The Midwest is a great place to live, sure, but is it a great place to grow a startup?
The answer may surprise you: an unequivocal yes.
Here’s what you may not know about the American Midwest: over the past three years, startup ecosystems all over the region — in places like Kansas City, Cincinnati, Minneapolis, Detroit, and of course Chicago — have experienced tremendous growth. In Kansas City, for example, at least five new VC funds have launched in the last two years, and they’re now actively investing. All this activity has pulled many individual investors off the sidelines, and they want in.
So how should you approach these investors?
1. Go Local
Some Midwest founders assume local investors won’t ‘get’ what they’re building or will be too conservative to invest at the early stage. Other founders aren’t connected to local angels or VCs and don’t know where to start, or are determined to raise from well known Bay Area funds because they want to make a big splash.
Ignoring local investors can be a big missed opportunity. Many are more informed and active than founders think. In addition, they often have a great deal of civic pride, and this drives their desire to invest in local startups. Finally, I often see founders underestimate the amount of risk-tolerant capital in their own communities.
So how can founders connect with local investors?
2. Build Those Relationships!
Early and often! Don’t wait until it’s time to raise your round — start getting warm introductions to local investors as soon as you have a prototype. (See the now-famous blog post by Mark Suster about Lines Not Dots.) You can also meet them at local events. While a cold outreach isn’t the optimal way to connect, when you’re part of the same community it can still work. I’ve always advised startups to build relationships with investors, but it’s especially important in Midwest communities where investors seem to place even more value on the personal touch.
Research the local investors to get to know them, and see if you have anything in common. Ask them to grab a coffee. When you meet, tell your backstory and ask to hear theirs. Tell them what you’re working on and why, and ask for their feedback. Make it a two-way dialogue, not a pitch, with the initial goal of just getting to know each other. Let your true passion shine through! Meet with then periodically and send them monthly updates about your company. Keep them engaged!
3. Traction, Traction, Traction
Investors love traction, and to Midwest investors that typically means revenue growth (as opposed to non-revenue metrics such as user growth).
The best time to raise an early Midwest round is when you start generating some solid revenue growth, i.e. at least 20% MoM for a few months. I’ve seen some pre-revenue startups get funded in the Midwest, but it’s much harder. (The same can be said of the Bay Area — it can be challenging to do a pre-revenue raise anywhere.) Even early revenue of $1,000–3,000/month can make a world of difference — it certainly does to us at Firebrand! If you first meet with an investor when you’re at the MVP stage, and later meet again when you’re generating some early revenue with good growth, it can greatly increase your chances of getting them to invest. Traction plays!
Based on what I’ve seen in Midwest communities since 2011, if you start locally, build relationships and let the investors to see your business grow, it maximizes your ability to raise from them. With more seed funds and angel investors than ever, there’s never been a better time to raise capital. Hopefully this means you can raise most or all of your round in your city without worrying about moving or even traveling to the coasts.
Best of all, the faster you raise, the sooner you can get back to your top priority: running and growing your business!