How more Michigan startups like Rivian are growing into rare unicorns

For the longest time in Michigan, the terms "startup" and "billion-dollar valuation" were seldom heard together.

Now, though, the idea that local startups might achieve that mythical "unicorn" status of a new company valued at $1 billion doesn't seem so far fetched.

Last year, when Ann Arbor-based Duo Security, a provider of digital security solutions, hit the billion-dollar valuation level, it was the first Michigan startup to do so in a decade.

But just this month, two more grew into or close to that rarified level. One, the electrical vehicle maker Rivian, drew a $700 million investment led by Amazon and seemed to be in line for another huge boost from General Motors, yet to be confirmed.

And virtually on the same day the Rivian news broke, we also heard that Rochester-based software developer OneStream achieved a billion-valuation with a big investment from the Wall Street giant KKR.

Before Duo Security reached unicorn status, the previous time a Michigan startup firm saw its market valuation hit $1 billion was in 2003, when Pfizer Inc., the world's biggest drugmaker, paid $1.3 billion for Ann Arbor-based Esperion Therapeutics, the creator of the cholesterol medicine Lipitor.

For those who follow the startup scene in Michigan, the news about Rivian and OneStream offered proof that the entrepreneurial ecosystem here, virtually unknown 20 years ago, was reaching new levels of maturity.

 "It's a world of difference now," said Adrian Fortino, managing director of the Ann Arbor office of the Mercury Fund, a $275-million venture capital fund. "We're all as bullish as we've ever been on the middle of the country and Michigan for sure."

Automotive roots of success

Granted, Rivian and OneStream took different paths to success. But there were plenty of similarities, too. For one thing, both grew out of the traditional automotive industry. 

Rivian, founded in 2009, is headquartered in Plymouth Township west of Detroit. It debuted two vehicles at the Los Angeles Auto Show last year — the all-electric R1T pickup and R1S SUV.

The vehicles, which are expected to go on sale in late 2020, can offer more than 400 miles on a single charge. They will be built at the company's manufacturing plant in Normal, Illinois.

And, at OneStream, the software company's founders began their careers in the automotive industry. Tom Shea, OneStream's CEO, started as an intern in Chrysler's finance department and spent years in corporate finance before becoming an entrepreneur.

For both companies, Fortino said, it was that combination of good products melded with business savvy that allowed them to grow.

"We always knew there was great engineering talent here. But what we didn't know is, do we have entrepreneurs here? And we do."

Shea of OneStream credits the automotive world with fostering the growth of his software company. OneStream creates software to handle the complex tasks of corporate finance with a single application, including accounting, reporting, and tax and compliance issues.

"The companies that have a need for us are complex global organizations," Shea said. "We were fortunate that right in our backyard you have some of the largest most complex organizations that ever existed. What's important is that you get an understanding of a problem at that level."

He added, "It feels to me like a natural fit, and I would expect more software companies to emerge from here because there is a talent pool. We have large companies not only to sell to but also to learn from."

More:Amazon to lead $700M investment in Rivian electric vehicle startup

More:Detroit's old banks have vanished but new services may be better

Growing the right way

The entrepreneurs who founded companies like Duo Security and OneStream also benefited from earlier experience with other startups. For Shea and his co-founders, OneStream was their second venture, having sold their first software company in 2006.

"Through that we learned a lot and we created a lot of connections" with auto suppliers like Meritor and Federal-Mogul, he said. "We built up a nice relationship and trust with some very large organizations that gave us credibility. Some of our early customers (at OneStream) were those same customers again. Michigan really gave us the foundation to build the business on."

It also helped that Michigan and the Midwest foster a certain, well, sanity in the way companies grow here. Unlike the over-heated atmosphere in the Silicon Valley area of California, where startups reach unicorn status quickly only to sometimes burn out, the founders of companies like Duo Security, Rivian and OneStream took a more deliberative approach.

Put simply, they get their product right and win credibility before getting the big investments.

"That's one of things I'm proud of," Shea said. "Being in this area, we were able to grow the business in that way. It's easy to get ahead of yourself. We've really focused on this controlled strategic growth."

To the future

The latest milestone delivers further proof that Michigan's entrepreneurial ecosystem —the network of startups, venture capital, angel investors, tech-savvy workers and business accelerators and talent portals like TechTown in Detroit and Ann Arbor SPARK — continues to grow.

As I've written before, while still small compared to Silicon Valley, the Boston area and other entrepreneurial hots pots, Michigan's entrepreneurial network remains the state's best bet to transition from the aging industrial economy of the 20th century to a new tech-oriented economy that will dominate the 21st century.

It's a model that values the old while seeking the new. And it seems to be working.

So don't be surprised if we hear "startups" linked with "billion" more often in the future.

Contact John Gallagher at313-222-5173 or gallagher@freepress.com.Follow him on Twitter@jgallagherfreep. Read more on business and sign up for our business newsletter.