Why Minnesota is poised to become a hotbed for digital health startups

Watch out, West Coast: The thriving startup scene rising out of the Midwest means it’s no longer flyover country. The Upper Midwest — especially the Twin Cities of Minneapolis and St. Paul, Minnesota — has become a vibrant and healthy environment for startups. According to a recent Star Tribune article, CliftonLarsonAllen’s technology practice estimated that exits of about two dozen technology companies in the Twin Cities amounted to $7 billion over the past 10 years.

Minneapolis also ranked as the second best city for startups by the M25 Group based on how active the tech community is, the size and quality of the network, access to resources, the number of startups and their success rates, and other factors such as the cost of living and pool of talent.

Though the Bay Area has spawned thousands of innovative startups that revolutionize how we shop, get a ride, and find a place to stay, its efforts to revolutionize health care have been more checkered. In contrast, the Twin Cities are experiencing strong activity in digital health innovation. And Minneapolis-St. Paul has some clear advantages over the Bay Area.

In 2016, 98 Minnesota health technology startups raised $420.3 million — well above other Midwestern states, according to Medical Alley, a Minnesota trade association. In addition to more companies being funded, digital health companies also saw an 80 percent increase in funding from 2015 to 2016, with the average first round five times greater in 2015 than in 2012.

First and foremost is the state’s legacy of health care, retail, and consumer-facing companies that enable it to foster innovation in digital health. With UnitedHealth, Medtronic, Boston Scientific, St. Jude (now Abbott), Mayo Clinic, and other world-class medical centers based here, the Twin Cities has one of the richest health care communities in the country. According to the U.S. Bureau of Labor Statistics, about 439,300 people are employed in the health care industry in Minnesota. Because we know and understand the health care model, we can see where we can break it to make it better.

Though the Bay Area has an enviable density of capital, technologists, and companies to partner with, the flip side of that means there is greater competition to attract and retain employees. Bay Area salaries, already on the high end of the scale, are further driven up as employees get recruited and job-hop to more lucrative gigs. As a result, startups may struggle to keep experienced team members and burn through more capital just get off the ground.

Not only are we lucky to have a very large local population of professionals with deep domain expertise in health care delivery, reimbursement, and medical technology, but the state’s concentration of Fortune 500 companies — including Target, Best Buy, 3M, and General Mills — means there is an enormous pool of retail and marketing talent. As the health care industry evolves, it’s this understanding of how to connect with and motivate individuals while working within the system that will meet the increasing consumerization of health care.

Minnesota also stands out for its affordability and quality of life. Though Twin Cities home costs are expected to increase slightly, the median 2017 home value in the region is $237,400 — a fraction of the $824,600 that the average house in the San Francisco metro area costs. Residential rents are also much higher out west, with the average cost of a one-bedroom apartment in San Francisco being $2,450 compared to $1,600 per month in the Twin Cities. That’s a difference of nearly $20,000 over the course of a year.

Simply put, Minnesota salaries, though slightly lower than the coasts, enable employees to enjoy a higher quality of life. It’s for this reason that Minneapolis ranked #10 on the top ten list of Metros for Millennials for its high wages compared to rents and having the highest share of millennial homebuyers, according to ApartmentList.com. This influx of young talent helps create a stronger and more stable economy where people are able to take risks and join a startup.

As for Midwestern winters, they are long and cold. But they don’t stop Minnesotans from getting out and enjoying the snow and ice. One might even say that they help foster creativity because of all that time spent inside thinking.

As we head into Twin Cities Startup Week, it’s exciting to see the digital health innovations coming out of both Minnesota and the Bay Area. Because what matters most is that technology is already improving care across all points of the system for millions of people. In the Twin Cities, we’re proud to stand on the leading edge of that effort.

Tom Wicka is the CEO of NovuHealth, a St. Louis Park, Minnesota-based company that develops consumer-centric loyalty programs for the health care market.