Life in the Silicon Prairie: Tech’s great migration to the Midwest

Startups and investors are increasingly foregoing Silicon Valley for the Silicon Prairie — and with good reason.

On a sunny afternoon in early June, I ask a few Silicon Valley tech workers in downtown Palo Alto what they picture when they think of Nebraska.

“Corn,” says a 26 year-old Python coder in an a16z t-shirt. “Just corn everywhere.”

“Tractors… farms… cows,” offers his friend. “And yeah, um, corn.”

In the San Francisco Bay Area — the global mecca for technology, innovation, and venture capital money — the Midwest doesn’t seem to get much love on the streets. After all, this is where the computer chip was born. It’s where Jobs and Woz built the first Apple machine in a garage, and Google was invented in a dorm room. Silicon Valley, the axiom goes, has an ambition and drive that can’t be replicated.

But change is a-brewing: Investors are flocking to Middle American cities like Omaha and Des Moines. Startups are forgoing the paradisiacal pastures of California for a little Midwestern mojo. And the “Silicon Prairie” — cornfields and all — is having a moment in the unrelenting sun.

“I’m a little over San Francisco…”

In early 2010, Mark Kvamme, a prominent venture capitalist at Sequoia Capital, took a 6-month leave of absence and left Silicon Valley to explore the Midwest.

When he was there, something strange happened. “I kind of fell in love with the place.” Kvamme told Forbes. “The opportunity that I saw in Ohio and the rest of the Midwest… I really felt like there was something happening here.”

He recruited Chris Olsen, also a VC at Sequoia, and made him a proposition: They’d leave California and start their own fund exclusively for Midwest companies.

In 2013, the duo set up shop in Columbus, Ohio, raised a $250m fund, and began to voraciously invest in local talent. It was so successful that they raised another $300m in 2016.

Kvamme hypothesizes that “90% of the future technology market capitalization will be created outside of Silicon Valley.”

“I think people will look back and say it was so obvious that the Midwest was about to emerge because the numbers had swung so far against it,” he says.

The “numbers” he’s referring to don’t lie: The Midwest is home to 150 Fortune 500 companies, 25% of all US computer science graduates, and 60% of the country’s manufacturing base. It is a large market (it makes up 19% of America’s GDP) and is rife with innovation (19% of all US patents) — yet it accounts for only 5% of all venture capital funding.

In Kvamme’s estimation, the Midwest is severely “undervalued.”

A growing number of disillusioned Silicon Valley VCs are starting to catch onto this, and are shifting their focus to overlooked Midwestern markets.

Steve Case (a co-founder of AOL), and J.D. Vance (author of the widely-read Hillbilly Elegy) recently launched ‘Rise to the Rest,’ a $150m Midwest startup fund backed by the likes of Jeff Bezos, Eric Schmidt, Howard Schultz, and Ray Dalio.

VC firms and incubators — both locally-grown and transplanted — dot the prairies, from Rev1 Ventures in Columbus, to Cintrifuse in downtown Cincinnati.

And on so-called “Rust Belt safaris, coastal VCs flock to Midwestern cities like South Bend, Indiana by the luxury-busload, scouring local startups for investment opportunities.

“I’m a little over San Francisco,” one safari-goer told the New York Times, between bites of a vegan donut. “It’s so expensive, it’s so congested… It’s the worst part of the social network.”

Consider the Midwest

Traditionally, the vast majority of tech investors (and consequently, the vast majority of tech startups) have stayed entrenched in coastal America. As of 2017, 76% of all venture capital money was poured into just 3 states: California, New York, and Massachusetts.

But last year, total investment in Midwestern companies was up to an all-time high of $4.5B. And investors are seeing returns: in 2017, 37 companies in the region exited for a total value of $5.1B, up from $1.6B in 2016. CoverMyMeds, Ohio’s “first tech unicorn,” was sold for $1.1B, good for the biggest exit in the state’s history.

To read the full Hustle Article written by Zachary Crockkett, CLICK HERE