A Deeper Look at the Best of Midwest Rankings: A Conversation with Mike Asem of M25 Group
M25 Group, a Chicago-based VC, recently released its “Best of the Midwest Report”, ranking the 50+ startup cities in the Midwest. Spoiler Alert: Pittsburgh is #3 on the list. I decided to catch up with Mike Asem, Director at M25, to learn more about the study and M25’s perspective on the Midwest and Pittsburgh.
For readers who aren’t familiar with M25, can you give a brief intro to the firm?
Sure thing. M25 is a fairly new Micro-VC firm, based in Chicago, and 100% focused on investing in Seed Stage tech startups in the Midwest. Our biggest market so far has been Chicago at this point, but we’re now invested in 10 different states — with a couple investments in Pittsburgh as well.
So, what inspired you to create the Best of the Midwest Rankings?
Really what inspired us to create the Midwest Startups Cities: Best of the Midwest Rankings was a culmination of a few things. We realized that as Midwest investors who frequently travel and are looking to see the best the Midwest has to offer from a startup perspective — a resource like this would be really valuable. We also spend a good amount of time building relationships with potential co-investors from the coasts, and saw this as an added benefit for anyone outside the Midwest looking for a good place to start. Given our geographical focus, investment pace of two new investments per month, and the data-driven nature we’ve started to become known for — it became clear that we were arguably the best positioned, unbiased player in the space to create these rankings. And finally, we often would go to cities and meet with government officials or folks in economic development, and they’d consistently want to know not only how they’re doing, but how they’re doing in comparison to everyone else.
After performing a detailed analysis, what are the biggest trends or themes you noticed across Midwest startup cities?
One of the maybe surprising themes that probably shouldn’t be all that surprising is how much having a strong research institution and getting governmental support improve the ecosystem for startups looking to grow. We consistently saw cities like Champaign, IL, Ann Arbor, MI, and Lafayette, IN outrank their larger, in-state counterparts due to their access to strong research institutions. States with clear incentives for VCs and startups also saw broad strength in their cities across the state.
What do you see as the Midwest’s biggest strengths? What do Midwest cities need to improve to continue to compete with coastal cities for venture funding, talent, etc.?
The Midwest has for a long time been and continues to be a great place to do business. Roughly a quarter of Fortune 500’s are based in the Midwest, and more and more often we’re seeing places like Indianapolis and Columbus have unicorn exits with companies like ExactTarget and CoverMyMeds. I think a common need across the Midwest is simply access to capital, which is obviously a gap M25’s trying to help fill. That being said we’re helping solve some problems at Seed, but raising those Series A, B, and alphabet soup rounds continue to be tough. The last thing I’ll add here is simply a mentality shift that needs to occur in some places. At our firm we’re not trying to invest in the best Midwest venture deals. We’re investing in the best venture deals, period, that happen to be based in the Midwest. Founders here can’t be selling themselves short by thinking “I’m going to build a great company for Pittsburgh, or for Wisconsin, or the Midwest.” The only way they do themselves justice from the get go is with the mindset that they’re building a great company. Anywhere.
Digging a level deeper, what elements play into your rankings? From the perspective of your study, what makes a great Midwest startup city?
With these rankings, we strived to capture a holistic view of what creates and demonstrates a strong Midwest tech ecosystem, pulling 20 distinct, weighted variables across all 54 cities in the process. These variables were exhaustive: from “Startup Activity” (including raw number of startups, density of startups, and success/failure rates), “Access to Resources” (including talent resources like # of patents and % educated population, capital resources like VC, accelerator and angel activity and government resources like the tax climate and loan programs) and “Economics and Demographics” (including GDP per person, labor costs and costs of living). No one component dominates, and all would need to be represented in some capacity in order for a city to perform well.
I was happy to see that Pittsburgh at #3 in the rankings. What things are we doing well in Pittsburgh to land high in the rankings?
Pittsburgh shined in our rankings in both VC & Startup activity and Access to Resources. Having VC firms like Draper Triangle Ventures and Birchmere Ventures along with a highly-ranked accelerator program like AlphaLab is a huge boost to the ecosystem. Access to resources and capital through Innovation Works also played a large role, and you can’t forget about what having great universities like CMU and Pitt does from a talent and innovation perspective.
Conversely, from your perspective, where can we improve? What should our community focus on to make Pittsburgh an even better place for startups?
While the biggest area for improvement for Pittsburgh would be in the Economics and Demographics category, it falls about middle-of-the-road when compared to “peer” cities (like St. Louis, Cincinnati, Cleveland and Minneapolis). Across our entire sample, larger cities struggled with labor costs and costs of living, driving this category down. That being though, Pittsburgh’s economics would still look great in the context of coastal cities.
Another area for improvement would be government resources — in particular, Pennsylvania is one state that does not seem to be providing as many resources for startups and investors as states like Indiana, Wisconsin and Ohio. For one, angel tax credits are one of the few ways to engage a typically apathetic high-net-worth Midwest angel community — a critical ingredient for initial funding in our region. Providing tax credits for investors or acting as a fund-of-funds for VC firms looking to invest in Pennsylvania-based startups would be a great boost places like Pittsburgh and its startup ecosystem.
What did we forgot to ask? Any final thoughts you’d like to add?
We’ve been bullish on Pittsburgh for some time now, so it’s definitely been affirming to see the results come out like they have. We’re proud investors in Pittsburgh-based companies like ANGLR Labs and Jetpack Workflow, and continue to look for new great startups there to invest in. Subjectively I’m excited about all the work being done on innovative technologies like autonomous vehicles and AR/VR by companies like Uber and Facebook in Pittsburgh as well.
