April 5

From tractors to traction: how Midwest startups are taking over tech

From Columbus, Ohio to Bismarck, North Dakota, America’s breadbasket is quickly turning into America’s “tech basket.”

More founders are choosing to set up shop and grow in the Midwest than ever before, and they’re doing pretty well. Several unicorns have been minted, including Groupon, Grubhub, and ExactTarget. And as far as tech exits go, last year the value of startup exits more than tripled, bringing over $5.1 billion into America’s heartland.

Established and scale-up tech companies have taken note of the growing tech presence across the Midwest. A few years ago, Salesforce made Indianapolis it’s largest office outside of Silicon Valley and Google has operated from Michigan for several years. Recently, Amazon announced that it was considering several cities across the Midwest for its second headquarters,

So what’s the deal with the Midwest?

Most founders attribute the Midwest’s tech growth to factors like the region’s affordability, quality of life, government support, proximity to new graduates, increased venture investment, and a strong sense of community.

However, those are just the macro factors. Most people don’t talk about the micro initiatives and players that catalyze startup ecosystems—the individuals, conferences, and capital initiatives—yet they’re the ones empowering the Midwest to give Silicon Valley a run for its money, especially in B2B SaaS.

Micro-initiatives grow tech between the coasts

Brad Feld, who literally wrote the book on growing startup communities, has played a huge part in growing Boulder, Colorado’s startup ecosystem and influencing the trend of building startup ecosystems in the Midwest. In 1995, Feld arrived in the small, 100,000 person college town fresh with cash from two acquisitions. He spotted an opportunity for a tech scene in a city with a high concentration of computer science people and PhDs. By 2010, with the support of his own VC firm, the Foundry Group, and momentum behind Techstars, a global accelerator network he helped founded, the city boasted six times more tech startups per capita than the national average.

Scott Dorsey, Chris Baggott, Tim Kopp, and several other former ExactTarget employees have built up a startup community in Indianapolis. When their marketing software company was acquired by Salesforce for $2.5 billion a few years ago, several of these early team members started investing in and mentoring Indy’s next generation of founders through organizations like High Alpha and Hyde Park Venture Partners. Collectively, they’ve helped spur, support, and invest in Indianapolis startups like Octiv, Sigstr, Lessonly, and Doxly.

Not far from Indianapolis, Cheddar’s own CEO, Mike Trotzke, is busy building Bloomington’s startup ecosystem. Just last year, Cheddar was the city’s first venture capital investment from institutional investors outside of Bloomington, but that wasn’t Mike’s first brush with venture capital. Earlier on, Mike co-founded Sproutbox, a venture studio that helped spawn companies from Bloomington like Visible and Periodic.  Inspired by what Brad Feld did in Boulder, Mike is very involved on the ground with the Bloomington Economic Development Council, mentoring startups in a local pre-accelerator, helping the overall ecosystem “bloom”.  

Capital flows into the Midwest

It’s no secret that the Midwest has been typically overlooked by venture capitalists, but the tide is quickly turning by movements led by some of the country’s top investors.

In 2016, former Sequoia Ventures partners left the Valley to start Drive Capital, a $300 million Midwest fund that has backed companies like Duolingo and Udacity. In February, Steve Case, co-founder of AOL, announced a Midwest-focused $150 million fund, called by some “…the greatest concentration of American wealth and power in one investment fund.” And Paul Singh, a former partner at world-renowned accelerator 500 Startups, currently tours the region in his Airstream Classic, frequently stopping to invest in high-potential startups.

Paul Singh, coincidentally, is also an investor in Cheddar. 🙂

Conferences and communities create density in the Midwest

Conferences, accelerators, and coworking spaces are creating density around the communities’ identities across the Midwest.

Intimate conferences of a few hundred people like Monetery in Des Moines, Iowa, The Combine in Bloomington, Indiana, and Big Omaha in Nebraska bring people together to drive innovation and celebrate the region’s entrepreneurship.

Gener8tor, a nationally-recognized accelerator, prides itself in the impact of its mentorship. To make the most out of its membership, the boutique accelerator only accepts 5 startups at each location per year. But don’t worry—if your startup doesn’t make the cut, you’re free to apply to the gBETA program, a free, equity-free version of its accelerator that they describe as a “love-letter to the community.”

In the windy city, a 150,000 square foot facility called 1871 brings together more than 1,000 people to create startups, participate in accelerators, and upskill individuals at tech talent schools and local universities. And just a few blocks away, M25 Group, an investment firm creating an “index of Midwest startups”, leads the effort to tell some of those and other Midwest startups’ stories through their online publication, Midwest Startups.

Why Cheddar is glad to be a part of the Midwest startup ecosystem

You might have heard a few funny Midwest stereotypes before—that we ride tractors to school, live among cornfields, love our pork tenderloins, and that we think every meal is better as a casserole.

Heck, we like to play with these stereotypes ourselves. We named a tech conference The Combine, after all.

There’s usually another less-humorous stereotype too: that Midwesterners are friendly, kind, and they like to help eachother out.

We believe that’s another reason for the growth in Midwest tech. The Midwest’s startups would have a natural inclinations to create something helpful for other Midwest startups. Perhaps that’s the reason why the tight-knit region has turned itself into one of the world’s most renowned B2B SaaS hubs.

Like adding a turbo to a tractor, fueled by the macro and micro conditions listed above, we expect this region to take off like a tornado, appropriately turning into a “Silo-corn” Valley of B2B SaaS.  

About Cheddar

Billing built for developers. Using a unique usage-based approach to billing, we cut the time it takes to build a billing system by as much as 90%. No matter if your billing model is metered, one-time, subscription, or some combination, Cheddar’s API allows you to focus on building awesome products, not billing for them. Made with ❤ from the Midwest.