Last month, VentureBeat published an article that got a lot of attention here in St. Louis and, I assume, started more than a few conversations out in the Bay Area.
Entitled “In 5 Years the Midwest Will Have More Startups Than Silicon Valley,” it was written by Chris Olsen, the founder of Columbus, Ohio-based Drive Capital, who moved to the Midwest in 2012 after building a career as a venture capitalist at Sequoia Capital, right in the heart of Silicon Valley.
“California is the eighth largest economy in the world,” he writes. “The Midwest is the fifth. The Midwest is also bigger than Brazil, Russia, and India, each of which have recently caught many a venture capitalist’s eye. The Midwest receives 25% of all research dollars in America and graduates more computer science degrees than any other region or country on planet earth. There are gobs of tech exits at valuations just as large as other places, and yet, the Midwest receives just four percent of the annual venture dollars in America.”
Ben Casselman with FiveThirtyEight.com came to essentially the same conclusion in early September, running the numbers and uncovering the fact the 9.7% of the businesses in St. Louis are startups that are less than one year old, the second highest rate for that figure in the country. Nationally the percentage of new businesses at that stage is around 8%.
All of this is great, so why aren’t we there yet?
Why don’t we talk about the Midwest like the rich, growing startup ecosystem that it is?
Why does the lion’s share of venture capital investment—43% of all investment dollars—still go to the usual subjects in Silicon Valley? (And to illustrate this point, over the course of just one QUARTER in 2015, Bay Area startups collected an astonishing $9.1 billion in VC investment, putting the market on pace for its biggest year since 2000.)
What are we doing wrong?
– Lack of Collaboration: There are literally thousands of startup companies spread out across the Midwest (we have 775 in Missouri alone, according to AngelList), but too often we aren’t talking to each other. We aren’t working together enough, or helping each other develop markets and talent. Too often our entrepreneurs are being forced to go it alone, and that’s holding back the entire region.
– Lack of Investment: There is no shortage of investment capital in the Midwest—8.25% of all American households, or roughly 10 million households, qualify as accredited investors, according to Federal Reserve data, and plenty of them live in this area—but we struggle to connect that money to the innovators and startup founders in our own backyard that need it and can grow it. Midwest investors still prefer more traditional investments and have been slow to embrace the possibilities of venture. It’s time to change that attitude.
– Excess of Modesty: The St. Louis metro area saw 342.7% growth in venture capital deals in 2015, with 33.02% average growth since 2012. That puts us on pace to be the fastest-growing city for startup funding nationwide in 2016. Why are you just now hearing about this? Why isn’t this splashed across every story about the St. Louis business community? Because we aren’t good enough about celebrating—and publicizing—our successes. This needs to change as well.
At iSelect, we’re working to address these shortcomings, bringing together the most-promising, fastest-growing startup companies in the Midwest with investors who are interested in supporting innovation in our community. We’re doing our part to support the funding side of things, now it’s time for the rest of the ecosystem to come together and give our startups the support and attention they deserve.
Learn more and join us at www.iSelectfund.com.