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Checking the pulse of the Midwest’s entrepreneurial future

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Robert Hatta (@robert_hatta) is the talent partner at Drive Capital, helping portfolio companies build amazing teams. Prior to joining Drive Capital, he was the VP of Talent for JumpStart Ventures, helping to place hundreds of hires into early-stage startups at all levels. Hatta’s experience also includes senior leadership roles within technology companies at all stages of growth, including Apple, Netflix, Virgin Mobile and Tackk.

It’s 11:30 p.m. on a Friday and 1,200 computer science and engineering students surround me. They have come from across the country to the University of Michigan’s north campus to participate in MHacks, a career fair mashed up with a weekend-long tech orgy where sleep-deprived geeks try to build the next big app. On stage is a senior engineer from a big tech company, offering a $500 AR drone, $1000 cash and (presumably) a job to each member of the team that wins their sponsored challenge. MHacks is one of 40 hackathons his company is participating in this year and his is one of dozens of household name tech companies in attendance. The smell of money almost masks the growing musk of a thousand young men crammed into a swampy auditorium meant to seat 700.

While the current state of higher education in our country has its critics, you need look no further than hackathons to see that college campuses remain honeypots of innovation and talent. I spent the month of September visiting five top universities across the Midwest. I met with student leaders of entrepreneurial groups and hacker clubs as well as administrative heads of various centers of innovation. Ostensibly, this was a chance for me to build relationships and awareness for my VC firm. However, it was also a chance for me to gauge the region’s entrepreneurial pulse. Drawing many of their students out of the surrounding region, the attitudes on these campuses toward entrepreneurship are a bellwether of the Midwest’s future as a whole. What I found are some very exciting trends along with some sobering contradictions and challenges.

It’s no secret that really, really smart computer science and engineering students come from Midwest campuses like Carnegie Mellon, Purdue, Michigan, Illinois, Ohio State and others. However, until recently, many CS graduates were being prepared more for IT department jobs than positions with actual technology companies. This has changed dramatically, as tech giants like Google, Facebook, Microsoft and Amazon are crawling all over these campuses. Google and Yahoo! have opened strategically located R&D and other outposts in the shadows of Carnegie Mellon, University of Illinois and University of Michigan campuses. Even well funded startup companies and their VC backers are spending time and money fighting for the attention of these talented students.

Midwest schools produced the founders of companies like Google, Twitter, Nest, Yelp and PayPal. However all of these companies ultimately chose Silicon Valley as their home. Engineering departments, business schools and others are responding by investing heavily into programs, facilities and services meant to spur company formation and attract investors closer to home. High-energy entrepreneurial student organizations like Edge at the University of Chicago or Founders at the University of Illinois are popping up on every campus. It seems that entrepreneurship is on the rise among undergrads, at least the idea of entrepreneurship.

In spite of these very positive trends, there is a long way to go before any of these schools can compete with the likes of Stanford or MIT when it comes to new business creation. While Midwest students are increasingly looking to work at tech companies instead of IT departments, they are more reluctant to join startups, let alone launch one of their own. LinkedIn recently put out college rankings based on the sort of companies and jobs their students move on to after graduation. Midwest schools are very well represented when it comes to sending grads to top tech companies, with Carnegie Mellon ranking number one, Michigan coming in at nine (tied with Stanford) and Illinois at 12. But for grads taking software development jobs at startup companies, CMU drops to number six, Illinois to 14 and Michigan falls off the list entirely.

This was confirmed recently when I spent an evening with the leaders of various entrepreneurship student groups at a prominent Midwest school. When asked which of the dozen or so students were going to work at startups after graduation, not one responded in the affirmative. Let me say again, these were the leaders of startup clubs and hacker groups. Every one of them was planning to work at a giant tech company like Apple, Google or Facebook. None were planning to start businesses of their own upon graduating.

The reasons I heard across campuses to this same question were consistent. The tech giants are what they know. Students know their brands and have grown up using their products. Tech firms are everywhere and offering the moon to these bright young stars. Startups have a tough time competing for attention amid the sponsorships and presence the larger companies can support. And the campus recruiting calendar is starting earlier and earlier, where a fresh graduate might be snatched off the market the summer after their sophomore year. Startups, more focused on today, are finding it tough to put resources against (maybe) hiring someone 12 or 18 months from now.

And many students feel that they need to pay down some of their loan debt before taking the risk of joining or launching a startup. More troubling is that many feel that they are not ready to start a company or contribute to a startup until they’ve earned their stripes at a larger tech company for a few years (a perception likely stoked by the large tech companies recruiting them). This belief is ironic given how low the barriers to building a product have become with cloud infrastructure and open source software. Hackathons are meant to prove as much. Mark Zuckerberg had to raise many millions to scale Facebook ten years ago. By contrast, Imgur founder Alan Schaaf grew his image-sharing community to tens of millions of monthly users from his Ohio University apartment without any outside funding. Moreover, I wonder if Bill Gates, Steve Jobs, Michael Dell or Zuckerberg (all dorm room founders) would have postponed the founding of their companies to first apprentice at IBM or Xerox for a couple of years.

The bottom line for now is that the attitude and culture around technology and entrepreneurship is changing, quickly in some cases, on Midwest campuses. The schools doing it well have a mix of technology-oriented student organizations leading the charge, with a host of benevolent administrator-led groups providing resources, facilities and mentorship. Everyone I spoke to talked of a palpable shift in momentum over the last two or three years. Places like The Anvil (Purdue), Shift Creator Space (Michigan) and Project Olympus (CMU) are wholly original organizations and potential game-changers. You can see it with the rise of hackathons, startup career fairs and campus accelerators (all of which did not exist on these campuses a few years ago). It’s exciting and a harbinger of good things for the region and its startups. Misperceptions and contradictions take time to unravel. But I’m confident that the next batch of Midwest-born startups will take care of that.

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