Midwest Venture Capital Consortium Formed to Capitalize on Region’s Exceptional Returns

Sixteen independent, primarily Midwest-based venture capital firms have established a consortium to serve Midwest-based start-ups’ funding needs as well as investors seeking the Midwest’s demonstrated exceptional venture capital returns. The consortium, with a combined $2+ billion in cash available for investment, is expected to accelerate Midwest venture capital activity by establishing a virtual one-stop venture capital shop for aspiring entrepreneurs.

Member firms include Alumni Ventures Group, Boomerang Catapult, Cultivation Capital, Flyover Capital, Grand Ventures, Illinois Ventures, Loud Capital, Mutual Capital Partners, VCapital, and Wakestream Ventures.  Six others, including a prominent Silicon Valley firm, remain confidential. Consortium members have people on the ground throughout the Midwest as well as in California and Massachusetts.

Midwest’s Exceptional Venture Capital Returns
An analysis by Crunchbase News reporter Jason Rowley reviewing venture funding and exits through either M&A or IPO from 2008 through May 2018 showed that the Midwest has delivered the nation’s highest venture capital return multiples on invested capital (MOIC). While the number of ventures was considerably lower in the Midwest versus the West and Northeast, median cumulative funding required was lowest in the Midwest, and yet Midwest exit valuations were highest, resulting in a notable Midwest MOIC advantage.

2008-2018 Median Capital Raised & Exit Valuations
of Venture-Backed Startups by US Census Region

 

Region

Sample

Size

Median Total

Equity Funding

Median Exit

Valuation

Median Multiple on

Invested Capital (MOIC)

West 713 $38.5M $163M 4.2x
Northeast 336 $32.0M $148M 4.6x
South 195 $28.3M $130M 4.6x
Midwest 92 $15.5M $177M 11.4x

Source: Crunchbase News

Since some high-flying outliers skewed Midwest results higher, Rowley then excluded companies with only one recorded round of funding for a more conservative comparison. Results from this more cautious approach are shown below.

2008-2018 Median MOIC’s
Excluding Startups with Only One Round of Funding

Region West Northeast South Midwest
Sample Size 577 259 140 63
Median MOIC 4.29x 3.89x 4.35x 5.17x

Rowley further compared exit multiples by metro area. Chicago came out on top nationally. A March 2018 Pitchbook report also found Chicago in the number one spot.

The Midwest’s superior returns are attributed to supply-and-demand dynamics (i.e. Midwestern investors’ conservatism) and much lower costs outside of the west coast and northeast, enabling Midwest ventures to develop with less capital.

Consortium Will Capitalize on Midwest’s Strengthening Start-up Environment
While Silicon Valley and the Boston area have dominated the information technology revolution, IT and other advanced technologies are increasingly creating advantage in a broad range of industries. This will favor areas with more diverse economic bases, such as the Midwest, which houses 30% of Fortune 500 headquarters. Talent from those industries are becoming entrepreneurs to capitalize on their industry-specific knowledge. Many of those entrepreneurs are remaining in place geographically in order to be close to early customers.

Until now, Midwestern venture capital activity has been limited by the region’s less developed startup “infrastructure.”  That is changing. The region accounts for 25% of the nation’s computer science degrees. It also now hosts Chicago’s 1871 Center for Technology and Entrepreneurship, the world’s top university-affiliated business incubator according to business incubation expert UBI Global.

The new Midwest Venture Capital Consortium surmounts remaining hurdles to regional venture capital growth through: (1) member firms’ access to a broader, stronger deal flow; and (2) ability to meet ventures’ funding needs fully and efficiently, as the sixteen members collaborate to quickly amass required funds.

For more information, please contact Ryan Kole, Principal at VCapital and Director of the Midwest Venture Capital Consortium, at 312.690.4171 ext. 105 or rkole@vcapital.com.

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