2019 Best of the Midwest: Startup Cities Rankings
Highlighting this year’s biggest winners in a surging tech ecosystem
This is the third year we have ranked the tech ecosystems of 54 Midwest cities, and the overarching data continues to show the Midwest’s broad growth in tech across the region. The biggest news of the past year seems to be that we welcomed the mega-rounds. Minneapolis’ Bright Health raised $200M in late 2018. In Kansas City, we saw Insight Partners back PayIt with $100M. But that’s just the tip of the mega-round iceberg. Chicago’s Tempus raised $200M in May. Columbus saw Root Insurance raise $100M while Detroit’s StockX snagged $110M. And this doesn’t count the sub-$100M investments, such as Chicago’s Cameo, Columbus’s Beam Dental or Ann Arbor’s Clinc at about $50M each.
New funds were also raised — Matchstick Ventures raised $30M in the Twin Cities, Allos Ventures collected $40M in Indianapolis, MATH closed on $46M in Chicago, Cultivation Capital hauled in $70M in St. Louis and Columbus’s Drive Capital became the first Midwest VC fund to reach $1B AUM in.. forever? And to be sure, money is coming out of these companies too — more and more often in true unicorn fashion, with Ann Arbor-based Duo Security’s $2.35B acquisition by Cisco Systems last September, and Lafayette-based Endocyte’s $2.1B acquisition by Novartis a month later. If you’re paying attention, it should be clear by now — capital here is flowing and growing.
With these success stories come more competition. Each Midwest city is in a race to attract, grow and retain tech startups — and some are ahead in that race while others are… getting lapped. Our goal has been to provide an analytical, objective benchmark to help entities and individuals determine how ecosystems are performing relative to each other. Each year we have received great, helpful feedback and include some changes and improvements to our methodology. While there will be no “perfect” way to rank these cities on completely objective terms, we strive to remain as unbiased as possible and continue to invite your comments and ideas as we will undoubtedly refine and improve each year. But for now, we are pleased to present, 2019 Best of the Midwest: Startup Cities Rankings!
The Top 25
Key Takeaways
Minneapolis’s dominance over the non-Chicago cities: Really this should be a ranking where we give Chicago a platinum medal and ask them to leave. Chicago Metropolitan Statistical Area’s(MSA) 9M+ population (which is over 2 times the next closest — Detroit) dwarfs everything else, not making it much of a fair fight regionally. If you were to remove it, the Twin Cities would commandingly take first place. It seems to have it all — loads of startups, significant funding, success stories, a strong university ecosystem with a highly educated population and quality accelerators. The only significant knocks are the tax climate, high cost of living and high labor costs, all among the worst in the Midwest. So far that hasn’t been enough for any city to come close (except Chicago of course 😏).
Indy overtaking St. Louis: It takes a lot to shake up the top five, but Indianapolis (along with the entire state of Indiana) has been pulling out all the stops. In the past year, Indianapolis launched two accelerators, started seeing the benefits of $250M in Indiana-focused fund-of-funds, and the state made their tax credit now transferrable. While St. Louis has seen some momentum (homegrown Cultivation Capital did just close its largest fund) and St. Louis still has more startups, a better university ecosystem and more Fortune 500s, there is less startup momentum, fewer big outcomes, and the Indiana government programs (and general business climate) significantly surpass Missouri’s. While both ecosystems are clearly doing something right, it feels like Indiana and its capital has just been more aggressive (pun intended).
Detroit clearly losing to Ann Arbor: Detroit is the 27th largest MSA in the overall United States— and Ann Arbor is sitting at 145. But Ann Arbor came in 6th overall while Detroit fell to 11th. A lot can be said about StockX’s unicorn status and huge fundraising round, but even more, can be said for Duo Security’s $2B+ exit. Ann Arbor has created a vibrant, compact tech ecosystem centered around the world-class University of Michigan, leading to the highest startup density in our rankings, an excellent university ecosystem score, a very highly educated workforce and more angels and capital invested than much larger Detroit. It doesn’t all fall Ann Arbor’s way though — Detroit, of course, dwarfs Ann Arbor in population, has a lower cost of living, and actually takes the cake in patents (many undoubtedly automotive-related).
Cincinnati coming out on top in Ohio’s battle of the C’s: This came as a bit of a surprise, given Columbus’s leading the attention when it comes to VC dollars (Drive Capital and Rise of the Rest’s JD Vance). And, in reality, all of them are very close in the final score, each with a distinct advantage. Cincinnati performed strongest in startup momentum, accelerators, patents, and Fortune 500s, while Columbus owned big outcomes (large exits and raises) as well as a strong university ecosystem. Cleveland had more angel investors and an equally strong university ecosystem. We’ve seen these go back-and-forth over the past three years so don’t be surprised if something — a massive exit, a new fund or a surge of new entrepreneurs — tipping the scale in someone else’s favor next year.
College towns rising: Ann Arbor, Madison, Lafayette, Champaign, Bloomington (Indiana), Lincoln, Iowa City, Bloomington-Normal (Illinois). While there are some exceptions (Lexington and Ames didn’t fare as well), in general, college towns in every state grew in the rankings, usually rivaling or surpassing much larger cities: We already mentioned Ann Arbor’s upset over Detroit, but we also saw Lafayette beat Louisville, Lincoln nearly surpassed Omaha and Iowa City beat out Des Moines. These are not all for the same reason, but it bodes well for the importance of strong research universities not just for the more direct components of our scoring (university ecosystem, patents, educated population) but also on the number of startups in a community and startup momentum.
Methodology Recap
Relative vs. Absolute: Before we start to ask ourselves what makes one ecosystem better than another, or one ecosystem moves up or down in the rankings, it is important to understand what we are measuring. These rankings measure a metropolitan statistical area’s (MSA) relative rank as an ecosystem for a startup to launch, grow and scale. A city can still absolutely improve while its rank stays constant or falls. In fact, due to the strong macroeconomic tech/VC market and the rising tide throughout the Midwest region, it is very likely that the vast majority of these ecosystems grew since last year.
Data: We divided it up into three categories with 24 underlying weighted variables that come from 16 different data sources, ranging from the US Census to the Seed Accelerator Rankings Project to individual state government websites. Like last year, we rely solely Pitchbook for data on startups, VCs, angel, fundraises and exits. We realize there will be some degree of error from any data source, and there can be healthy debate and judgment on how to weigh the importance of individual variables. Ultimately we aim to be as consistent and objective as possible and understand it will continue to improve every year.
Data and Calculations — Our 24 variables are pooled into 3 major categories (data cutoff date at 06/30/2019). Here is what goes into each one:
Startup Activity (41% Weight): A measure of how active the tech community in the city is, and the size and quality of the network available to a new startup. Factors included are the number of startups present, the number of exits, the growth in startup formation and the scale of large outcomes (both large exits and large fundraises). Data comes directly from Pitchbook.
Access to Resources (41% Weight): A measure of how supportive the city’s environment is, and the value-add it can provide to help a startup grow. It considers factors such as the quality of talent, investor activity, accelerators, universities, and government support. Data comes from several different sources: the US Census, US Patent & Trademark Office, Fortune.com, Pitchbook, US News & World Report, the Seed Accelerator Rankings Project, The Global Accelerator Network, US Small Business Administration and individual state websites.
Business Climate (18% Weight): A measure of how conducive the city’s economic environment is to attract and scale a business. It includes demographic and economic factors such as the cost of living, labor costs, business tax friendliness, population and GDP per capita, as well as ‘connectivity’ indicators like the quality of airport and highway infrastructure. Data comes from several sources: the Bureau of Labor Statistics, the Bureau of Economic Analysis, the US Census, the Tax Foundation, and Google Flights.
Feedback
Ultimately we know this isn’t perfect, though we believe it is one of the best analyses out there — and a great place to start the conversation. If we asked 100 different Midwest startup community leaders how to measure and rank these ecosystems, I have no doubt we’d receive more than 100 different answers. So if you have comments, disagreements or questions — just reach out. Leave a note here, tweet at us, or send the old-fashioned email. We find these conversations to be both fun and informative, and hope to have spurred some exciting debate among the region’s innovators.
About Midwest Startups:
Midwest Startups is the best resource for all things startups and tech in the Midwest. Create one profile to access job opportunities at several dozen venture-backed tech startups in the Midwest. Developed by M25 — one of the most active early-stage investors across the region — to create a hub for aspiring and experienced talent to easily access the fastest-growing companies where they want to work.
Twitter: @MidwestStartups
About M25:
M25 is a Chicago-based Midwest-focused venture capital firm run by Victor Gutwein and Mike Asem. Since the firm’s inception in 2015, M25 has invested in over ninety early-stage tech startups in over 24 cities across 11 states in the Midwest. M25’s objective, analytical model and collaborative, forward-thinking approach creates a large portfolio spanning several industries across the entire region, allowing them to establish M25 as a key node in the Midwest startup ecosystem.
Twitter: @M25VC
