Detroit VC: Why Bankruptcy Is Great For Us

Josh Linkner, founder of Detroit Venture Partners, says filing for Chapter 9 is necessary for Detroit. And it's good for the start-up scene.

Detroit has seen better days. The city is saddled with $18 billion in debt and an unemployment rate of 16 percent. Yesterday, culminating in a months-long decision process, the city filed for Chapter 9 bankruptcy. 

So if you think the city's bankruptcy makes Detroit a bad place to start and run a business--you'd be forgiven. But you might not necessarily be right. 

At least, that's what Josh Linkner believes.

"I don't want to say this is a great day--because it will have a negative impact on human beings, and I want to be compassionate," says Linkner, the founder of Detroit Venture Partners, a $50 million venture capital firm that invests in early-stage start-ups in the city. "But from a business standpoint, this is a step forward."

Of course, Linkner has a horse in the race. (Or several horses, really.) But he makes some compelling points about the city and its future. I spoke with him this morning--here's a lightly-edited transcript of our conversation. 

You've been in Detroit your whole life. Your family has been here for a few generations. So let's just start here: What's Detroit's biggest problem?
One is a historical problem and one is a current problem. The historical problem has been a whole series of mismanagement and corruption and decay that's happened over the last 40 to 50 years. That's the root of the problem. Today we're cleaning that up. Our current biggest challenge is dealing with the messes that were created back then. 

You say filing for bankruptcy was the right decision. Why?
The word bankruptcy carries a lot of emotional strings for people. But this is a legal preceeding. It doesn't mean that our city is bankrupt. What this means is that we're cleaning off some of the burdens created decades ago. The city has $18 billion of debt, and revenue of $1 billion a year. That's just not sustainable. 

I think it's an economic decision, it's not signifying that our city is out. It's the opposite. It's showing that we're going to shed this dead weight and be productive. The biggest negative to me are the perceptions that go along with it. But the longer we wait to "take the medicine" here, the worse it's going to get. So fine, let's rip the Band-Aid off, take the heat, and be the punchline of the Late-Night jokes. But what's more important is the future. 

When Chrysler and GM filed for bankruptcy, people were saying "This is the end of the auto industry." And today no one talks about their bankruptcy. People just talk about how strong they are and how great they're doing. This is exactly what's going to happen in Detroit. 

What does this bankruptcy mean for the city's growing start-up scene?
Again, the city is open for business. We're making the tough decisions that are necessary to ensure a successful business climate for the future. If anything, it's kind of a relief for many people. I also believe there's going to be a lot of aid that comes in from the federal level, philanthropic level, and even the business community. They've been sitting on the sidelines waiting for this to happen. Everyone knew this had to happen, that we needed to do this. Now that this is happening, it's going to pave the way for positive things to come and more investment. So the net-net effect for tech entrepreneurs is a really good one. 

What about Detroit's human capital? 
There's been a significant increase in the number of software engineers. Detroit's becoming a better place to live, work, and play. In our central business district, occupancy is over 99 percent. New developers are racing to get new products online. People are moving into the city. 

How do you overcome the perception of bankruptcy as an "ending"?
A lot has to do with more accurately portraying what this is. When you think of the word "bankruptcy," it makes you think that things are over. That there's a death. But this is not a death. This is a new beginning. And in the same way that a person files for individual bankruptcy--it doesn't mean their life is ending. It means that they are letting go of unmanagable debt so they can live a better life in the future. That's what's happening here. It doesn't mean we're cutting police, turning off the lights, or stopping garbage collection. This is about dealing with an $18 billion sack of debt.  

By: Eric Markowitz

Source: Inc.