When assessing the vitality of an entrepreneurial ecosystem, an important factor to consider is the Total Venture Funds Raised by the startups within that city or region.

This metric provides an unbiased reflection of how the market values each of the companies within an ecosystem. This “market value” is particularly impartial for Midwestern startups that look outside of their hometown to raise capital from results-driven venture capital firms.

This is arguably a better measure than the more subjective variables often used by media companies and nonprofits that rank cities’ startup ecosystems.

From 2015 to 2016, venture funding declined – both in terms of number of deals and total capital invested. Nationwide, venture funding was down 15%. Although the Midwest mirrored this nationwide trend, with a 21% decrease in venture funding, a few cities in the central corridor saw increases in total funds raised last year.

Utilizing Crunchbase data, we look at how much venture funding startups in the top 15 Midwestern regions raised.

Region	2015 Funds Raised	2016 Funds Raised	YoY %
Chicago	$2,188,860,599	$1,429,618,214	-34.7%
Minneapolis	$650,563,079	$534,892,142	-17.8%
St. Louis	$260,104,837	$290,063,108	11.5%
Detroit	$331,236,906	$267,857,568	-19.1%
Nashville	$243,936,479	$238,502,480	-2.2%
Cleveland	$232,874,255	$181,559,834	-22.0%
Indianapolis	$162,919,100	$119,608,154	-26.6%
Cincinnati	$111,179,241	$116,621,844	4.9%
Milwaukee	$45,527,324	$111,853,050	145.7%
Kansas City	$60,775,900	$76,409,388	25.7%
Columbus	$75,520,891	$72,069,194	-4.6%
Louisville	$19,062,177	$58,030,000	204.4%
Oklahoma City	$57,918,748	$48,902,744	-15.6%
Omaha	$118,266,280	$46,861,517	-60.4%
Little Rock	$7,515,000	$8,300,000	10.5%
Total	$4,566,260,816	$3,601,149,237	-21.1%

The only regions that bucked the YoY fundraising trend and saw an increase in funds raised from 2015 to 2016 were: St. Louis (+11.5%), Cincinnati (+4.9%), Milwaukee (+145.7%), Kansas City (+25.7%), Louisville (+204.4%), and Little Rock (+10.5%).

Number of Startups and Percent of Startups Funded in 2016

Another potential indicator of success is the number of startups that have received funding within a region and the percent that has received funding within the last year. These numbers should be an indicator of increasing growth within the community. 

A region must have several early-stage companies receive funding to increase the opportunity for success at later stage “A”, “B”, and “C” funding rounds. Let’s take a look at the number of startup companies found within CrunchBase by region and the percentage of companies that have received funding within the last year.

Region	Startups Receiving Funds in 2016	Registered Startups*	% Startups Receiving Funds
St. Louis	61	251	24.3%
Indianapolis	40	227	17.62%
Chicago	191	1,211	15.77%
Minneapolis	71	458	15.50%
Detroit	58	396	14.65%
Cincinnati	26	179	14.53%
Columbus	28	196	14.29%
Omaha	15	112	13.39%
Nashville	44	335	13.13%
Kansas City	22	169	13.02%
Little Rock	8	73	10.96%
Cleveland	29	265	10.94%
Oklahoma City	6	74	8.11%

* Registered startups is the number of companies listed in CrunchBase. Typically they have all raised money previously to be on the list.  Milwaukee and Louisville did not have complete data so they are not included on the list.

While the Total Venture Funds Raised statistic mentioned previously is largely comprised of a few high-dollar financings that took place that year, the Percent of Startups Funded in 2016 accounts for all financing events, large or small, equally. Thus, this statistic reveals more information about the number of deals throughout the entire ecosystem, including everything from angel seed funding to later-stage institutional investment.

Additionally, the Total Number of Registered Startups is highly correlated with the total 2016 Funds Raised (R-squared value of .9731). This may indicate that having a critical mass of early-stage companies increases the potential for successful fundraising.

2016 Funds Raised per 2010 MSA Population Count

Possibly the most accurate way to rank each region’s fundraising success is by dividing Total Venture Funds Raised by Total Population.

Region	2016 Funds Raised	MSA Population*	Funds Raised / Population
Minneapolis	$534,892,142	3,348,859	$159.72
Chicago	$1,429,618,214	9,461,105	$151.10
Nashville	$238,502,480	1,670,890	$142.74
St. Louis	$290,063,108	2,787,701	$104.05
Cleveland	$181,559,834	2,077,240	$87.40
Milwaukee	$111,853,050	1,555,908	$71.89
Indianapolis	$119,608,154	1,887,877	$63.36
Detroit	$267,857,568	4,296,250	$62.35
Cincinnati	$116,621,844	2,114,580	$55.15
Omaha	$46,861,517	865,350	$54.15
Louisville	$58,030,000	1,235,708	$46.96
Oklahoma City	$48,902,744	1,252,987	$39.03
Kansas City	$76,409,388	2,009,342	$38.03
Columbus	$72,069,194	1,901,974	$37.89
Little Rock	$8,300,000	699,757	$11.86
Totals	$3,601,149,237	37,165,528	$96.89

*Metropolitan Statistical Area (MSA) Population numbers are from the 2010 US Census

Using the Total Venture Funds Raised divided by MSA Population method, Minneapolis and Chicago remain 1st and 2nd on the list, although their positions flipped from 2015 to 2016. Nashville, St. Louis, and Cleveland rounded out the top 5.

It appears that population size, which contributes to a region’s human capital resources and overall economic strength, enhances a region’s ability to deliver venture-backable companies. The MSA population of the regions in this study is highly correlated with both the Total Number of Registered Startups and the Total Number of Startups that Received Funding in 2016 (with R-squared values of .9423 and .9428, respectively).

Thus, MSA Population a good proxy for the number of fundable startups in a region. The more fundable startups a region has, the more “shots on goal” it has to generate companies that reach later-stage funding rounds and successfully exit.

More “shots on goal” can be accomplished by developing more accelerators per capita than competing regions. That said, the accelerators must succeed in developing venture-backable companies. I am of the opinion that a region should develop accelerators that can leverage the expertise of local corporations and universities.

For instance, St. Louis’ expertise lies in Agriculture Technology, Financial Services Technology, Cybersecurity, and Life Sciences/Biotechnology. St. Louis has accelerators which support each of these industries: The Yield Lab, SixThirty FinTech, SixThirty Cyber, and BioGenerator, which make investments in over 30 new companies each year.

Conclusions

Here are the conclusions that I gleaned from the numbers:

• Chicago, Minneapolis, St. Louis, Detroit, and Nashville ecosystems seem to be above the rest when comparing the numbers over the last few years.
• Milwaukee, Cincinnati, and Indianapolis are knocking on the door.
• The number of startups within the ecosystem matter, as it increases the potential for successful fundraising.
• The percent of startups securing capital – at all stages – in an ecosystem can be seen as a barometer of success for that region, and signal a more complete fundraising community.

For a deeper look at St. Louis’ venture capital investments of 2016, read our earlier report on EQ.