VCs, Entrepreneurs See Midwestern Cities as Potential Startup Hubs

VCs, Entrepreneurs See Midwestern Cities as Potential Startup Hubs

Once the industrial base of the US, the Midwest has struggled in the high-tech era to capture the talent-driven growth enjoyed by coastal cities like Boston and San Francisco, but the region’s fortunes are changing fast. In the past year or so, a burgeoning Midwestern tech scene has begun attracting more attention from venture capitalists and Silicon Valley giants, with many local startups and big-company expansions focusing on the middle-skill roles for which the tech sector’s demand is insatiable, but that are still in short supply nationwide. These “mid-tech” or “new-collar” jobs are described as a 21st century analog to the factory jobs of the past—and as such, a promising path to revival for the industrial Midwest.

High-tech industries including major international firms have been making some big bets in the region: The Indian IT services and business process outsourcing giant Infosys is planning a sprawling campus near Indianapolis, which aims to create 3,000 new jobs within five years, while the Taiwanese multinational Foxconn Technology Group made a deal with the Wisconsin state government last year to build a display panel factory there, which will see the company invest as much as $10 billion and hire as many as 13,000 people. Several midwestern cities are on the list of finalists in the competition to host Amazon’s second headquarters, though Detroit, for example, didn’t make the cut, partly due to a lack of readily available talent.

Yet “mid-tech” companies and regional outposts of tech giants are just one side of the Midwest’s high-tech renaissance. Over the weekend, VentureBeat reporter Anna Hensel took a look at the growing community of AI and machine learning startups in the heartland:

“The real benefit of artificial intelligence is the application to traditional problems and products that the world needs, and the really successful companies have that domain knowledge that they can understand how to apply this technology,” [Chris Olsen, a partner at Columbus, Ohio VC firm Drive Capital,] told VentureBeat in a phone interview. “We see more of those domain experts in these industries [with] massive chunks of GDP that exist here in the Midwest.”

One disadvantage AI startups in the Midwest face is that the area has less talent capable of building AI systems. Gene Munster is managing partner at Minneapolis‘ Loup Ventures — which invests in AI and VR, among other pioneering technologies — and he estimates the Midwest has access to “one tenth” the AI talent Silicon Valley does. …

Our analysis revealed that many of the Midwest’s most promising AI startups were born of local universities or have ties to the region’s historically dominant industries, which offers a clue as to what types of startups the Midwest could give rise to in future.

The VentureBeat feature goes on to profile a number of startups in Chicago, St. Louis, Ann Arbor, Columbus, and Minneapolis–St. Paul. All of these cities are home to large and prestigious universities, and sure enough, many of these startups started out as projects at local research institutions. While Detroit’s talent community was not quite large enough for Amazon, others see huge potential there as well. Last week, GeekWire contributor Lisa Stiffler highlighted the efforts of two entrepreneurs, Ian Sefferman and Patrick Haig, who are on a mission to jumpstart the startup community in the Motor City with their new incubator, Assembler Labs:

Detroit lags in education, with only 14 percent of city dwellers holding a bachelor’s degree or higher. … But Sefferman, who is a Detroit native, and Haig are excited by what they see as the city’s untapped potential.

“The amazing thing about Detroit is it sits in this five-hour, concentric circle of crazy talent and research,” Sefferman said. He called out numerous universities within a five-hour drive of the city, including the University of Michigan, Michigan State, Notre Dame, Purdue, Carnegie Mellon and the University of Chicago — his own alma mater.

Despite decades of decline in the U.S. auto industry, Detroit claims a surprising number of technology jobs, including work in the auto business as well as companies like Quicken Loans, one of the nation’s largest retail mortgage lenders. The city has nearly 150,000 tech jobs, while Seattle posts 190,000 employees in the sector, according to CompTIA’s 2018 Cyberstates report.