The Great Midwestern Tech Startup Surge
Entrepreneur's New Year’s Guide
When one hears the phrase “Startup Hub,” the mind’s eye most likely automatically conjures up images of locations like New York City, San Francisco/Silicon Valley, Boston. However, the Midwest region has been developing some real challenger cities to the “Startup Hub” throne. According to The Kauffman Index of Entrepreneurship, which is an “umbrella of annual reports that measures U.S. entrepreneurship across national, state and top 40 metro levels,” Columbus, Ohio’s capital, is the fastest-growing city in the country for startup activity. According to CB Insights, Ohio had less than 10 active venture investors in 2009 but saw more than 40 different VCs invest in 2014.
Few know this better than Tom Walker, the president and CEO of Columbus-based venture development organization Rev1 Ventures. Rev1 Ventures describes themselves as “part VC, part accelerator -- with the expertise and connections to fuel startup success.” And that expertise involves recognizing potential and talent in places where others aren’t looking.
“When people want to see great art, they go to the Louvre,” Walker said. “That is, until they realize that there are also great paintings in museums right in their own backyards.”
While Columbus is gaining serious steam on the startup front, there are still very real obstacles to overcome. According to Walker, the West Coast, New England, New York City and even parts of Texas, attract more than 90 percent of available early-stage venture capital. While that leaves less than 10 percent of early stage venture capital for the rest of the country, it also leaves the door open for branding and growth.
“Instead of challenges, we see opportunities,” Walker said. “Our strategy is to create our own Midwest brand of ‘startup hub,’ with technology, talent and early stage capital. And all of this is connected in a way that’s uniquely Midwestern -- we call it ‘the backyard effect.’”
And the “backyard effect” isn’t something to be ignored. MentorcliQ is an award-winning mentoring software solution that helps organizations launch, support, and grow high-impact employee mentoring programs. It’s a Rev1 portfolio company and one of the company’s co-founders, Andy George, moved from California to Ohio to capitalize on the Columbus startup scene.
“The community here is so close-knit and so supportive and helpful in wanting to see you succeed,” George said of Columbus. “It’s the best of both worlds, a close startup ecosystem and a really supportive corporate environment.”
According to Columbus.gov, Columbus is headquarters to at least 20 Fortune 1000 companies. In addition, blue-chip firms such as Limited Brands, Chase, Kroger and Anheuser-Busch have major facilities in the area.
“The reality on the ground is that capital is portable - it doesn't stay on the coasts if there are good opportunities in Ohio,” said Ian Sigalow, Partner and Co-Founder of Greycroft, a VC firm based in NYC and Los Angeles. Approximately 50 percent of Greycroft’s portfolio is in New York Tri-state area (NY/CT/NJ) and Los Angeles, 35 percent is elsewhere in the US, and 15 percent international. Greycroft funded Eloquii out of Columbus and Everything But The House out of Cincinnati. “Companies outside of New York and LA typically seek us out because we can help them expand into our core markets,” he added.
“The plusses begin with affordability. Eight of the 20 cities on Forbes’ Most Affordable Cities list in 2015 are in the Midwest, and 50 percent of those -- Cincinnati, Dayton, Columbus and Akron are in Ohio,” Walker said. “ Whether you’re a software engineer paying off student loans or an entrepreneur trying to launch a startup, cost of living matters.”
Seth Miller, a 2014 graduate of Ohio University, is the co-founder and CEO of RapChat, an app that allows users to record sharable freestyle raps over instrumental beats. He’s traveled all over the US trying to grow his brand, and he knows exactly what Walker is talking about.
“The cost of living is a huge plus. The cost of talent, too. Out West a programmer will cost you at least $150,000, whereas a good programmer in Ohio can be employed for half of that,” Miller said. “And you can’t ignore the fact that there’s less competition. If you’re in the Valley trying to pitch firms on Sand Hill Road, you’re going against the best of the best...every single day, and you’re all fighting for the same investment dollars.”
Growing a startup in general is extremely hard, no matter where you are geographically,” Miller added. “A couple challenges you face in Ohio are a relative lack of funding resources and a paucity of talent, specifically with developers. But, both of those are beginning to change with new funds like Drive Capital and Rev1 Ventures.”
According to Sigalow, “the challenge in every upcoming market is hiring talented managers at every position, not just developers,” he continued: “How many CFOs in Columbus have taken a start-up public before? How many heads-of-sales have scaled a SaaS company from zero to $100 million in revenue? How many CTOs have scaled a developer organization to over a hundred people? You can probably count all these candidates on one hand. They all have to be relocated.”
Tech Crunch named Miller’s RapChat one of their “seven favorite companies from the 500 Startups Batch 15 Demo Day.” And according to TechCrunch, over 2.5 million raps have been created through the app and they have over 50,000 monthly users.
Miller lived on the West Coast for most of 2015, but he’s currently back in Columbus with the goal of making his hometown RapChat’s headquarters. In his mind, location doesn’t necessarily play a determining role in startup growth.
Miller also said that the type of startup plays a huge role in the funding one receives.
“It seriously depends on the type of of startup you have. For example, if you’re in bio-tech, SaaS or health-tech, Ohio is one of the best places you can be,” he said. “If you’re in consumer mobile like me, it’s still not a great place to be, but hey, we’re trying to change that.”
When it boils down to it, all signs are pointing to a startup surge in Columbus. Walker, George and Miller have all seen the signs.
“I’m seeing more and more opportunities in Columbus for companies at the “concept” stage,” Miller said. “That’s generally different than all the places I’ve been to. There are groups and people here who legitimately want to help companies take an idea and help them evolve it into a real company. That’s huge. If you go to the traditional hubs, they probably won’t even hear you out until you have a live product and thousands of users.”