Why the Midwest US is HOT for Investing in Small Businesses Right Now?
For startups and small businesses wanting to grow, finding the right investor(s) is critical. As an investor of business capital, it’s crucial to target your strategy to the right place, and the right management teams, in effort to mitigate risk.
There are good ideas, great ideas, and bad ideas. And there’s no shortage of entrepreneurs these days. But where do you go to find the best opportunities? Can you really map out the best parts of the country to find companies raising capital? Well, according to recent data, you can; and right now the Midwestern United States is hot. Investors, and entrepreneurs have had a banner year so far with growth in capital investment, as well as new, innovative companies. And as the growth continues, it’s breaking down geographic stereotypes of “the money” only being spread out on the coasts. Here’s why:
What is it about the Midwest?
For starters, when we say “the Midwest” we are referring primarily to Illinois, Iowa, Minnesota, Missouri, Michigan, Wisconsin, and Indiana. As states, they may not all be investment hotbeds at any given time, but within them are cities that are home to some of the newest, and most active startup economies around. Furthermore, pretty much across the board, the general cost of living, renting space, and hiring staff is much cheaper than it is in larger east coast and west coast business hubs.
Let’s take Chicago for example. Chicago has long been a business hub, but now more than ever, smaller companies are finding funding and even selling at a staggering rate.
Here’s a look at the numbers: In the first eight months of 2014 Chicago saw $6 billion in exits through public offerings and sales. The reason why this is so high, ironically, is because for many years, the investment capital for small companies in the city just wasn’t there. So Chicago entrepreneurs bootstrapped it, created low-cost business models, and sustainable customer revenues. It’s been a kind of “if you build it, they will come” model, and the results speak for themselves.
Who are the players?
Entrepreneurs such as AOL’s former CEO, and Groupon’s co-founder have ditched Silicon Valley, and bankrolled their way into low-cost, high-yield success stories, all in the windy city. The Midwest has even earned the nickname “Silicorn Valley”, and Chicago is its capital. In the words of JB Pritzker, one of the founding partners of The Pritzker Group Venture Capital, “when you take Silicon Valley out of the mix, we’re near the top of that heap.” And he’s not wrong.
But it’s not only Chicago that’s leading the wave of capital raising cities. Places like St. Louis, Kansas City, Des Moines, and Minneapolis are also seeing a rise in small business investment, especially in tech. Companies like SMS Assist, Lightbank, Apartments.com, and Dwolla are all Midwest based, and Midwest grown. Even Detroit is getting a buzz as a good base setting up shop. It’s cheap, it’s stacked with civic incentives for business and property ownership, and it’s unique. And unique is something investors love.
According to investor and venture capitalist Steve Case, who’s been investing in Midwest startups and small tech companies for years, the benefit to investing in these often overlooked cities is that; well…they’re often overlooked. “It’s about how do you get investors to realize that there are opportunities in these cities. And that the valuations are lower for those companies than they would be if they were in New York City or Palo Alto,” said Case in a recent interview with TechCrunch.
Companies that are looking to grow from the ground up, and attract big money, need a solid base to start. For many, New York, LA, Palo Alto, and San Francisco are just too big of a risk, with too much competition. Will the Midwest stay a viably cheap and stable place to attract investment? There are no guarantees. But one thing’s for sure; if you want to strike when the iron’s hot, there’s no better time than right now.