Written By: Kelly Bryant
Nowadays, having the infamous ‘Midwest Charm’ isn’t the only trait people in the upper-middle part of the United States should be known for. While we will always stay proud of our humble, hard working culture, the Midwest has become quite the rapidly-growing tech economy. You read that right. Silicon Valley and New York have some new competition in the start-up world.
In fact, according to a study by PWC, the Midwest hosts roughly 10% of all US-based VC-backed startups, yet it receives less than 5% of all VC funding. Only 3 states – Massachusetts, California and New York – received 78% of all Venture Investments in 2019.
This disconnect should be viewed as a unique (not to mention sizable) opportunity for all parties.
Whether you’re an investor or a founder, your capital goes further in the Midwest. To understand why, you simply have to consider some basic economics. A lower need for capital (demand) plus lower access to capital (supply) equals more capital efficient businesses.
In the Midwest, the cost-of-living is lower and governments tend to be more supportive of start-ups which all contributes to a lower cost of doing business. With less access to capital, the concept of ‘bootstrapping’ is a much more common practice in the Midwest. A more sustainable, long-term mindset leads to venture-scale outcomes. Investor dollars will not be wasted on any “overly-optimistic” projections like a few companies we’ve seen out of Silicon Valley this year (cough cough WeWork).
For an investor, this means finding more profitable businesses, and ultimately, unicorns. In case I haven’t convinced you yet, the Kauffman Fellows Research Center compared ownership from a $1M equity investment in each region at their median ownership. They found a Midwest investor would own 2.4x as much as their counterpart Pacific/Northeast investor.
Don’t let the Midwest Charm fool you – an investment in the Midwest is a win-win for all stakeholders.