Venture COWpital? Tech Investing Hits the Midwest

Business.com / Starting a Business / Last Modified: February 22, 2017

Tech investors are moving to other parts of the country, away from the expensive coasts. Should you do business in the Midwest?

What’s the latest hotbed of venture capital activity? Silicon Valley? Portland? San Francisco? Manhattan? Boston?

Try Ohio, or Michigan.

That’s right, the Rust Belt is making a comeback. "The Globe and Mail" reports that there are nearly 50 VC firms in Ohio, a five-fold increase over the last five years, and that Michigan startups attained $219 million in funding, two-thirds of which came out from out of state, an amazing 97 percent increase over the previous year.

And here’s just a few of the promising start-ups coming out of Ohio:

  • Beam Technologies, maker of a network-connected toothbrush, which moved from Louisville, Ken. to be closer to its VC backers in Columbus.
  • V.I.P. Waste Services, which contracts with luxury apartment complexes to pick up recyclables from every apartment owner’s door. 
  • CoverMyMeds, which makes automated pharmacy solutions.
  • MobileXpeditions, a digital studio that created location-based mobile apps.
  • PrintSyndicate, which transforms cultural trends into digital designs used on a variety of apparel, smartphone cases, posters and other objects.

What’s happening in America’s heartland that’s attracting start-ups and the necessary VC capital to launch them? Isn’t it still reeling from the decline of the Midwest American manufacturing base?

Chris Olsen, a general partner at Columbus, Ohio-based Drive Capital, points out that, “Silicon Valley is great. But everyone forgets that 40 years ago it was just apple fields and orchards. When we look around the Midwest, we see a lot of the raw ingredients for what could potentially be a great economic driver for tech, which over time will create great industries.”

midwestern

Related Article: Best and Worst Places to Start a Business in the U.S.

The Midwestern Tech Hub

It’s not exactly as if the Midwest is a big cornfield awaiting development. Tech companies such as Groupon and GrubHub are based in Chicago. Indianapolis hosts email marketer ExactTarget, which was bought by industry giant Salesforce.com in 2013. Michigan’s auto industry is not only rebounding, but is increasingly driven by high tech innovation.

Wells Fargo economic report notes that the Midwest economy continues to see modest gains fostered in part by good economic stewardship of local governments.State-established The Ohio Capital Fund, for example, has raised $150 million in private venture capital to invest in start-ups, half of which is dedicated to funding Ohio-based companies.

The Midwest is also home to a number of major universities, including Ohio State, Michigan University and Indiana University, as well as numerous, high-ranking smaller colleges. There’s a general trend of top graduates going to work at start-ups rather than big corporations. Start-ups located in areas more familiar and closer to home, not to mention with lower costs of living than on either coast, are all attractive components.

The best evidence of this is the revitalization of once depressed neighborhoods, such as Cincinnati’s Over-the-Rhine, which has become a trendy locale for affordable housing near new business locations.

Technology Quote

When a city becomes a facilitator for start-ups, it tends to fuel the growth of start-ups and spread to nearby areas. Technology itself makes the need to be near financial and corporate hotbeds on either coast less important than it once was. Meetings are just a Skype call away.

Related Article: Cultivating Entrepreneurship: How Startups Fuel Regional Economies

Could You Do Business in the Midwest?

If your business is growing and you’re looking to expand your physical presence, staff or customer base it could be worth checking out a Midwestern location. Here are a few factors to consider.

  • Is there a market for your products and services in the region? Midwestern VC firms are looking to invest in companies that contribute to local economic development. If you can’t make a case for that, you’re not likely to get funded.
  • What “perks” are states and local governments offering? Grants and tax breaks are frequently offered to attract high-tech start-ups, particularly in areas where newly established tech hubs are starting to take off. And local governments are often very aggressive in selling these incentives to companies they think provide the right fit. For example, The Wall Street Journal reports on how Proxy Biomedical Ltd., an Irish-based medical device maker, was lured away from Boston as a first choice for a U.S. office thanks to a competitive package that included grants, relocation assistance and funding put together by the state of Ohio, the city of Cleveland and the Cleveland Clinic.
  • Does the talent pool match your needs? Get in touch with local colleges and employment agencies to get a sense of both what skill sets are readily available and expected salary ranges.
  • Would you want to live there? The Midwest has a generally lower cost of living and a less hectic lifestyle than the high-tech hubs on the east or west coasts. If you’re going to have an office there, and certainly if you intend to move you and your family there, consider whether your personality is better suited to a differently paced zeitgeist.
  • What’s the survival rate of businesses similar to your company? As we’ve reported, when you look at a place to start a business, consider the five-year survival rate of start-ups. If there are many left standing after that period, that’s a good indicator that the economic conditions and market opportunities are sufficiently ample to keep your business growing.

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