You keep mentioning exits - are you talking about being close to a network of partners that will BUY your portfolio companies, or being close to companies that can exit / go public / etc? A large number of exits have occurred in the Midwest over the past few years. Payments, Enterprise Software, Aerospace, finance, etc. What concern is there about a shortage of exits or exit source? It sounds like I'm missing a very valid concern.
Note: I also disagree with people lumping the entire Midwest together as a thing. Chicago != Milwaukee != Cleveland != Minneapolis != Detroit, but neither does SF = LA, so not sure how best to aggregate.
I've only recently started investigating Chicago as a place to startup anything, but I'm not looking in the sectors where you are looking. I don't have any frustrations to vent; I like the midwest.
I like to believe the midwest is actually a better place to do a startup than NYC or SF primarily because the cost to bootstrap is much lower here. What about just building your prototype in the midwest and taking it to the coast for funding? I don't feel like capital is really confined to specific regions anymore, and Chicago is only a 3-hour flight from NYC.
Speaking as a Midwest startup, while this is good, it lumps us in with the Silicon Valley hive mind to some extent. It would be really helpful to have a Midwest oriented AngelList.
Being headquartered in San Francisco, CA is "negatively correlated" (standard deviation when pooled with all cities: -0.5261) with having a successful exit.
Best cities/towns/etc (most correlated with experiencing an exit, rather than failing/floundering (shut down, or founded before 2004 + no exit/acquisition/IPO)) to create a startup:
stddev Exits Total City
8.4678 143 207 Mountain View, CA USA
6.4855 130 356 London, H9 GBR
5.7360 15 25 Berlin, 16 DEU
4.5423 23 56 Tokyo, 40 JPN
4.5105 17 32 Richardson, TX USA
4.3559 56 159 Paris, A8 FRA
4.2118 44 99 Vancouver, BC CAN
4.1381 28 62 Montreal, QC CAN
4.0152 60 99 Waltham, MA USA
3.9462 57 138 Atlanta, GA USA
3.9414 14 21 Arlington, VA USA
3.8747 15 20 Foster City, CA USA
3.8528 14 41 Copenhagen, 17 DNK
3.7484 32 42 South San Francisco, CA USA
3.7131 14 31 Baltimore, MD USA
3.6728 39 79 Fremont, CA USA
3.4364 9 17 Irving, TX USA
3.3919 8 11 Chelmsford, MA USA
3.3833 5 7 Surry Hills, 2 AUS
3.3637 19 59 Bangalore, 19 IND
3.3335 11 24 Hamburg, 4 DEU
3.2568 19 36 Morrisville, NC USA
3.2101 10 29 Seoul, 11 KOR
3.1476 17 32 Bethesda, MD USA
3.1191 17 42 Cambridge, C3 GBR
2.9591 7 18 Zurich, 25 CHE
2.9566 7 7 Chapel Hill, NC USA
2.8746 11 32 St Louis, MO USA
2.8625 39 83 Boulder, CO USA
2.8225 35 69 Portland, OR USA
2.8000 45 128 Beijing, 22 CHN
2.7117 15 23 Aliso Viejo, CA USA
2.6170 13 19 Los Gatos, CA USA
2.4679 12 30 Helsinki, 13 FIN
2.4569 4 12 Istanbul, 34 TUR
2.4385 22 49 Minneapolis, MN USA
2.3187 21 72 Dublin, 7 IRL
2.3046 5 6 Burlington, ON CAN
2.2251 4 6 Kennesaw, GA USA
2.1569 8 12 Sterling, VA USA
2.1564 111 206 San Jose, CA USA
2.0461 37 58 Cupertino, CA USA
2.0432 20 36 Pasadena, CA USA
2.0180 7 8 Itasca, IL USA
1.9883 23 51 Ottawa, ON CAN
1.9772 5 6 Oak Brook, IL USA
1.9468 7 8 Westford, MA USA
1.9386 3 3 Gent, 8 BEL
1.9285 4 7 Delft, 11 NLD
1.9251 9 16 Beverly Hills, CA USA
1.8902 8 18 Oslo, 12 NOR
1.8785 4 7 Costa Mesa, CA USA
1.8746 13 37 Tampa, FL USA
1.8346 9 21 Jacksonville, FL USA
1.8340 13 18 San Bruno, CA USA
1.8246 7 10 Venice, CA USA
1.8117 16 50 Stockholm, 26 SWE
1.8010 8 15 Wilmington, DE USA
1.7720 7 19 Burnaby, BC CAN
1.7050 5 7 Kitchener, ON CAN
1.6856 6 16 Gurgaon, 10 IND
1.6729 398 807 New York, NY USA
1.6474 3 3 Fuzhou Shi, 3 CHN
1.6362 15 41 Madrid, 29 ESP
1.6145 2 5 Utrecht, 9 NLD
1.6135 5 11 Minnetonka, MN USA
1.5937 21 35 Milpitas, CA USA
1.5785 14 28 Mclean, VA USA
1.5671 6 11 Orem, UT USA
1.5587 3 8 Prague, 52 CZE
1.5505 3 3 Lake Forest, IL USA
1.5461 9 12 Alameda, CA USA
1.5459 4 14 Rio De Janeiro, 21 BRA
1.5402 9 14 El Segundo, CA USA
1.5240 8 17 West Hollywood, CA USA
1.5223 4 5 Doylestown, PA USA
1.5127 9 38 Sao Paulo, 2 BRA
1.4928 4 6 Arlington Heights, IL USA
1.4881 15 27 Marlborough, MA USA
1.4800 4 10 Stuttgart, 1 DEU
1.4516 7 11 Kfar Saba, 2 ISR
1.4352 5 13 Dubai, 3 ARE
1.4241 2 3 Blackrock, 7 IRL
1.4220 3 5 Roncade, 20 ITA
1.4157 3 8 Espoo, 13 FIN
1.3833 7 24 Vienna, 9 AUT
1.3667 5 6 Solana Beach, CA USA
1.3442 7 14 Mississauga, ON CAN
1.3139 7 10 Belmont, CA USA
1.3073 13 29 San Antonio, TX USA
1.2982 6 14 Buffalo, NY USA
1.2742 4 5 Ames, IA USA
1.2476 5 11 Abingdon, K2 GBR
1.2381 19 50 Washington, DC USA
1.2296 102 171 Cambridge, MA USA
1.2282 7 13 Westminster, CO USA
1.2127 5 12 Annapolis, MD USA
1.2056 2 2 Odense, 21 DNK
1.1670 2 2 West Des Moines, IA USA
1.1492 2 2 Notting Hill, 7 AUS
1.1480 3 7 Schaumburg, IL USA
1.1403 13 35 Plano, TX USA
1.1257 3 3 Sunrise, FL USA
1.1201 13 31 Ann Arbor, MI USA
1.0986 4 9 Halifax, NS CAN
1.0967 2 3 San Marcos, TX USA
1.0963 2 2 Mi Wuk Village, CA USA
1.0841 4 7 Newtown, PA USA
1.0752 3 4 Zug, 24 CHE
1.0658 37 74 Tel Aviv, 5 ISR
1.0643 10 34 Shenzhen, 30 CHN
1.0558 5 10 Munchen, 2 DEU
1.0379 5 5 Branford, CT USA
1.0283 3 3 Fredericton, NS CAN
1.0099 2 3 Pune, 16 IND
1.0033 4 8 Charleston, SC USA
Worst:
-9.2963 55 178 Los Angeles, CA USA
-5.8472 13 135 Moscow, 48 RUS
-4.2334 2 16 Quebec, QC CAN
-4.1071 9 24 Berkeley, CA USA
-3.9312 4 15 Lucerne Valley, CA USA
-3.7260 63 124 Redwood City, CA USA
-3.5625 2 10 Netanya, 2 ISR
-3.3962 8 20 Newton, MA USA
-3.3100 10 20 Princeton, NJ USA
-3.2994 9 21 La Jolla, CA USA
-2.8129 6 13 Petaluma, CA USA
-2.5981 12 42 Raleigh, NC USA
-2.3986 14 41 Brooklyn, NY USA
-2.3916 4 10 Addison, TX USA
-2.3777 59 155 Toronto, ON CAN
-2.3297 2 6 Allentown, PA USA
-2.2695 2 9 Edison, NJ USA
-2.1975 1 5 Champaign, IL USA
-2.1557 114 240 Austin, TX USA
-2.0160 0 7 Livermore, CA USA
-2.0154 127 244 Palo Alto, CA USA
-1.9803 1 5 Blacksburg, VA USA
-1.9321 4 20 Melbourne, 7 AUS
-1.9214 13 34 Charlotte, NC USA
-1.8469 0 4 City Of Industry, CA USA
-1.8068 5 19 Rochester, NY USA
-1.7758 1 4 Lod, 2 ISR
-1.7431 0 3 Eatontown, NJ USA
-1.7269 4 12 Wilmington, MA USA
-1.7250 0 5 Owings Mills, MD USA
-1.6628 5 13 New Haven, CT USA
-1.6467 1 5 Golden, CO USA
-1.6458 2 16 Memphis, TN USA
-1.6433 0 5 Cedar Park, TX USA
-1.6354 3 15 Santa Ana, CA USA
-1.6351 9 17 Gaithersburg, MD USA
-1.6102 35 99 Houston, TX USA
-1.6033 0 3 Superior, WI USA
-1.5757 0 10 Saint Petersburg, 66 RUS
-1.5656 0 4 Tacoma, WA USA
-1.5626 8 25 Orlando, FL USA
-1.5451 0 9 Little Rock, AR USA
-1.5421 1 7 Galway, 10 IRL
-1.5226 9 41 Cleveland, OH USA
-1.5176 1 6 Liverpool, H8 GBR
-1.5007 5 30 Columbus, OH USA
-1.4983 19 48 Philadelphia, PA USA
-1.4838 0 4 Toledo, OH USA
-1.4825 0 6 Newark, NJ USA
-1.4783 26 83 Pittsburgh, PA USA
-1.4602 15 35 Oakland, CA USA
-1.4537 0 6 Sausalito, CA USA
-1.4369 1 8 Kista, 26 SWE
-1.4364 0 5 New Orleans, LA USA
-1.3845 6 20 Newport Beach, CA USA
-1.3755 1 8 Manchester, I2 GBR
-1.3457 29 84 Dallas, TX USA
-1.3180 0 8 Centennial, CO USA
-1.2865 3 13 Charlottesville, VA USA
-1.2839 0 5 Morgan Hill, CA USA
-1.2704 1 4 Lawrenceville, GA USA
-1.2478 1 6 Burbank, CA USA
-1.2446 0 8 Tallinn, 1 EST
-1.2440 87 157 San Mateo, CA USA
-1.2188 4 13 Plymouth, MN USA
-1.1966 0 3 Laguna Beach, CA USA
-1.1938 26 64 Salt Lake City, UT USA
-1.1711 0 9 Jakarta, 4 IDN
-1.1672 43 106 Irvine, CA USA
-1.1634 1 5 Guangdong, 5 CHN
-1.1536 0 2 Orsay, A8 FRA
-1.1421 0 2 Cherry Hill, NJ USA
-1.1222 4 13 Longmont, CO USA
-1.1221 0 3 Columbia, SC USA
-1.1055 0 4 Laval, QC CAN
-1.0837 0 2 Mountain, WI USA
-1.0790 0 3 Gilbert, AZ USA
-1.0743 4 7 Boxborough, MA USA
-1.0369 0 2 Pittsburg, CA USA
-1.0302 0 4 Napa, CA USA
-1.0275 2 7 Clearwater, FL USA
-1.0176 9 30 Indianapolis, IN USA
-1.0122 0 9 Porto Alegre, 23 BRA
I understand the feelings toward the midwest, but you also made a reference that its not like the "coast" do you think there are other areas that are well suited for startups, such as boston, NYC, or Atlanta?
I'm saying that 9/10 startups in Chicago could move 70 miles north to Milwaukee, pay less in taxes, offer their employees a shorter commute and a more favorable housing market, and position themselves in the "internship sphere" of three Big 10 universities instead of two, but they don't. The reasons for that trace back to the basic fact that there are fewer people in Milwaukee, fewer people who have been there, and thus, fewer people willing to move there sight unseen. Not to mention the perception of status that comes with the California tech valleys. I use Milwaukee as an example, but the same logic applies to Detroit and Minneapolis, among others.
I think pinning this on a "Midwest mentality" is really missing what is probably the biggest reason. _There is no tech industry in the Midwest_ If your starup fails there isn't another cool startup down the street you can work at instead (a la SF, NY, Boston, etc...) Startups here (I'm in Kansas) are real small businesses that either make money and allow you stay or fail and force to you move. You simply can't wait two years to figure out your business model or hope for a buy-out. It's just that simple.
I’m in a weird situation in that I started my education and career on the West Coast, but ended up on the Midwest a decade later for personal reasons. I do have to say that the business culture differences are astounding. Obviously I’m generalizing, but Midwest business culture is incredibly risk averse and VC money tends to flow to niche high research fields that the investor either came from or understands really well (e.g. Biotech). I’ve started to see some small changes with some funds looking to invest in “general” startups, but the capital is astonishingly weak.
Honestly though, I’ve come to appreciate it (even though it can drive me batty - Midwest “nice” is a real thing and can be a severe hindrance to effective communication), as I think it forces a level of creativity and resiliency on me that I didn’t need in the West Coast. Finally the tech community out here is so small that people really genuinely seem to look out for one another and be genuinely interested in what other people are doing as you never know where the next job is going to come from.
There are a lot of causes for this. But one of the easiest to fix: VCs don't like getting on planes.
I've lived here since Bubble 1.0, but I still keep in touch with people in the midwest. There are plenty of startup-oriented people there, but in their view to get real investment, they have to move to SF.
It'd be great to see more companies starting and growing in places where housing and office spaced is reasonably priced. The Internet has made location much less important for so many things; we should make that true for startups as well.
As a Boston resident, but former midwesterner, I wish the story was "Midwest competitive with East and West Coast for venture totals". I think it's a real problem that venture capital is highly concentrated in just a few places.
Scroll to the bottom and you'll get links to the other cities, outside of Silicon Valley, you should start a company in. A lot of potential in the Midwest; Chicago has already been covered and I expect a spotlight on Detroit in the future - opportunities to do business with a reshaped auto industry, wealth of IT people, access to VCs and incubators, easy access to Canada, etc.
I don't think that is the authors point. I think the point is that the _majority_ of startups you see on the coasts wouldn't _likely_ succeed or originate in places like Chicago, Omaha, Kansas City, Minneapolis because people are less open to risks of that nature. There are new businesses / startups in the Midwest but the majority worry about the business plan from the outset, rather than later. I didn't read the article as negative on the Midwest, rather, showing the differences in the areas.
The investors are in SF/NY because they can make more money there.
I agree that it's probably a network effect rather than anything fundamental about SF/NY. But really, so what? Yes, if all the startups were in Cleveland then it would be smart to go to Cleveland. But they're not.
Do you have tips on how to keep an eye on the Michigan startup ecosystem? I live in CA now, but would love to be better aware of what's going on in my home state.
One of the things that always struck me here is the number of midwesterners I'd come across. It has long been my suspicion that Midwestern culture is better suited to creating companies that are highly collaborative and focused on value delivery. A great example to me is Atomic Object, mentioned in the article. They've been doing well for decades, and the couple times I've visited it seemed like such a sane place to work.
I think people fixate too much on the supposed perks of SFBA and NYC. I concede that there is a kind of company best delivered from one of those two places; if your company is in any way premised on riding some kind of tech industry zeitgeist, it helps to be in the middle of the tech industry. But for the rest of companies, I can think of a bunch of reasons why you'd be better off elsewhere.
So to make that concrete, an unscientific comparison of Chicago (where I am) to SFBA (where I worked for ~4 years):
* Talent is cheaper in Chicago by high-single-digit percentage points
* Talent is more abundantly available in Chicago. There are (obviously) fewer overall candidates, but the competition for them is much lower.
* If you're in a specialized field (as we are), it's even better: the SFBA talent competition seems most intense for high-premium specialists, and markets like Chicago have disproportionately fewer opportunities for those specialists.
* Housing is significantly cheaper and thus dollar-for-dollar better and more convenient than SFBA.
* Public transportion as vastly superior in Chicago than in SFBA, which increases both the effective availability of housing (more neighborhoods are easily commutable) but also overall quality of life (if you want a tree-lined street with kids, you got it; if you want a 1 block walk to your favorite bar, you also probably got it).
* Much less "networking" in Chicago than in SFBA. I've met a lot of Chicago startup "luminaries" for various reasons, but can't think of any event where I could do so reliably, unlike SF.
* The startup population is growing in proportion with the nationwide startup population. This is in contrast to NYC, which is growing disproportionately fast. Our big names are Groupon, 37s, Grubhub. We've got a small number of local YC companies.
* I'm a bad person to ask about the funding market but it seems anemic compared to SFBA or NYC or even Seattle. This is a better place to bootstrap.
* I also think it's an easier place to bootstrap, because Chicago has a large number of businesses, and more diversity in business size (from a large population of approachable stable small businesses to a large population of major enterprises) and vertical (trading, banking, pharma, law, insurance, food, hospitality). I think this is a stark contrast to SFBA which, if you're not freemiuming to the whole Internet as your strategy, has an "ice cubes to Inuits" vibe to it.
* Way more available office space, both in the Loop (downtown) and on the north and near-west side (if you want to be SOMA-trendy about your company).
Based in Colorado. Just wondering if you could expand on this.
Seems like what you are saying is no startups in Montana ever get exits - personally I think that's because startups seeking an exit end of moving to The Bay Area because of all the factors being mentioned here.
You're right, I was referring more to the startup culture in those areas. Unfortunately, all the examples I named are the large markets, but I would also include Portland, and some parts of Texas maybe? I've heard Las Vegas is trying to turn itself into a hub as well. If you know any cool places near Ann Arbor, MI, let me know! Olark and some other security startup is based in this really cool building, and we have a few events as well monthly.
Minneapolis is a bit like that, too. I think the real interesting angle here is the enterprise. We are to Fortune 500 as Silicon Valley is to startups - there are more Fortune 500 HQs per capita here than anywhere else in the world, including the Bay area, NYC, London, and Tokyo.
It's still a fledgling movement, but I think we will see more and more startups here emerging from the corporate giants, developing new tools to meet their needs.
The midwest isn't in any regard lacking entrepreneural mass. The parent is taking liberties with the premise. There are as many entrepeneurs per capita in Ohio and Illinois as there are in California (defined by new business formation and new employer business formation).
The problem is what you'd expect in fact: network effects, hyper concentrated talent pools, extraordinary expertise, very large amounts of capital tilted toward higher risk / higher return pursuits.
If you're in Kansas and have the next big tech idea...
- If it requires significant venture capital, you're not going to be able to locate that capital in Kansas. The capital available in Kansas, isn't interested (it's only interested in hindsight; Silicon Valley capital is actually often interested a decade or two before an idea / business concept is ready to boom, which produces a constant cycle of being early with things, which finally only work years later). If you're in Kansas and need to raise $100m or $300 million over six years to build the next great fast growing technology business, you will not be able to find that scale of VC there, period. I can't emphasize that enough, there is no scenario under which you will ever raise that capital in Kansas - it did something like $13m in total traditional VC deals in 2016.
- If it requires the most talented engineers (and lots of them) to scale big + fast (ie the engineers that are among the best in the world at that thing), you're not going to find that talent in Kansas. The hyper concetrated talent pools available in California, give you that critical mass for almost any given technology focus. You see similar effects for eg biotech in the greater Boston area (which gives that area vast advantages for the next great biotech start-up as opposed to somewhere in Ohio).
- If you need exceptionally talented managers, with experience at building large, fast growing, cutting-edge technology companies. You're not going to find very many of them in Kansas. There's an immense experience advantage in Silicon Valley, generations of it has built-up in fact. These people make a critical difference during any kind of meaningful ramp growth phase.
- If you need the world's best venture capitalists, to help steer your new tech company through all the typical dangers for such a company, you're not going to find them in Kansas. The best VCs can help you recruit in a huge way, for both executives and engineers; they can steer you through all sorts of problems in fund raising and public relations; they can push through political obstacles with their connections and wealth (ie pick up the phone and get someone politically powerful in Washington DC on the other end of the line). A VC in Kansas has no ability to do most of those things.
The list just keeps going.
In short: the risk capital isn't there, the hyper concentrated large talent pools for a given expertise are not there, the management experience is not there, the venture capitalists are not there. There are plenty of entrepreneurs to go around, and if they want to create the next great tech company they usually have to leave for all the previously listed reasons.
Note: I also disagree with people lumping the entire Midwest together as a thing. Chicago != Milwaukee != Cleveland != Minneapolis != Detroit, but neither does SF = LA, so not sure how best to aggregate.
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