A month ago, we published a story about the Midwest’s underrated business opportunity. Our readers loved it and Steve Case — the former AOL CEO and current Chairman and CEO of VC firm Revolution — tweeted the article out.
Revolution is well-reputed for its Rise of the Rest seed fund, which invests in companies outside Silicon Valley, New York and Boston.
At ~$4T, the Midwest’s economy is bigger than Germany’s or the UK’s, yet the region’s business prowess flies below the radar.
To get a better picture of the Midwest opportunity, we recently spoke with Revolution’s Rise of the Rest Managing Partner David Hall.
***
How real is this startup movement away from Silicon Valley?
We’ve long been spotting a trend that we call the “boomerang of talent.”
Think of someone from the Midwest who graduates from the University of Michigan, works in Silicon Valley and — after gaining experience — returns home to Ann Arbor.
A person might want to return home for a number of reasons: the cost of living, the opportunity to be closer to family and the opening of different career paths.
COVID is a unique catalyst for this movement, attracting talent back home that may have found coastal success and is now looking to move out of crowded, urban areas.
Is the “boomerang of talent” a recent phenomenon?
The trend has come in two waves. In the first wave, you saw cities re-branding themselves as a tech hub (think Silicon Slopes for Utah) to bring home talent. In the second wave, cities are establishing the required infrastructure by fostering partnerships and developing dedicated programs with economic development organizations, universities, major corporations, and incubators.
The beauty is that it doesn’t take a lot of people to create an awesome market. A small handful of people moving from Silicon Valley to Columbus can infuse some great IP into that market.
What’s a specific example of a second wave city?
One of the best examples is Indianapolis. ExactTarget — a provider of on-demand email marketing solutions — was founded there in 2000. It sold to Salesforce in 2013 for $2.5B.
This exit established Indianapolis as a B2B software hub, a sector that did not need close proximity to the coastal cities. Since then, dozens of startups have been launched by ExactTarget alums.
Are there any other notable examples?
Heartland cities — with big companies, strong universities and active entrepreneurship ecosystems — are benefitting.
Minneapolis is one. It has a thriving ecosystem and is a magnet for healthcare and consumer packaged goods (CPG) companies.
Detroit is also benefiting from Dan Gilbert’s investment in the region. There’s a lot of ecosystem building going on there.
Which Midwest-specific industries do you see trending?
Here are some industries (and related examples):
- Digital water: “120Water was founded by a concerned mom (Megan Glover) after the Flint water crisis. She wanted a better way to monitor lead and other heavy metals in the water supply. Based in Zionsville, IN, 120Water is now a big SaaS water testing business serving colleges and municipalities.”
- Logistics: “There’s lots of trucking through the Midwest, so we’re seeing companies that help get things from A to B. Founded in Minneapolis, MN, Dispatch is a last-mile delivery platform. The founders solved a problem specific to their previous jobs, the delivery of industrial goods. While coastal startups can certainly scale businesses, Dispatch is an example of a company solving a ‘genesis’ problem that others might not realize even exists.”
- The future of work: “The rust belt has seen a lot of disruption in the labor markets. There is a shortage of workers who can run machinery. AI can’t solve everything (e.g., highly skilled cutting). As a staffing platform for skilled manufacturers founded out of Madison, WI, FactoryFix is trying to solve this issue.”
Do you have a request for a startup?
There’s a very big opportunity in urban farming and next-gen vertical farming solutions.
The winning investment in this space will be efficient, sustainable and scalable. We’re only in inning 2 of this trend, and we’ve already invested in Kentucky-based AppHarvest, which recently announced that it is building the world’s largest greenhouse dedicated to sustainable farming.
I’m looking forward to sourcing and backing new innovations in this space.
