Midwest Becoming a Hot Spot for Startups

Ann All

Where will the "next Silicon Valley" be located? Some folks are predicting it will be in an emerging market like India. In 2007 the International Herald Tribune reported Bangalore was becoming an "incipient Silicon Valley of the East," thanks to ambitious entrepreneurs who are leaving their jobs at outsourcing companies to found their own startups. The story quoted an executive from a venture capital company who predicted "there will be a Skype out of India in the next five years." (We've got another two years before we find out if his prediction is true.)


At an outsourcing event I attended in 2008, global sourcing advisor David Kinnear concurred, saying during a panel discussion that he wouldn't be surprised if the next "big bang" technology development occurred outside the U.S. or western Europe. Around the same time, a poll of graduates from the Indian Institutes of Technology found the number of graduates remaining in India grew to 84 percent between 2002 and 2008, an increase from the 65 percent of graduates who remained in their native country between 1964 and 2001.


Emerging economies will no doubt yield their share of technological innovation. But the next hot spot for startups may be in Cincinnati, not Chennai.


Writing on the Huffington Post, Ray Leach, CEO of a nonprofit economic development organization called Jumpstart, says there is a burgeoning startup economy in the Midwest. Leach offers the example of Echogen Power Systems, an Akron, Ohio-based company in the final stages of commercializing a thermal heat engine. When placed into a factory smokestack, the engine will harvest the heat escaping from the smokestack, converting it into electricity used to power the factory and, perhaps, nearby buildings.


Companies like Echogen are taking advantage of state and local governments that are creating development opportunities through programs like Ohio's Third Frontier, skilled manufacturing work forces, low costs of living and the Midwest's central location, which puts it into geographic proximity of more than 60 percent of the U.S. population.


Leach cites data from the National Venture Capital Association (NVCA), which shows venture capital investing has grown 52 percent in the Midwest since 2009, compared to growth of 16 percent in Silicon Valley and 19 percent nationally. As a percent of total invested dollars, the Midwest captured 16 percent of dollars last year, up from 4 percent in 2009.

In addition, Leach points out, some Midwestern cities offer unique strengths in developing entrepreneurs. For example, Cleveland is a center for health care expertise, thanks to Cleveland Clinic, University Hospitals, Case Western Reserve University, Summa, and other hospitals and researchers.

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