2021 Best of the Midwest: Startup Cities Rankings
The Competition Heats Up 🔥🔥🔥
The annual Midwest Cities Rankings are our yearly deep dive into understanding how micro-environments in the Midwest are performing relative to one another in terms of startup activity, access to resources, and business climate. To view the full rankings, visit the city rankings page on Midwest Startups.
Coming from a full year of the pandemic, startup investment and the national tech economy has seen a boost not experienced before. Rapid, unprecedented IPO, acquisition and mega-round activity has been seen across the US, and the Midwest is in the thick of it. While the number of VC deals across the Midwest increased by 101 (up 11.7%) from 861 in 2020 to 962 in 2021, the amount of venture capital invested has nearly doubled, from $9.8B in ‘18-’19, most COVID to $10.1B in ‘19-’20, to a record-breaking surge to $19.8B in ‘20-’21. But it’s inarguably more impactful and important as many of these ecosystems have their first unicorns and largest exits ever. Pittsburgh (Duolingo IPO’d at a $5B val.), Columbia, MO (Equipment Share raised $226M), Madison (Fetch Rewards raised $210M) and Kansas City (Backlot Cars acq. $421M) boasted tremendous outcomes, while Ann Arbor, Detroit, Columbus and Minneapolis hit their second, third or beyond home runs.
The story of this year’s Midwest Startup Cities Rankings is that what used to work in past years doesn’t work anymore. This competition has gotten much more intense. Remember — these rankings are relative, where each city is competing against the other to have the shiniest ecosystem. So even if a particular ecosystem is doing well, if it isn’t doing great then it may in fact ground. Case in point: Ann Arbor — a darling of past years’ rankings, beating out larger markets like Columbus and Detroit — did have a major acquisition last year (Llamasoft by Coupa for $1.4B), but so did its competition, and those two cities came out swinging: Columbus with Root, Olive, Beam and Lower and Detroit with StockX and Rivian. Ann Arbor barely hung on to out-touch Madison, which had a new unicorn of its own with Fetch Rewards. But before I dive too deeply (and spoil it all for you), here are your 2021 Best of the Midwest: Startup Cities Rankings!
Quick Takeaways:
Just to stay in the top five, a city had to produce some big tech wins for their community recently, not just coast on victories in years past. We’ll cover the #1 Chicago story below, but tl;dr they already have 10 new unicorns in 2021 alone. #2 Minneapolis is trying to keep pace, with Bright Health’s $10B valuation at IPO, Preventice Solutions near-billion-dollar acquisition by Boston Scientific, the JAMF IPO, the $450M round for DevotedHealth, the $203M round for Revol Greens and $200M round for Arctic Wolf. That’s all for a city that only five years ago, the biggest event all year was a single $160M raise!
#3 Pittsburgh barely edged out #4 Indianapolis again, with help from the Duolingo IPO while Indy racked up rounds for Greenlight Guru ($120M), OnBoard ($100M) and acquisitions of Jobvite ($200M) and Emplify ($50M). Rounding out the top five, #5 St. Louis lost some of its lead on #6 Columbus but stayed in the mix with a $159M round for soon-to-be unicorn Benson Hill. And this was just the activity in the top five. Here’s a recap on the biggest stories:
The Top 5: Consistent — but not Comfortable
There used to be a clear distinction between the top 5 ecosystems and the next 10 — It’s been the same 5 cities since 2018, and, after Indy overtook St. Louis in 2019, there have been no changes in the order for three years. But those margins are shifting fast. In 2019 there was a 2.5 point gap between Indy and Pittsburgh, but Indy has halved that gap this year as it gets closer to that third spot. Even closer, #6 Columbus has surged from disappointing finishes as low as #9 in the past to be within 1.2 points of overtaking St. Louis and breaking into the top 5. With the enormous growth all of these cities — and their other top ten competitors — are seeing, it’s only a matter of time before we see a shakeup.
Chicago’s Depth Chart
Some top ecosystems have one breakout success story and then struggle to put up a comparable one for years. Not Chicago. Gone are the days when it was just Groupon and Grubhub — now, especially this year, nearly every week there’s a massive funding round, pending mega-SPAC deal or new fund announced. New Chicago funds are at an all-time high. The mayor’s office has to keep updating their “Congratulations to Chicago’s newest unicorn!” banner and has likely single-handedly kept local bakeries afloat by buying each company donuts. And it’s across the board — traditional industries like logistics (P44, ShipBob, Bringg), business software (ActiveCampaign), Food (Natures Fynd), Fintech (Amount) and even consumer apps (Cameo). When other North American ecosystems like Miami, Austin, Denver and Toronto try to tout their ‘thriving startup hubs’, Chicago doesn’t respond. It just builds. (Well, and parties sometimes too…)
Rivalry Time — Our 3 Annual Battles:
First Up: Michigan v. Ohio -
Last year I felt it had to go Michigan’s way, but this time I think the evidence has me calling it for Ohio — but boy was it close. #7 Detroit +2 spots, but #8 Ann Arbor down 2 and #6 Columbus +1, plus Columbus is on the cusp of breaking the top 5. #10 Cincinnati and #11 Cleveland haven’t kept pace though so all the momentum here for Ohio is with Columbus, particularly after the Lordstown Motors debacle in Youngstown… And unfortunately both states didn’t see much of a boost from their benches — Ohio saw losses with #24 Akron down 4 spots, #36 Toledo down 3 spots, #42 Youngstown down 2 but a slight boost from #31 Dayton moving up 2 spots, while Michigan’s roster did add some positive movement with #22T Grand Rapids (+1) #32 Traverse City (+3) but #27T Lansing (-2) showed some decline.
Next Up: The 3 C’s Battle for Ohio
The most intense intra-state battle is back and this year we’ve got the biggest margin of victory, with #6 Columbus mopping up #10 Cincinnati and #11 Cleveland. The story here is Columbus soaking up capital and churning out unicorns, IPOs, and major acquisitions. Columbus boasts the largest VC fund in the entire Midwest region (Drive Capital with over $1.2B AUM), the largest IPO ever in the state (Root Insurance at a $6.7B valuation), Ohio’s newest unicorn (Olive, now valued at $4B) and a handful of other mega-rounds (Lower for $100M, Beam Dental for $80M and Loop Returns for $63M). Nothing in that same ballpark has hit Cincinnati or Cleveland since the Assurex acquisition for $410M in 2016. It’s been two years in a row of Columbus taking the top C crown, and it might take a lot for that to change. Columbus has sizable leads in several major categories like number of startups, startup density, startup momentum, big outcomes, developers, educated workforce and capital invested, but Cincinnati does have an edge in accelerators, patents and airports, while Cleveland leads in number of VCs, cost of living, GDP and population reach.
Collegetown Clashes
It’s always good to see where the region’s collegetowns performed, especially in a weird, difficult year for higher education. As we all know that Columbus is clearly not a collegetown, we go down first to the classic rivalry battle between #9 Madison (-1) vs #8 Ann Arbor (-2) — and this year Ann Arbor hangs on to the lead with just a 0.3 margin. The class ‘battle of the mustelidae’ (family of mammals including badgers and wolverines…) has gone back-and-forth over the years, and even this year only 0.3 points separate the two. Madison’s rise to close the gap is not too surprising given Fetch Reward’s new unicorn status and Wisconsin’s more aggressive (but declining?) government programs, but this will continue to be close in the coming years as Ann Arbor’s — gushing with cybersecurity success stories Duo Security and Llamasoft — maintains an edge in startup momentum, startup density and patent creation advantage that could force more big wins in the future to the Wolverine’s side.
The next collegetowns on the rankings feature an even hotter rivalry — #15 Lafayette (+0) maintains a slide edge over surging #16 Bloomington, IN (+3). Lafayette’s long advantage in startup output is now going the other way, with more startup momentum in Bloomington, buoyed by a $100M financing for Advice Insurance, a new seed fund Flywheel Fund and a new gBeta accelerator program. Total scores were only 0.6 points away so expect this to be tight going forward.
Further down the list, most collegetowns featured slight declines in their relative position. #18 Champaign (-1), #22T South Bend (-1), #26 Lexington (-5), and #27T Lansing (-2) all dropped while, #25 Iowa City (+0) and #30 Ames (+0) stayed constant while only #19 Lincoln (+5) and #27T Columbia (+1) showed growth. Lincoln’s standout strengths are a high number of startups (possibly due to a relatively accelerator score led by the gener8tor-run gBeta and NMotion), strong state and local government resources (including the $25K LaunchLNK grants) and a relatively high amount of VC capital invested into the ecosystem. Columbia’s most obviously impacted by their first unicorn, Tiger Global-backed construction tech startup EquipmentShare that raised a whopping $230M and is now valued at $2.5B.
North Dakota Showing Up 👨🌾 🕺
If there’s a place more forgotten than North Dakota in the Midwest — let alone national — tech media, it may be… South Dakota? But that may not be true for much longer. After years of tepid startup activity, North Dakota’s two main hubs — #21 Fargo (+4) and #37 Grand Forks (+5) are on the map. The biggest story is Fargo’s largest round ever, a $47M Series C for ag fintech Bushel. This first sign of breakout success is coupled with intense state investment supporting tech startups — generous tax credits, state-backed financing vehicles and a whopping $250M dedicated VC fund-of-funds to give risk capital to those trying to diversify from the ag and oil & gas sectors the state has long depended on.
Methodology Recap: How the Rankings were Calculated
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 core based statistical area’s (CBSA) 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 27 underlying weighted variables that come from 18 different data sources, ranging from the US Census to the HumanPredictions tech talent database to individual state government websites. Since 2018 we have relied solely on PitchBook as our source of startup and investor data.. 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 27 variables are pooled into 3 major categories (data cutoff date at 06/30/2021). Here is what goes into each one:
Startup Activity which includes subsections for Startups (number, density and momentum), Exits and Big Outcomes (42% 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 which include subsections for Talent, Sales & Innovation, Investor Presence, Accelerators/Incubators, and Government (40.5% 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, quantity and loyalty of the available talent, investor activity, accelerators, universities and government support. Data comes from several different sources: the US Census, US Patent & Trademark Office, HumanPredictions, 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 which include subsections for Business Costs, Demographics and Connectivity (17.5% 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 internet access, 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, the National Digital Inclusion Alliance and Google Flights.
A HUGE shoutout to Leandro I Bedolla who meticulously pulled all of the data through several months of tedious work and planning. Additionally thank you to Katie Birge and Abhinaya Konduru for help in visuals, publishing and distributing.
