Everyone knows that the best place to launch a tech startup is in Silicon Valley in the San Francisco Bay area. That’s where the talent and money are. But it’s not the only place entrepreneurs can go to build their business, and it may not be the best either.
Some believe the Midwest is the new Silicon Valley and that it will have more startups within the next five years. Two guys named Chris Olsen and Mark Kvamme were partners at the venture capital firm Sequoia Capital in Silicon Valley when they decided to launch their own firm—in Columbus, Ohio. They built Drive Capital in 2013 and haven’t looked back.
In an article for Venture Beat, Olsen argues that the Midwest has more to offer new businesses than it’s Pacific Coast counterpart. He notes that the Midwest is the fifth largest economy in the world compared to California, which is the eighth. It’s is also larger than Brazil, Russia, and India, which have captured the attention of various venture capitalists.
More people graduate with computer science degrees in the Midwest than any other place in the world, and 25 percent of U.S. research dollars are spent in this region. Yet, the area receives only 4 percent of venture dollars in the United States.
Olsen writes: “Everywhere we looked, the data supported our conclusion that today entrepreneurs are building more billion-dollar companies in the Midwest than in the last 50 years combined.”
He and his partner were able to secure $250 million to support their first fund. He argues, “Moving to the Midwest dramatically increases most companies’ odds of success. And yes, people are really moving. In droves.” He continues, “It is only a matter of time until Midwest cities surpass recent emerging venture cities like Shanghai, Stockholm, and Mumbai to rival Silicon Valley.”
According to The New York Times, Olsen and Kvamme have invested in nearly 30 startups and raised $550 million. Olsen’s claims can be backed up with hard numbers.
The pair believes the Midwest is undervalued and full of new business ideas and motivated entrepreneurs. It’s a gold mine waiting to be discovered. According to the Times, every single large city in the Midwest has “clusters” of startup businesses. Some have been incredibly successful. For example, McKesson bought the Ohio startup CoverMyMeds for $1.1 billion, while Salesforce purchased the marketing software firm ExactTarget in Indiana for $2.5 billion. While rare, they show the potential of the area.
One reason the Midwest is so appealing is that employees are paid less. An engineer who is paid $200,000 in Silicon Valley would be paid half in Columbus, for example. In addition, there’s an abundance of skilled workers in the Midwest. Plus, technology investments are moving towards industries such as agriculture and manufacturing, areas that are very familiar to Midwestern residents.
“The value will come from marrying industry knowledge with technology,” Olsen told the Times. “There’s an arrogance in Silicon Valley that we don’t need industry expertise. That’s going to be less and less true in the future.”