Last month, The Kauffman Institute released its annual Index of Startup Activity, which analyzes entrepreneurship across the country. The report assigns every state a Startup Activity Index number based on the rate of new entrepreneurs, their opportunity share, and startup density.
California, home to Silicon Valley ranks, of course, at #1, while booming Texas comes in at #2.
The bottom of the list is familiar. For the third straight year, Wisconsin sits at #50.
I love Wisconsin. I’m from here, I went to college here, and I’ve kept my startup here, growing it from three high school friends in an off-campus apartment to a team of over 30. I’ve written before about the many benefits of basing my startup in the Midwest: lower initial costs, affordable cost of living for employees, and investor attitudes that help focus and refine entrepreneurial vision. So it pains me to see the Badger State bringing up the rear again.
Despite Wisconsin’s overall ranking, it’s well-known within the state that Madison — where my company is headquartered — is home to a burgeoning tech scene. A recent report by TechNet and the Progressive Policy Institute ranked Madison in the top 25 of “next tech hubs”: Silicon Valley alternatives with low cost of living, high job creation rates, and access to top-quality talent. The Brookings Institute ranked Madison #5 in its study of tech industry growth among the country’s 100 largest metropolitan areas.
Still, there are certain challenges endemic to founding a tech startup in Wisconsin. Here are a few of the challenges my company has encountered over the past five years — and a few of the benefits of doing business in the Badger State.
The Midwest Series B crunch
Midwestern investors are revenue-centric, and they expect results. And though the early days of a startup can be really lean — we didn’t pay ourselves at ABODO for two years — that initial leanness forced us to focus on building a product people would pay for.
The good news is, if you’re able to achieve growth in a capitally efficient manner, it’s increasingly likely you’ll be able to find funding at the seed and Series A stages from a growing pool of angel and institutional capital in the Midwest. But as companies like mine enter later-stage financing, funding can be harder to come by than on the coasts. You can likely count on two hands the number of funds in the Midwest that consistently write Series B and later checks, making it hard to raise later-stage rounds without attracting coastal investors.
The hiring pool has fewer big fish
One of the best things for young tech companies in the Madison area is proximity to the University of Wisconsin. Every year, thousands of bright, motivated young people graduate and enter the workforce, and not all of them are on the first plane to San Jose. My company counts a number of UW computer science, marketing, and business grads among its ranks.
One of the real benefits of being in a smaller market is loyalty: Unlike Silicon Valley, employee turnover due to “startup jumping” isn’t a major problem.
But Madison’s small size and relative lack of historical startup density can make hiring at the executive level more difficult. There are relatively few executives with experience scaling high growth companies, and they mostly come from health care, biotech, and B2B SAAS — not consumer tech. Ultimately what that translates into for a consumer tech company like mine is a smaller qualified applicant pool, particularly in product. The Midwest has high-performing startup executives with experience — there are just fewer of them to choose from than you might find in Palo Alto.
The winters are brutal. Increasingly, so are the politics
If you want to recruit an executive to Madison, all you have to do is fly them out in the summer. The weather is gorgeous, the lakes are full of boats, and Madison is fully visible as the affordable, laid-back, and progressive city it is.
It would be better if there were a mountain nearby, but you can’t have it all.
Come winter, though, it can be hard to convince someone used to 70-degree January days to make the move to Wisconsin, even with the other benefits that might come with it. And the state’s recent political climate, which magnifies the partisan divides gripping much of the country, certainly hasn’t been making it any easier. With many alternatives to Silicon Valley springing up across the country, the last thing Wisconsin needs is political conflict discouraging top tech talent and investors from moving here to do business.
In the past year, Wisconsin finally broke the 100,000 mark for workers in tech, and the sector now makes up 5 percent of the state’s economy. There’s no reason why the Badger State has to lag behind the rest of the country — and no reason why it has to be #50 for the fourth year in a row.
Alec Slocum is founder and CEO of ABODO.