It used to be that if you mentioned startup and Midwest in the same sentence, you’d be met with one of those long, sympathetic stares.
Whoever you were talking to would give you a pat on the back and a slow nod as they slowly inched away to exit the conversation. No doubt, they would grab their colleagues shoulder and whisper about how ridiculous it is that you could start a company anywhere but the Valley.
It was a dark time.
No one in the startup world took anyone seriously unless they were from San Francisco, New York, and maybe Los Angeles or Boston.
Nowadays, if you get that look and the nod, you know you’re probably just talking to someone who has an outdated view of the startup world.
The tides have shifted — and they’re continuing to shift. It’s no longer just about the money and the talent you can find in the Bay Area. The Midwest has entered the market in a big way and it’s here to stay.
Make no mistake: The Midwest will be home to the next round of innovation and prove to be a breeding ground for the new class of startups.
We’ve already seen it over the last half decade.
Some of the world’s biggest companies have been cultivated not on the coasts or in the valley, but in the heartland — the Silicon Prairie. And that trend is growing. We see an increasing number of startups either choosing to migrate, set up an office, or plant their roots in cities like Kansas City, Omaha, Des Moines, and Columbus.
This trend is not just anecdotal. There are many macro trends shaping the next wave of startups — and pushing them toward the heart of the country.
The Midwest Startup Boom
One of the reasons why the Midwest struggled to compete with SF and NYC during the early startup explosion is because most of the tech talent and founders were migrating out of the region. This meant that it was almost entirely necessary for companies looking for a shot at real growth to follow suit.
But this has changed — big time.
Crunchbase data shows that 1,000 startups were founded in major Midwest cities between 2015 and mid-2017. Even more impressive, there have been more than 2,400 funding rounds closed in that same time period.
Chris Olsen of Drive Capital predicted in 2016 that in 5 years (that’s by 2021) the Midwest would be home to more startups than Silicon Valley.
Last year marked a record year for startups in the Midwest, with 37 companies exiting (going public or being acquired) for a total valuation of more than $5.1 billion. And, as of 2017, the Midwest was home to at least 5 so-called “unicorns” — venture-backed companies worth more than $1 billion.
The numbers don’t lie.
Startups are a booming part of the modern economy all across the Midwest.
The two main ingredients for a startup explosion are talent and money.
You need both.
And the Midwest is not only attracting more talented people and great businesses, it’s also attracting huge amount of capital from investors looking to play a role in growing the next generation of startups.
Not only are seed funds, accelerators, and VCs cropping up in every city from Cincinnati to Omaha, but many of Bay Area investors and alumni are shifting their focus toward the heartland.
Investment from SV firms right now represents only a third of the capital raised, but the amount has doubled since 2012. The total capital raised in the region has also been growing — to nearly $4 billion in 2017.
Many notable founders and investors are taking notice.
Steve Case has built a brand around Midwest startups with is Rise of the Rest touring pitch competition and the $150MM Revolution Fund.
While funding may not quite be the Valley levels yet, there’s a clear upward trend.
And while the Midwest is experiencing a resurgence, San Francisco seems to be in the midst of an oncoming exodus. As of late, the city and its suburbs have been losing more residents than its gaining.
Even more telling, a study from Edelman found that 49% of San Francisco residents are considering moving away, including a whopping 58% of millennials that comprise the bulk of tech workers and startup founders.
Life Outside of the Valley
Although Silicon Valley remains the most popular home for U.S. startups, it’s increasingly clear that Palo Alto, et al have some major drawbacks when compared to other parts of the country.
One factor that is often cited but bears repeating is the cost of living in the Midwest compared to the coast.
Medium home prices in San Francisco are now clocking in above $1.1 million. Meanwhile, in Lincoln, NE, the cost is less than 20% of that — $158,000 on average.
Of course, those lower costs are reflected elsewhere in the economy.
From leasing office space to hiring top talent, startups in the Midwest can expect their capital to go much further, meaning longer runway or more investment in rapid growth. This is a huge benefit for both the startups and investors, which will give Midwest companies an advantage over their counterparts and competitors in other regions — especially as talent and capital become increasingly abundant.
Olsen put it rather bluntly in his article predicting the rise of the Midwest. “If you are an entrepreneur with a fledgling company in 2016,” he wrote, “you are an idiot if you don’t consider building it in the Midwest.”
But it’s not just about the power of the dollar.
Midwest cities represent a change of pace and culture for even Silicon Valley veterans. Many prominent investors have been visiting burgeoning tech hubs throughout the heartland, singing the praises of opportunity.
Right now, it seems that Middle America has its moment in the spotlight.
Our job is to harness that new-found success and work together to continue to build a successful startup ecosystem.
The Best of the Midwest at The IO Summit
The Inside/Outside Innovation Summit is a purpose-built conference that brings together innovators from communities all across the Midwest.
Startups, corporate firms, and investors will converge for two days to discuss collaboration, partnership, and how to continue to drive innovation forward and continue to capitalize on the great momentum that’s being built around the region.
- 500+ attendees
- Over 20 amazing keynote speakers and sessions focused on trends, best practices, skills, and insights for delivering innovation inside and outside the enterprise
- VIP, Opening, & Closing Networking Parties
- Curated matchmaking for startups, enterprises, and investors
- Startup Showcase highlighting over 40 Seed/Series A startups
- $120k Investment Pitch Competition + $25k LNK Launch Grant Competition
- 2+ Immersive days of innovation and inspiration
The conference takes place May 29–31 in Lincoln, NE.
For more information about innovation outside the Valley, check out Brian Ardinger’s interview with Peter Gardner of StartGrid at https://insideoutside.io/podcast/ep-111-peter-gardner-with-startgrid-on-innovation-ecosystems/