Here’s Why The Best Venture Returns Come From The Midwest

Here’s Why The Best Venture Returns Come From The Midwest

Source: Forbes | Re-Post Boomerang Ventures 7/2/19

While startup and venture performance in the Bay Area is a valuable datapoint that provides meaningful insights into our industry, I recommend a different strategy for evaluating our respective ecosystems’ health. To get an actionable, not to mention less daunting, perspective of our performance, we must look beyond the Bay and across all of the country’s innovation communities. My firm HPA recently did this by partnering with PitchBook, Silicon Valley Bank, and CBRE to analyze a broad spectrum of data, which culminated in the development of our 2019 Midwest Startup and Venture Capital Market Analysis. This analysis revealed interesting trends, both nationally and regionally, that tell a much more powerful story about the Midwest’s successes than the story we tend to tell ourselves from inside the Bay’s shadow.

National Scale

On a national scale, we’re currently experiencing the longest economic bull run since 1945. With investors more awash in capital than ever, firms are sitting on roughly $2 billion that they’re ready to deploy to the nation’s startups. This stockpile of venture capital exists alongside a noteworthy trend of mixed fundamental performance among startups, however.
Unlike at the start of this decade when more than half of the companies that went public were profitable, none of them were in 2015. As of 2018, less than 10 percent of startups were profitable at the time of their IPO. For many people, this brings back memories of the dot-com boom. With the advent of Software-as-a-Service, I would argue that we are better off than we were a couple of decades ago when site visits were the currency. Nevertheless, startups that cannot demonstrate a clear path to profitability will eventually find themselves in the same situation.

Analysis

After evaluating the data in the analysis I mentioned above, I argue that one of the best places for venture capitalists to smartly invest their cash is here in the Midwest. With one of the largest economies in the world, the Midwest provides startups unique access to more than 50 million consumers, a huge swath of Fortune 500 companies that can help startups grow quickly, and strength across a diverse set of industries.

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