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Will venture investment in the Midwest grow?

January 12, 2017

Investing in the Midwest is something that the more experienced you become, you realize how much investing is actually happening.

When you’re just getting started, funding feels non-existent. For those of you who feel that way, I’m going to tap Dr. Seuss for a quote:

It’s not about what it is, it’s about what it can become.

– The Once-ler

The Midwest could be poised to be a top VC firm location over five to 10 years even if it won’t be the leader. As more money, more customers and more talent land in the Midwest, growth seems almost inevitable.

Think about the technology you use on an everyday basis. PayPal had undeniable influences through Illinois, Pinterest in Iowa, Twitter & Medium from Omaha — all with roots right here.

Saying that those businesses could have been built in the Midwest would be silly. The idea that over the next five to 10 years, important businesses will be built, be easier to build and have more access to capital — making the likelihood of success higher — seems like an easy idea to get comfortable with.

If we compare VC activity in any individual city to the activity in the “Bay area”, all others appear insignificant. The Midwest’s size means it’s difficult to find the pools of capital. You can’t run into it on a single street. You have to know where to go.

It’s easy to see how much opportunity there is in the Midwest because of its size, though.

On the investment side, the money is available. Several large insurance firms, car manufacturers, grocery chains, manufacturing plants and educational facilities are located in the Midwest and are already dipping their collective toe into the VC field. As these VC funds produce more returns on investment, more groups will want to participate, and there is plenty of opportunity. In fact, the Greater St. Louis area saw almost 350 percent growth in VC in 2015.

There are customers in the Midwest.

Chris Olsen from Drive Capital
Chris Olsen from Drive Capital

Earlier this year, Chris Olsen (a former Silicon Valley partner, now turned Midwest VC at Drive Capital) wrote in Venturebeat on why the Midwest will surpass Silicon Valley in startups within the next five years. He notes that thanks to the internet, VC firms no longer need to be located near the technology centers, but rather near the customer. He discovered the Midwest is growing those customers by leaps and bounds. He notes “there are more entrepreneurs building billion-dollar companies in the Midwest today than in the past 50 years combined.”Inc.com published an article on the “10 Best Cities to Start a Business in 2016.” The top five cities listed were Midwestern cities. While it didn’t make this list, Chicago was also noted to have the “second highest number of startups on the 2015 Inc. 5000. The factors in coming to this determination were “local business environment,” “access to resources” (including VC), and cost (including business cost and cost of living). Additionally, another article called St. Louis the “New Startup Frontier” and touts the state’s own investment fund, the Missouri Technology Corporation, alongside newly formed private investment groups which have helped the state emerge as a regional leader in startup financing. If VC firms want to be near their customers (and have access to many future customers), they should be looking to the Midwest.

While software and technology still reign supreme in the VC world, biotechnology, medical, and the food and beverage industry are also gaining ground. The Midwest is the heart of the agricultural world and heavily involved in most things food and beverage. There is also a large medical presence in this area, from hospitals to research facilities to insurance giants.

There is talent here

The Midwest is often and wrongfully overlooked when it comes to top talent in technology and business. However, “over 20 percent of the nation’s top research universities” are in the Midwest. It receives 25 percent of the funding for research in the US and more time should be spent understanding exactly how many computer science graduates the Midwest is pumping out. As Mark White wrote for Silicon Prairie News, “20% of the founders backed by venture capital investments that attract 20% of the money invested by such firms” come from the Midwest.

One of the fallacies we tell ourselves is that it can’t be done here or that the opportunity isn’t here. Try telling that to Workiva.

Ben Milne is a co-founder of Clay & Milk and the founder of Dwolla, a technology company in Des Moines.
Will venture investment in the Midwest grow? | Clay & Milk
A central Iowa ag-tech accelerator has secured more backers and finally has a name. The Greater Des Moines Partnership first announced the accelerator last year, naming four initial investors. On Monday, the Partnership said the program will be called the "Iowa AgriTech Accelerator" and named three new investors. The new investors include Grinnell Mutual, Kent Corp. and Sukup Manufacturing, all Iowa companies. They join investors Deere & Co., Peoples Co., Farmers Mutual Hail Insurance Co. and DuPont Pioneer. Each investor has agreed to put up $100,000 for the first year of the accelerator. Startups entering the program will receive $40,000 in seed funding in exchange for 6 percent equity. Tej Dhawan, an angel investor and local startup mentor, is serving as interim director until the AgriTech Accelerator names a permanent leader. Dhawan held a similar role with the GIA before Brian Hemesath was named as managing director. As interim director, Dhawan said his main job includes hiring the accelerator's executive director, establishing a business structure and initial recruiting for the first cohort. The accelerator will place few filters, such as location and product, on the applicant pool, Dhawan said. "When you’re seeking innovation, innovation can come from every corner of the world so why restrict ourselves," he said. One area the the AgriTech Accelerator won't recruit from is biotech. For its first cohort, the AgriTech Accelerator will work out of the GIA's space in Des Moines' East Village, Dhawan said. A future, permanent home is still to be decided. The accelerator's program will host startups from mid-July through mid-October, ending with an event connected to the annual World Food Prize. The GIA, which the AgriTech Accelerator is based on, also ends with presentations at an industry event. The accelerator has also started lining up a mentor pool. The Iowa Corn Growers Association, Iowa Soybean Association and the Iowa Pork Producers Association have agreed to provide mentors, as has Iowa State University. While the AgriTech Accelerator is loosely based off of the GIA, it will differ in its business structure, Dhawan said. The GIA runs through a for-profit model for both operations and its investment fund. The AgriTech Accelerator will have a nonprofit model for its operations and a for-profit setup for its fund. Dhawan said the nonprofit model is being used so the accelerator can better work with other nonprofit partners, such as trade associations. "These are all organizations that are nonprofits and can be amazing stakeholders without ever having to be investors in the accelerator," he said. "It becomes easier to work with trade associations in their nonprofit role when we are also a nonprofit." When it's up and running, the AgriTech Accelerator would be one of a handful of ag-focused startup development programs in Iowa. Others include the Ag Startup Engine out of Iowa State University and the Rural Ventures Alliance from Iowa MicroLoan. Matthew Patane is the managing editor and co-founder of Clay & Milk. Send him an email at mpatane@clayandmilk.com.
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