Earlier this month, MoneyTree released its quarterly venture capital report, and the news was overwhelmingly positive. VCs invested almost $13 billion in 1,114 U.S. startups during the second quarter, which is the highest level of VC funding in 13 years.
That included a strong showing by the Midwest, which isn’t known for its VC investing. Michigan had a banner quarter for VC activity, with $121 million invested in 11 deals. During the same time period, Wisconsin saw a relatively respectable (although not spectacular) $27.8 million invested in eight deals. The Midwest typically lags far behind the coasts in terms of VC activity, and that was still the case in the most recent quarter. But as investors turn their attention to startup hubs outside of traditional hotspots like Silicon Valley and Boston, is it safe to say the Midwest is on a venture capital upswing?
Sort of. David Gregorka, a venture partner atBaird Capital, says his firm has long been interested in the Midwest. The company is based in Chicago and Milwaukee, and it opened a small office in Ann Arbor, MI, last year in order to be in the trenches, so to speak, of the local entrepreneurial ecosystem.
Gregorka says finding enough capital remains a challenge in the Midwest, but the region also does a much better job than other parts of the country when it comes to collaboration and deal syndication. A bigger challenge, he says, is finding executive-level talent to nurture startups as they grow into fully-realized companies. Baird recently hired someone, Gregorka says, whose focus will be to look at all the companies across its portfolio and identify what kind of talent the companies need to grow and prosper.
“People who can take a growth-stage company all the way to a successful exit are rare,” Gregorka says. “Part of that comes from doing it, so the more often [a region does] it, the more talent you have. We don’t have as many of those guys as we need.”
Gregorka says his strategy is to stay close to angel groups and seed-stage funds so he can get to know companies as they come into the deal pipeline. “We help where we can,” Gregorka adds. “Then, when they get to be the right size, have the right leadership, and are gaining some traction, we get involved. Even if a company isn’t at the stage where Baird could be a potential investor, we still want to know about them so we can connect them with resources or people. That’s also part of our role here.”
Jonathan Murray has spent the past 14 years with Early Stage Partners, investing in software startups across the Midwest, and he agrees that parts of the Midwest, especially Michigan, are doing much better in terms of attracting venture capital. But he cautions that building up an entrepreneurial ecosystem is a long, multi-decade process.
“When an ecosystem develops and becomes robust, you have serial entrepreneurs and capital that recycles,” Murray says. “Some of that is going on, but it needs to be broader and deeper.”
Murray says the amount of talent being attracted and retained is a good indicator of how well a city or region is doing. When the manufacturing economy began to falter in the ’90s, people started leaving the Midwest in search of jobs. Now, Murray says that’s starting to shift, with more people coming back to the region or choosing not to leave in the first place.
“At Detroit Venture Partners’ Demo Day, I met lots of young people who grew up here, went away to go to college, and have come back,” Murray says. “The key now is to provide them with jobs.”