4 Key Trends Impacting the Midwest Venture Landscape

Hyde Park Angels’ 2019 Midwest Startup and VC Market Analysis proves that investors are taking notice of the innovation coming from the Great Lakes region. These were our four biggest takeaways from the report.

Article by
Emily Brungard
Salesforce Tower in Indianapolis

The Midwest accounts for $2.7 trillion in GDP, is home to more than 52 million people, and houses more than 20 percent of the Fortune 500 companies. The Midwest only makes up 4% of the total VC funding market, but funding trends are moving in a positive direction. Hyde Park Angels’ 2019 Midwest Startup and VC Market Analysis proves that investors are taking notice of the innovation coming from the Great Lakes region. These were our four biggest takeaways from the report:

Midwest Deal Activity Is Increasing

California continues to lead the nation in venture investments — more than a third of deals done in the U.S. were in California last year. While deal activity in California, New York, and Boston decreased slightly in 2018, the Midwest saw a rise in investments. 663 deals were made in the Midwest in 2018 compared to 623 in 2017.

This may be a sign that investors are beginning to shift some of their focus away from the coasts and toward the center of the nation. Deal size is also increasing: 38% of Midwest funding rounds in 2018 were larger than $50 million.

Total Dollars Invested in the Midwest is Increasing

In just three years, the amount of dollars invested in Midwest companies has nearly doubled — from $2.7 billion in 2016 to $4.3 billion in 2018. The Midwest is seeing successful returns on investments, too: Chicago’s median multiple on invested capital is 5.6x from 2006 to 2018, with Seattle in second place at 4.8x.

This comes as no surprise when you consider some big headlines in recent years, like Duo Security’s $2.35 billion exit, the largest exit by a Michigan VC-backed company in modern history, Minnesota’s $200 million Bright Health deal, or Detroit-based StockX’s $1 billion valuation.

Fortune 500 Proximity Helps Startups

Midwestern startups are reaping the benefits of being in the same region as some of the nation’s most successful companies. The Midwest is home to 22% of the country’s Fortune 500 companies, but receives only 5% of total U.S. venture funding. In Indianapolis, we’re home to several Fortune 500 companies, like Salesforce and Allison Transmission, and three have made Indianapolis their headquarters: Anthem, Eli Lilly and Simon Property Group. Chicago holds claim to 35 Fortune 500 companies, and another 55 are located elsewhere in the Midwest.

Fortune 500 companies often become customers, acquirers, and investors in these fledgling companies. Instead of competing with innovative startups bringing new ideas to the marketplace, these well-established companies are working with them. While the startups reimagine things are done, Fortune 500 companies offer stability and funding, and receive a solution to a pressing business problem. Corporate innovation gives companies a chance to move beyond internal R&D teams to gain a competitive edge in the market while also supporting the startup ecosystem.

(Hyde Park Angels 2019 Midwest Startup and VC Market Analysis)

Talent Benefits from Midwest Investment

Cities like Chicago, Detroit, Indianapolis, and Madison are home to some of the highest-quality tech talent in the nation, while also being among the most affordable cities for talent. When you consider the cost of living in Midwest cities, it’s easy to see why top talent is migrating from the coasts.

Consider rent costs: in coastal cities like New York, San Francisco, or Boston, the average apartment rent is between 30 to 43 percent of income. In Chicago, the average rent-to-wage ratio is 19 percent. In Detroit, that percentage is just 14 percent. In Indianapolis, Cleveland, and Cincinnati, the number hovers in the 13 percent range. For commuters, average travel time in Cleveland is 42 minutes, compared to an hour in San Francisco or New York.

While rent prices and commute times don’t make or break a work culture, they can take a toll on mental and physical health, as well as finances.

All in all, it’s an exciting time for startups in the Midwest. Want to read the full report? Download it from Hyde Park Angels. If you want to build the next big thing in B2B SaaS, visit highalpha.com to learn more about how we partner with exceptional founders to create and fund companies.

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