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.
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.