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M25 releases Best of the Midwest: Startup Cities rankings

Victor Gutwein, M25’s Managing Director

The Midwest is gaining increased attention as fertile ground for startups and entrepreneurs. Using publicly-available data on such things as number of startups, investor activity and cost of living, Chicago-based venture firm M25 Group has compiled a ranking of 54 cities in the region.

“This has been a five-month process,” said Victor Gutwein, M25’s Managing Director. “We talked with our team and other experts to identify variables that make up an ecosystem and how they should be weighted, including human subjectivity. Then we pulled the data and didn’t tweak it.”

M25 invests exclusively in the Midwest, which was one driver for doing the research.

“We use this as an internal resource to decide on travel,” Gutwein said. “We believe in the Midwest as a growing tech region and we won’t even consider companies headquartered elsewhere.”

But Gutwein believes the research can also be useful for communities as they evaluate how to grow their local startup communities.

“We made it outward-facing, and have discussed it with communities and governments that are trying to measure themselves versus other cities,” he said. “They want to understand what they could be doing better.”

The objective nature of the M25 study may prove more valuable that some internal studies that tend to have natural biases.

“Almost everyone has their own reports they come out with, and they almost inherently can’t be objective,” Gutwein said. “This has attention paid to objectivity, and it’s going to be way more productive by people focusing on the right issues.”

Major metropolitan areas in the Midwest (as defined by M25) dominated the top of the rankings, with Chicago, Minneapolis and Pittsburgh listed as the first three. Among states in the primary SPN coverage area (Iowa, Missouri, Kansas and Nebraska), St. Louis led the way coming in at number four. Rankings for other cities in these states ranged from 12th (Kansas City) to 53rd (Topeka).

“I was surprised that St. Louis was further ahead than Kansas City,” Gutwein said. “They were pretty far apart even though Kansas City has put a lot of resources and community activities into promoting their environment. I thought they would be higher.”

Feedback on the rankings from the Kansas City startup community and others pointed out that the study did not factor in acceleration or momentum, a measure of activity over time.

“Three to five years ago, Kansas City didn’t have their act together at all, and historically hadn’t had as much activity” Gutwein said. “Some sort of measure of momentum should be important, and we may incorporate that in the future.”

Omaha and Lincoln were ranked 14th and 18th respectively.

“The reason Omaha outperformed Lincoln may be a function of size,” Gutwein said. “Omaha is a bigger city with more venture capitalists and angel investors, more businesses flying under the radar. I visited both and Lincoln seemed a little more vibrant.”

In the four-state SPN region, Iowa fared the worst.

“Iowa got crushed,” Gutwein said. “There was a significantly lower amount of startup activity in Des Moines, Cedar Rapids and Ames than in Lincoln, Omaha and Kansas City. I didn’t think it would show up as drastically as it did.”

M25 is leveraging the research report into a new web portal, midweststartups.com, as a way to draw attention and recruit talent for both portfolio companies and Midwest startups in general.

“We’re putting this site together to help our portfolio companies and draw talent to those companies,” Gutwein said. “We want to make this a resource for Midwest startups as a whole and the tech community.”

“A growing tech region doesn’t have to happen just on the coasts anymore,” he added.

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