Illustration: Rebecca Zisser / Axios

ANN ARBOR, Mich. — On the outskirts of the University of Michigan campus, there's a sight that instantly shows how much the area has changed: A sensor-connected car steered by an Xbox controller roams the streets of what is known as "M-City" to test self-driving and other connected-car technologies.

Why it matters: Michigan is known for its auto industry expertise but experienced a steep decline a decade ago when Detroit — its biggest city — lost half its population as manufacturing jobs left in droves. Detroit is fighting its way back to build a burgeoning tech scene. Ann Arbor, only 40 minutes away, is taking a complementary path: It's harnessing the university's high-tech talent factory and the state's auto factory history to be at the forefront of next-generation vehicle development.

Self-driving car city: M-City is a public-private partnership funded by 70 members including major car manufacturers, chip makers, wireless and insurance companies. Every year, it receives about $1.2 million to research things like how humans will interact with self-driving cars and how cities will need to be designed for them.

"There's a lot of disruption happening in a very short time frame," said Greg McGuire, M-City Lab Director. "We're running living laboratories" to test capabilities and effects.

  • Ann Arbor is also wirelessly connected using vehicle-to-vehicle communications technology called DSRC so that intersections and vehicle can communicate with each other.
  • 2,000 privately owned vehicles are "driving" around Ann Arbor broadcasting messages back and forth 10 times a second.
  • McGuire said a few cars will be deployed on campus next month to research how students, bicycles and other cars interact with them.

The problem: There aren't enough investors tuned in to Michigan startups, and not enough Michigan-based investors in general. As more and more Silicon Valley companies move into the self-driving car market, Michigan has stiff competition for investment, talent and attention. A lot of the university's graduates are now realizing that if they don't take the opportunity to start companies to tackle components of self-driving cars, Tesla or another Bay Area startup will, said Emily Heintz, associate director of the Michigan Venture Capital Association.

By the numbers: 78% of the total capital invested in Michigan startups last year came from out-of-state investors, according to the association. More than half of the state's venture capital currently goes to Ann Arbor-based startups.

  • Currently, there are 141 venture-backed startup companies in Michigan, an increase of 48% over the last 5 years.
  • But an estimated $504 million of additional venture capital will be needed to adequately fund the growth of those companies over the next two years alone, per the MVCA.
  • Every $1 invested in a Michigan startup by a Michigan-based venture capital firm attracts $4.61 of investment from outside Michigan.

Another problem: Old-fashioned Midwestern humility, as Michigan Governor Rick Snyder puts it. Even though Michigan is one of the better-performing Midwestern states when it comes to startups, he says, people don't know about it. "We have to do a better job telling our story — no one else is going to tell it for us."

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