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Venture Capitalists Target Untapped Markets in the “MidBest”

Venture capitalists and entrepreneurs have recently started to make an unexpected move east from Silicon Valley to put down roots in an unlikely location: the Midwest.1 Historically, the majority of serious entrepreneurs from around the country have flocked to Silicon Valley and New York in search of easily accessible and trendy tech industry jobs.2 The Midwest is not traditionally regarded as a technology hub of the United States3, and it is no new fact that the Great Lakes states were hit particularly hard by economic hardship in the recent past.4 This has created complex challenges for Midwesterners, who have struggled to replace manufacturing jobs with new growth industries and foster a new competitive business culture in the oft-ignored Midwest market.5 As a result of these challenges, in recent years, talent created and nurtured in Midwest cities has left for larger markets with better business reputations.6 However, new research reveals increasing opportunity and business prosperity in the Midwest that has drawn many venture capitalists and entrepreneurs back to their hometowns7 in an effort to revamp the Midwestern startup market.8

Despite the recent influx of promising talent and interest in the Midwest market, the Midwest start up community is coping with unique challenges.9 As an emerging market, entrepreneurs based in the Midwest region are physically remote from the vast majority of potential investors located on either coast, making the task of creating connections and securing funding increasingly difficult.10 In comparison, easily accessible, local investors are generally more hesitant about investing in the types of start-ups that the Midwest is producing—small tech companies with little to no track record.11

In addition to the hurdle of reaching committed investors, these same start-ups also find it difficult to reach tech specialists and qualified employees in some of the Midwestern markets.12 Homegrown talent from cities like Columbus or Detroit is often shipped out to bigger markets in pursuit of job certainty and company prestige, a phenomenon referred to as the “brain-drain.”13 Thus, the local pool of tech specialists and talented persons to build websites is significantly smaller in the Midwest than other larger cities.14 Similarly, while the Midwestern talent is being drained from the Great Lakes states, start-ups are finding it difficult to recruit talented hires from the coasts.15 Few entrepreneurs are interested in taking the significantly more risky path of joining an emerging Midwestern start-up rather than working for a Fortune 500 company or equally secure venture capital fund in Silicon Valley.16

Notwithstanding the difficulties associated with Midwestern entrepreneurship, recent years have certainly marked movement in the right direction for the emerging Midwestern start-up community. There are many advantages of making the Midwest home to your start-up. First, despite the smaller talent pool in Midwestern cities, young entrepreneurs located there are just as adept as those you will find in Silicon Valley, but at significantly lower rates.17 Another advantage is the cost of living, which is substantially lower than in either of the popular coastal markets.18 Another relatively obvious attraction is the low cost of moving and setting up shop in the Midwest as compared to bigger cities.19 Real estate is cheaper in the Midwest, as is the market salary for potential hires.20 So, while a California location might make it easier for many entrepreneurs to get their hands on money from local venture capitalists, the significantly higher costs in these cities make it much harder to hang on to.

More obscure advantages of working in the Midwest have also drawn Venture Capital funds and start-ups there in recent years. For starters, the Midwest is marked by its “domain knowledge in major industries outside of technology”21 The Midwest business market is markedly more versatile than Silicon Valley, and this breadth of expertise makes the market attractive to non-technology oriented entrepreneurs.22 The entrepreneurial market also offers fewer distractions and makes it easier for start-ups to focus on their business.23 There is much less “hype” surrounding the start-up market because it is a smaller, and, as a result, fewer hipsters simply dabbling as innovators.24 Additionally, companies in the Midwest enjoy more visibility than they would in larger markets—a serious perk when you are in the early stages of a company, trying to figure out where your idea will take you.25

While the referenced advantages have all sparked additional interest in the Midwest market, seed funding is still far more common than subsequent rounds of funding for Midwest ventures.26 This shortfall is being slowly reconciled as resources are being placed into the start-up scene27, and the Midwest market will likely reach lifecycle maturity in the near future.28 Targeting local universities like the University of Michigan and highlighting the lifestyle benefits of working in Midwest cities will continue to make the market more attractive to up and coming entrepreneurs.29


  1. Matt Lautz, Why the Midwest is better for startups than saturated Silicon Valley, VentureBeat (Oct. 23, 2013, 2:30 AM), http://venturebeat.com/2013/10/23/midwest-brain-drain-goodbye/

  2. Id

  3. Id

  4. Frank E. Samuel, A Venture Capital Strategy for the Great Lakes, The Chicago Council on Global Affairs (Mar. 2010), available at http://www.thechicagocouncil.org/UserFiles/File/PolicyBrief_VentureCapitalFS.pdf

  5. Id

  6. Lautz, supra note 1. 

  7. Id

  8. Samuel, supra note 4. 

  9. Laura Schreier, Far From San Francisco and New York, Silicon Prairie Emerges, CNBC (Feb. 5, 2013, 9:45 AM), http://www.cnbc.com/id/100427478

  10. Id. 

  11. Id

  12. Lautz, supra note 1. 

  13. Id

  14. Schreier, supra note 9. 

  15. Id

  16. Id

  17. Ashley Woods, Why This Startup Chose The Midwest Over Silicon Valley, Huffington Post (Jan. 3, 2014, 4:01 PM), http://www.huffingtonpost.com/2014/01/03/wisely-midwest-app_n_4473715.html

  18. William Alden, Venture Capital Firm Focused on the Midwest Raises a $250 Million Fund, N.Y. Times Dealbook (Feb. 4, 2014), http://dealbook.nytimes.com/2014/02/04/venture-capital-firm-focused-on-the-midwest-raises-a-250-million-fund/

  19. Schreier, supra note 9. 

  20. Id

  21. Alden, supra note 18. 

  22. Schreier, supra note 9. 

  23. Id

  24. Id

  25. Alden, supra note 18. 

  26. Id

  27. Id

  28. Lautz, supra note 1. 

  29. Id

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