How the Internet of Things Could Boost Michigan’s Economy

Jay Adelson was born in Detroit, grew up in Southfield, attended Cranbrook High School, attended Boston University, became a serial internet entrepreneur, CEO of Digg and, at 37, was on Time magazine’s list of the 100 most influential people in the world.

Adelson, now 44, was back in Detroit last week, exploring the local tech scene as the co-founder of a year-long venture capital fund called Center Electric, focused on the Internet of Things. .

He and his partner Andy Smith are now raising $70 million to $100 million to invest in start-ups — and Adelson told me they plan to roll out more than half of that in Michigan.

The duo were here last week in Michigan for an “immersion day” event, hosted by Ann Arbor-based Renaissance Venture Capital Fund to help attract more investment to Michigan. Renaissance, which was created by Michigan business leaders, has raised more than $120 million since 2008 to invest in national venture capital funds.

As part of their visit, Adelson and Smith met with Whirlpool and Roush Industries. They also met with start-up accelerator Techstars Mobility in Detroit and technology transfer managers at the University of Michigan.

So what exactly, I asked, is the “Internet of Things?” Why is this a big problem?

And why do Adelson and Smith, two stars of Silicon Valley, think it could soon become a major engine of economic growth in Michigan?

Center Electric co-founder Jay Adelson (right), a Detroit native, San Francisco-based entrepreneur and venture capitalist, and Center Electric general partner Andy Smith.

Smith, a former executive at several tech companies and co-author of the 2010 book “The Dragonfly Effect: Quick, Effective, and Powerful Ways to Use Social Media to Drive Social Change,” described the IoT as the third wave of the revolution. Internet. The first was based on the personal computer and the second on mobile devices with screens, such as phones and iPads.

This third wave – which will connect more than 50 billion devices over the next five years, from cars to washing machines and industrial robots – will not only depend on screens, gadgets and software applications. But it will also require a massive buildup of hard infrastructure to support a world in which internet connectivity is a basic expectation, like electricity or water.

“When you talk about improving the internet to handle 50 billion devices, you have to focus on the very long term. by today’s market,” Adelson said. “You talk about a need to build billion-dollar independent businesses. The employee base that you need for that has to be an employee base that understands that you have a long-term relationship with a company.

“And frankly, you get that here from the people of Michigan in an unparalleled way. Part of it is car culture… What could be much more complicated than building a car in terms of integrating systems, data, everything,” he said. “There’s a huge amount of skill here that you can’t find anywhere else in the country.”

Chris Rizik, CEO of fund-of-funds Renaissance, said once VCs get here and see all “the activity that’s going on here and all the academic research, they’ll realize that this is a place with ‘advanced technology where they can successfully invest’.

A retro name

Adelson and Smith lived and spent their careers primarily in California, but Adelson explained that the name of their venture capital fund corresponds to a company on the Detroit-Southfield border that his great-grandfather founded in the 1940s. , to sell electrical supplies to building contractors.

Center Electric Co. in Eight Mile and Greenfield finally failed in 1993, a victim of the savings and loans crisis that rocked the construction industry.

“They lost the business, they lost their house, my family lost everything,” said Adelson, who had left Michigan for college a few years earlier.

“But here’s the big story,” he added. “Because of the way my dad dealt with customers and suppliers from a credit perspective – it was such a good relationship – there was a great outpouring of support that carried my family through this time. difficult.”

Her parents moved in with other family members for a while, her father got a job with another electricity supplier, and her mother was later hired by a property developer who was a long-time customer.

“The lesson we’ve learned is that you don’t have to sacrifice a moral compass in business,” he said. “I will never forget that.”

Adelson is aware of this lesson as he and Smith – with their VC approach – try to foster a more humane and sustainable corporate culture than what they have seen evolve in the West.

“What’s happened in Silicon Valley is we’ve fostered a culture where your talent is mercenary,” he said. Entrepreneurs and engineers can work at one location for 12 months, have their stock options vested, and move on to the next company.

“Corporate culture and the pressure for short-term returns kind of fostered that,” he said. People talk a lot about this issue in Silicon Valley, Adelson said, “but I felt like in order to have an impact on it, you had to stop blogging about it – and instead start a risky business and behave differently.”

“Collective Amnesia”

Visitors to previous Immersion Days have included Boston-based Atlas Venture, a major life science investor, as well as IT-focused companies Pelion Ventures of Utah and Edison Ventures of New Jersey. All have since gone back and forth to explore possible deals, Rizik said.

Adelson, while not yet committing to investing in specific Michigan companies or setting up an office, seems quite enthusiastic about the likelihood.

“People forget that the Internet started here,” he said. “It’s like we have a collective amnesia as to where this all happened. If it weren’t for Merit Network and the University of Michigan, the internet would never have been commercialized in the first place.

“I feel like the connected car definitely comes from Detroit; it’s not something that’s just going to come out of Silicon Valley,” he said, although there are things to learn from the IT world about iterating product cycles faster.

It will be interesting to watch what Center Electric does in Michigan, as it looks like the two partners will definitely be back. “We’re not afraid to jump on a plane,” Smith said. And Adelson said his now-retired parents, along with a sister and cousins, are still in Metro Detroit, so he has intrinsic reasons to visit.

“Our philosophy,” he added, “is that we’re not going to invest in a business if we can’t influence the outcome in some way, if we can’t even reduce risk. It’s not like we have superpowers, but if our experiences don’t offer value, then we probably shouldn’t invest there.

Venture capitalists take a deep dive into Michigan with ‘immersion days’

What are immersion days? Regional business groups will host national venture capitalists to take a close look at emerging entrepreneurial activity. In Michigan, they were started by Renaissance Venture Capital Fund of Funds and in the Cincinnati area by Bender in 2012. Last week’s visit to Michigan by Power plant was co-organized by Renaissance, with the Michigan Venture Capital Association.

■ Reminders? Renaissance and Cintrifuse say domestic companies have returned for follow-up visits for investment opportunities. Renaissance, based on private dollars without the bureaucratic shackles of government-funded programs, was a model for Cintrifuse. But Renaissance director Chris Rizik said Cintrifuse started Immersion Days and Renaissance copied it.