, the Goei Center at 818 Butterworth St SW, and the Baxter Community Center at 935 Baxter St SE — were selected by the LDFA based on past partnerships and opportunities for collaboration, Wood says, with an eye toward diversity and inclusiveness as well as limiting the SmartZone’s additional tax capture.

“We looked for nonprofits that had a similar mission and focus, and that wouldn’t affect the capture by other taxing jurisdictions — namely Grand Rapids Public Schools, Grand Rapids Community College and Kent County,” she says. “We felt the ones we added had some current or future alignment with our mission, vision and goals.”

So what does LINC UP, which is known for its affordable housing and community revitalization programs, bring to the table in a Certified Technology Park? Darel Ross II, the co-executive director of LINC UP, says the organization is hoping to attract potential entrepreneurs with science-technology-engineering-math (STEM) backgrounds and business ideas to its incubator and co-working spaces, which would begin to create a new pipeline for STEM startups on the Southeast side of Grand Rapids.

Darel Ross

Ross says the SmartZone’s expansion sends a message that the LDFA is serious about expanding opportunities in urban neighborhoods and a variety of diverse communities — adding that he credits Bing Goei, founder of the Goei Center event venue and its International Center for Entrepreneurial Excellence, as an early voice in the entrepreneur community who spoke out in favor of the expansion plan for the SmartZone.

“I would say that the [SmartZone] program is designed to attract talent and to offer opportunities for people to become part of the bigger ecosystem and success as a region,” Ross says. “We live in a time where putting spatial restraints on these things doesn’t really work.”

“To us, it was good to acknowledge that there is STEM capacity in the urban neighborhoods, and now an opportunity to start the momentum to get some [STEM businesses],” he adds.

LINC UP’s mission to provide quality, affordable housing also ties into the SmartZone’s core goal of attracting and retaining talent in Grand Rapids, Ross says, pointing to the type of work that LINC UP has done in revitalizing the Madison Square neighborhood around its headquarters.

“The intentionality of building affordability into neighborhoods from the beginning instead of as an afterthought, that’s very appealing to young entrepreneurs, especially in a city of rising costs,” Ross says. “So we’re hoping to not only attract people from STEM to work in the neighborhood [here] but to consider living in the neighborhood.”
As to the specifics of how LINC UP will work with the SmartZone and whether and how it will use tax capture investment, Ross says these things haven’t been decided yet. He says there won’t be a ribbon-cutting ceremony to announce that LINC UP is part of the SmartZone — rather, the organization will continue its operations with a new tool at its disposal, learning how they can use it as they go.

“This doesn’t mean that LINC UP will shift its focus, and I don’t think the other centers [added to the Technology Park] will necessarily shift focus,” he says. “It’s just another offering, something new where we can pull people into the neighborhood and pull success from the neighborhood.”

In addition to the expansion of properties, the LDFA also announced another major change in March: they informed the public that they were ending their longstanding partnership with Grand Valley State University and that the private venture fund and investment incubator Start Garden — which was added to the Certified Technology Park as part of the 63-property expansion — would partner with them going forward in order to offer entrepreneurial services on behalf of the SmartZone.

Start Garden’s new partnership with the SmartZone comes on the heels of a “convergence,” as Start Garden CEO Mike Morin puts it, where Start Garden and one of its most prominent peers, the regional entrepreneur support organization Emerge West Michigan, combined under the Start Garden umbrella.

[Editor's Note: Support for this series is provided by Start Garden, but the organization does not receive special consideration for an article's sourcing, nor are they permitted to view the story prior to publication.]

The new Start Garden now includes three funding sources: There’s the public Start Garden management company that will work with the SmartZone funds, the private sector foundation that used to be Emerge — now called Start Garden Foundation — and the Seamless Accelerator, which connects Internet of Things startups with established industry partners.

If the flurry of recent activity makes it seem like Start Garden is on a path of conquest — grabbing up Emerge, snatching the SmartZone partnership from Grand Valley — nothing could be further from the reality of how this new landscape took shape, Morin says.

In fact, all of the major partners involved in the recent shake-up — Start Garden, the Emerge executive committee, GVSU, the city, and LDFA — came together around a common problem, he says: There were too many entrepreneur support organizations with similar offerings, and many were competing in a de facto arms race to show how many entrepreneurs they had “served” for reporting and funding purposes.

The maze of programs made it confusing for entrepreneurs to know where to turn at different points in the development of their companies and ideas, Morin says, and encouraged organizations to hold onto startups just to satisfy their reporting metrics.

“I think it just became readily apparent to all of us that we were all kind of working on the same thing from different angles, and there would be a power in sitting down and in essence doing a reboot,” he says. “There were things that were working and not working about all the different [entrepreneur support] organizations in terms of what they were doing.”

The unification of all these different threads will allow for some novel possibilities for the new Start Garden and for the SmartZone, Wood and Morin both say.

For instance, Start Garden Foundation will collaborate with the LDFA to create opportunities for the SmartZone to interact with and assist entrepreneurs who own lifestyle-based businesses like restaurants or galleries — community features that often matter to biotech entrepreneurs just as much as lab space and access to funding, Wood says.

“The SmartZone program is driving at a few core things: the commercialization of technology, the growth and attraction of entrepreneurs, and talent attraction and retention,” she says. “When entrepreneurs are looking for place to locate, they look for opportunity and for great places to live — and if we just grow and commercialize information technology and life science businesses, we’re not going to have the great neighborhoods for them to live in.”

The U.S. Small Business Administration provides some compelling statistics about why a steady stream of entrepreneurs matters to any local economy: Small businesses make up 99.7 percent of U.S. employer firms and accounted for 64 percent of the net new jobs created between 1993 and 2011, according to a 2012 report from the SBA.

But there’s an oft-repeated rule of thumb among entrepreneurs: About 9 in 10 startups fail. The available data bear this rule out, too; U.S. Census and survey data analyzed by the National Federation of Independent Businesses show that only 39 percent of all small businesses make a profit — any profit, however small — over their lifetime. About 30 percent break even and another 30 percent lose money, the NFIB reports.

These figures add up to emphasize Wood’s point: a steady influx of new startups in Grand Rapids is critical if residents want small businesses to keep creating jobs and attracting capital to the area.

Morin says that Start Garden’s partnership with the Grand Rapids SmartZone — and by extension the Holland SmartZone, which is a satellite — also opens up the door for new transparency measures and reporting tools. He says the collaborators plan to work with Grand Rapids-based Collective Metrics to undertake a data-based examination of the Grand Rapids “entrepreneurial ecosystem” — the sum of all the entrepreneurial activity and factors that influence it in the region — and develop better reporting tools that can gauge the health of startups.

“As we’re quantifying the ecosystem — and if we’re really saying that it’s not just high-tech, high-growth, it’s the whole ecosystem — we’ve got this huge initiative to quantify the ecosystem in terms of the number of startups that exist, how they’re doing, what are the entrepreneur support organizations,” Morin says. “Well, that’s going to span across the LDFA territory, and across the whole city, so that’s a collaboratively-funded activity — there’s foundation dollars going to it and there’s city dollars going to it, and that’s going to give us a holistic view of what’s going on.”

Grand Rapids-based life science entrepreneur Dr. Mark Gurney, whose company Tetra Discovery Partners was an early tenant of the SmartZone-funded incubator in the Grand Valley State University Cook-DeVos Center, agrees that lifestyle-based businesses have a huge role to play in attracting and retaining talent in Grand Rapids, whether that talent comes in the form of PhD-holding researchers or chefs, brewmasters and restaurateurs.

Mark Gurney

He says that business owners of all types have common needs — affordable housing, entertainment they enjoy — which is why he supports the SmartZone’s mission toward diversification.

“When you start on this path as an entrepreneur, you end up all-in in ways you never expected,” Gurney says. “It’s great to have an ecosystem with other people that are having a shot at it too. And there has to be a path to assure that failure doesn’t mean you’re done.”

Gurney, whose company employs a staff of 11 at a median salary of $90,000 per year and currently has an Alzheimer’s treatment drug in human clinical trials, says that his success so far is in part a product of the activities of the SmartZone, which funded the incubator that gave him access to lab space at a critical juncture for his company.

Gurney says he’s concerned, however, that the coming wave of life science entrepreneurs won’t have the same opportunities, citing a shortage of lab space and later-stage venture capital.
He points out that Tetra is the last remaining tenant of the GVSU incubator, which originally housed two other life science startups — NxGen MDx and Syzygy (now called Empirical Bioscience) — but converted some of its lab facilities to office space after no new businesses moved in to replace them. He says it’s incumbent on some of the major institutions in the area to make sure that life science startups still have access to the infrastructure they need, even as the conversation about entrepreneurship gets more inclusive.

“I think many of us share the concern of, will there be continued investment on the part of the state and the SmartZones, and the other mechanisms that will allow the biotech industry to still foster startups and see them grow?” Gurney says. “Between the SmartZone, Spectrum Health, Michigan State University, and the Van Andel Institute, you’d hope we would come up with a solution to ensure that the next generation Tetra can launch here.”

The move toward looking at high-tech, high-growth startups and lifestyle-based businesses as interconnected parts of a holistic whole matches up with a statewide shift in thinking about entrepreneurship, according to entrepreneur and educator Tom Frank, who serves as the executive director of the University of Michigan Center for Entrepreneurship in Ann Arbor.

Frank also says he sees Grand Rapids as a regional leader in terms of making committed investments in the arts and culture — the things that can help “frame a town,” as he puts it, for prospective business owners and job creators..

“I think initially, lifestyle businesses were perceived as a baseline requirement, and they weren’t seen as emerging industries themselves,” Frank says. “And I actually think this is something Grand Rapids has done particularly well, is to not treat these entrepreneurs as a prerequisite for other categories, but to see them as an integral part of the overall success of the region’s plan.”

The new landscape of collaboration between Start Garden, the former Emerge, the LDFA, and other regional players ties in to what’s most important for the health of startups and the regional prospects for entrepreneurs, Frank says: sharing information and best practices to spread what works as quickly as possible.

“I think what’s going on in Grand Rapids is one of the most exciting and interesting examples of how a geography, when all of the stakeholders commit to an initiative, as they have here — I think it’s beyond cool,” Frank says. “You have the research corridor, and now that you have everyone sharing best practices and resources in terms of what’s working and not — that’s the model I think any region should follow if they have any hope of trying to build a next-generation economy.”

Morin, Start Garden’s CEO, acknowledges that the recent conversation about entrepreneurial “ecosystems” and new collaborations hasn’t yet translated into a coherent narrative in the media — the old landscape of entrepreneur support was so piled-up, he says, that even the process of streamlining it was confusing.

But he says that Start Garden, now re-imagined, is working to ground that conversation through better reporting and a new focus on transparency — and the stakes involved in attracting and retaining talented entrepreneurs, he says, are very real.

“If you look at the number of jobs created by new and small businesses, this is not a nice to have,” he says. “This isn’t something where, ‘Oh, wouldn’t it be cool if this works out.’ This is imperative to us having economic health and vibrancy and diversity in West Michigan.”

“Making It In Grand Rapids” is a series about local entrepreneurs and the issues that matter in building a sustainable startup-friendly community. Support for this series is provided by Start Garden. You can reach the author on Twitter @steventkent or e-mail him at [email protected] for story tips and feedback.
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