The Midwest is a fundraising under-performer. What can be done to change that?

Ann Arbor is one of those places that most Americans associate with college football. Go Blue. The ‘Big House’ being the nation's largest stadium. It's ‘winningest’ program. And, er… Tom Brady.

The rest of the world? They’ve probably never heard of it.

So when this town of barely 150,000 people is mentioned by a prominent British startup investor, on the most well known startup investment podcast in the world, ears should prick up.

In 2024, according to data from Dealroom, all the startups in the entire state of Michigan raised $1.26 billion. The previous year it was $1 billion. This led the Michigan Venture Capital Association (MVCA) to say that the state had ‘held steady’ and that it was ‘insulated from national trends’.

In their last round of fundraising, that same British startup investor—from the podcast referred to above—closed a round of investment which would equate to 13% of the amount raised in all of Michigan during 2024.

What ties these things together is what was said on the podcast: “I’ve raised more money in Ann Arbor, Michigan than I have in London”, Matt Clifford of  Entrepreneur First declared, further noting that this investment came from a pension fund based in AA of some $70 billion.

As one might hear people say in the Midwest: it's a neat story. One which grabbed my attention because, based on anecdotal evidence from living in Michigan, it also runs counter to what is happening with the local fundraising situation. Because if you zoom out even a little, you’ll see that Michigan—and the rest of the Midwest for that matter—remains deeply undercapitalized relative to its economic potential.

The total amount raised in the Midwest states (defined by the MVCA as Wisconsin, Ohio, Minnesota, Michigan, Indiana and Illinois) during 2024 was $7.8 billion dollars. This amount is not only much less than the amount raised in states like California, New York or Massachusetts, it is also less than that raised in France, Germany, Canada and the UK respectively.

Comparing California, New York and Massachusetts with almost anywhere else on the planet is just silly; they’re among the very top locations in the world to raise funds. But when you look at fundraising amounts relative to the size of their respective economies as I have done, the discrepancy becomes more evident. Just look at the difference between the Midwest with India, South Africa and… Estonia.

Why is this region so underfunded? And more importantly, is it possible to improve and if so, what should we be aiming for?

In this article I’ll compare Michigan and its neighboring states to coastal and international startup ecosystems—and try to outline some of the structural challenges that may be keeping the Midwest from maximizing its potential.

Major Economy, Undersized Venture Scene.

Let’s begin with the big picture.

The collective economies of the Midwest states would rank as the 4th or 5th largest economy in the world. The collective GDP of these states is in fact larger than that of California, a place often cited as one of the largest GDPs, if it were its own country.

It’s no revelation to say that California startups raised enormous amounts of venture capital in 2024, while the Midwest’s total was a small fraction of that sum.

Nor should it be a revelation.

I’m not suggesting that everyone in Menlo Park or Sunnyvale should suddenly relocate to Traverse City or the Upper Peninsula*. Far from it, although we’d love to have you.

*NOTE: If you don’t know, ask a Michigander: maybe Steve Ballmer or Larry Page can help.

What I am asking is why the disparity is SO large, when there are other regions and nations - including many outside the US - which have weaker economies overall yet do a fundamentally superior job of funding their emerging businesses.

Especially in Michigan? 🎵 OR… c'est la vie?

Let’s focus on Michigan. The $1.26B raised in my new home state during 2024 isn’t to be sniffed at. Billions are billions, after all. But that equates to $124 raised per person, whereas in New York State that figure is $1112. In Massachusetts it is $2088, while in Canada–just across the river from Detroit–the amount is more than double that of Michigan at $271.

This difference is jarring, and at first glance makes little sense. Using this figure, we can calculate that if Michigan was funded at the same level as Canada relative to the size of its economy, the amount raised would be north of $3.5 billion—more than 3 times the current amount.

Let’s look at another comparison from my own working experience, and that's what has happened in France.

I lived and worked there between 2017 and 2023, founding and then selling a Part-Time CMO business for early stage startups. In the year I arrived, the total amount raised was $3.7B and there were three unicorns. In 2023, this amount was more than $11 billion* and 26 unicorns had been created.

*NOTE: the fundraising amount in France peaked at $17 billion in 2021, but this was also the year where all good fundraising peaks went to die.

To compare these different locations, it is important to consider that I’m utilizing what may be an imperfect metric, being the amount raised against the GDP for that region as a percentage. Based on this figure, in 2024 the amount raised in France was equivalent to 0.32% of its GDP. For the UK this is 0.52%, for Canada it is 0.50% and for Estonia… 0.74%

Michigan’s ratio of venture funding to GDP is 0.18%, closely matching the overall Midwest figure of 0.19%. This metric points not only to a mismatch between the state’s overall economic heft and its venture investment, but also indicates where the priorities lie compared to other places across the country and the world.

In simple terms the total size of Michigan’s economy is overwhelmingly larger than the relative amount of capital deployed into its startups. And across the Midwest, the pattern is much the same: lots of economic power, relatively little venture activity.

Why ‘Just Move’ isn’t the answer.

Those in the established tech hubs of the US may well say “It's cool, you can just move here”.

It’s a tempting piece of advice, but overly simplistic.

There are plenty of founders and investors who want to stay in Michigan and other regions across the Midwest. They have deep local networks, personal ties, and domain expertise that might be region-specific, such as automotive R&D or advanced manufacturing in Detroit. They may also simply prefer the cost of living and the lifestyle, which can indeed be more manageable than in coastal cities.

So why do so many new founders still decide to uproot everything and head west or east?

It is that the networks available in big coastal venture ecosystems are often too powerful to ignore. They offer a critical mass of institutional investors, experienced operators, and a pipeline of next-generation talent that the Midwest struggles to replicate. One founder recently told me that they had advertised a new job simultaneously in Michigan and Silicon Valley. From the CVs they received, they interviewed ten people in California. And although they received many from people in Michigan, they didn’t interview even a single one. Their reason: “there just wasn’t as many ‘rock stars’.

When every other person in your local coffee shop has raised a Series A or successfully exited a startup, it's easier to collect best practices by osmosis.

You see how deals are done.

You know which investors specialize in AI, marketplaces or biotech.

In Midwestern communities, those conversations happen far less often—or they happen behind closed doors, among a small group of people who either aren’t actively investing or… they’re looking a visiting British investor square in the eye and saying “Sure thing, sign me up”.

All this begs the question, should you have to move?

The short answer is No, you shouldn’t. So let’s continue to make the comparison between Michigan, the Midwest and the rest of the world.

Lessons from abroad: The Estonia Test.

It may be surprising to some that Estonia—a country with a population of around 1.3 million—actually funds its startups at one of the higher ratios to GDP in the world. Countries like Canada, India, and even some in Africa also produce funding-to-GDP ratios that eclipse what we currently see in the Midwest.

This becomes obvious when the two figures are charted next to each other. By placing the actual GDP on the opposing axis, the relation between the two metrics becomes clear: California, Massachusetts, Israel and Estonia stand out with New York somewhere in the mid-range.

Estonia is an interesting comparison for multiple reasons.

It shows that you don’t need to have a huge population or enormous GDP to spawn a vibrant startup ecosystem. What you DO need is a supportive environment for entrepreneurship, robust digital infrastructure, and a track record of success in order to encourage reinvestment. Estonia has had a disproportionate number of major tech wins. From Skype which spawned the PipeDrive founding team and Wise (formerly Transferwise) to Bolt, which is dominating ride share in emerging markets.

These successes have done two things: spurred reinvestment from early employees and founders into new startups, and those investments and businesses have, for the most part, remained in Estonia. Over time, a culture has emerged where success begets more success.

The Midwest has all the raw ingredients for something similar.

In fact, there is an argument to be made that it has a better chance due to its historical success than somewhere like Estonia did at the beginning of this process: it has strong talent pipelines (from large research universities), deep industry expertise in sectors like mobility and manufacturing, and a stable of corporate giants that can serve as either anchor customers or strategic partners.

Even still, the money coming into Midwest startups is dwarfed by the region’s actual economic muscle. Mapping the numbers as we have here clearly demonstrates that the region is currently punching far below its actual weight class.

The Early-Stage Funding Conundrum.

In the Midwest, you hear a common refrain: “We need more early-stage capital.”

At first blush, that makes sense. The earliest dollars in a startup’s life are the riskiest and often the hardest to raise.

If you’ve managed a successful exit in the Bay Area, you’re simply more likely to re-invest a portion of those funds into someone else’s startup. That cyclical pattern of risk-taking and reinvesting is part of what helps an ecosystem to compound wins over time.

Michigan does have recent success stories, Duo Security’s exit to Cisco in 2018 being a prime example. That exit seeded new funds, mentorship programs, and the Michigan Founders Fund. More recently, companies like OneStream and Lineage have had major liquidity events, producing new capital that, in theory, could trickle back into local startups.

But the cycle isn’t automatic. High-profile IPOs are great, but in order to build an ecosystem that can even come close to being relative to the size of the overall economy, some of that money needs to flow back into seed and early-stage companies.

At an event in 2024, Dug Song, the co-founder and ex-CEO of Duo, said that when they sold the business to Cisco, people in California asked him what he was going to invest in next. People back in Michigan, meanwhile, asked him what boat he was going to buy.

This cycle has been replicated elsewhere. Instead of the Paypal mafia, in Germany it was Rocket Internet. I've mentioned the impact that the success of Skype had in Estonia and in France it has been the alumni of Doctolib and Algolia, amongst others.

A culture of reinvestment is an absolute must. If that doesn’t happen, the region can never fully benefit from its own successes for those who stay and/or plow funds back in. You get a few big winners, but no broader transformation of the funding landscape.

But here’s the catch: would more early-stage capital alone change the game in the Midwest?

While it may be necessary, on its own it is probably insufficient. Startups need more than seed money to scale—they also need follow-on funding and a robust support system which includes mentorship, strategic connections, and specialized talent.

It seems likely that one of the reasons early-stage money stays scarce in the Midwest is that the local institutions who could be pouring funds into local businesses—the pension funds, the university endowments, and the big corporations—often don’t see enough momentum in the local startup ecosystem to commit large chunks of capital. It’s a chicken-and-egg problem: you can’t get more momentum without capital, but you can’t get more capital without momentum.

This dynamic forces many entrepreneurs to chase out-of-state investors, who, in turn, push the founders to relocate for better access to talent and bigger markets.

Institutional Investors and the “Bypass” Effect

Institutional capital looking for early-stage deals—pension funds, family offices, endowments—may often bypass the Midwest, heading straight to known venture ecosystems where they perceive greater deal flow and quicker, more predictable returns.

You see this in the relative presence of corporate innovation arms as well. Detroit, for instance, hosts some of the world’s largest automotive and manufacturing operations. The city and the wider area around it also has a strong base in life sciences. These industries already provide an anchor for startup investment, either through direct venture arms or through partnerships that stimulate spin-off companies. But so far, that hasn’t translated into a larger surge of early-stage funding. Why not?

It is likely that major corporations in the Midwest are oriented around traditional R&D structures rather than venture bets on external startups, and that corporate boards here are more risk-averse, and therefore less likely to champion a big venture fund. Even then, when they do have an appetite for external innovation, they’re more likely to invest in proven ecosystems like those in Silicon Valley, NYC or Boston, where the “hit rate” of promising startups is seen to be higher.

The result is that local seed-stage companies in the Midwest often struggle to attract attention from the big names in their very own backyard.

Overcoming Cultural Hurdles

Last, but certainly not least, there’s a cultural dimension to all of this. Silicon Valley isn’t just a physical place; it’s a mindset that encourages big bets, normalizes failure, and celebrates entrepreneurial success.

The Midwest, by contrast, is known for a more conservative culture around money but also shouting about success to encourage others.

In startup investment, sure things are rare. Big outcomes tend to come from a small number of breakout companies, and identifying them early entails a fair bit of risk. That risk tolerance is at the heart of innovation. Changing the local culture can be as complicated as building new capital structures as happened in France, or propagating a digital-first culture like in Estonia.

Most likely, the only way this will change is if we—everyone linked and part of the local ecosystem—accept that the biggest risk may come from what we DON’T invest, more so than what we do.

Why Does It Matter?

It is possible that many of those who can help make a change will think: “Why does it matter if the Midwest remains underfunded, and why should I care?”

If you’re a founder, you can always move to New York or San Francisco, right?

And if you’re a talented software engineer, you might even be able to land a well-paid remote job with a Silicon Valley startup. So where’s the problem?

The short answer is that there’s a huge economic opportunity being left on the table. When a region with a massive GDP invests too little in its startups, it’s basically leaving some of the best growth potential underdeveloped. And in the long term, that hurts everyone: fewer high-paying jobs, fewer next-generation industries, fewer reasons for young talent to stay local or move here.

It’s not just about the immediate returns from successful exits; it’s also about building resilient local economies. Historically, industries like auto manufacturing in Detroit generated enormous prosperity—but when those industries falter, cities and communities struggle to adapt.

A thriving startup ecosystem is one of the best buffers against economic downturns in any single sector. If Michigan and the rest of the Mid-West want to ensure their long-term prosperity is better aligned with the rest of the country, then doesn’t it make sense to do everything we can to cultivate and diversify its innovation economy? And shouldn’t we be doing that now, collectively?

What Now? Reasons to be Optimistic.

If you think the purpose of this is to nitpick or discourage, you’d be wrong. Let me leave you with reasons for optimism. Places like Michigan—and the broader Midwest—have an abundance of qualities that matter for building world-class companies: top universities, robust research labs, a deep pool of skilled engineers, manageable living costs, and big industries that can serve as launching pads for the next wave of high-tech disruption.

The region is already evolving. New funds have opened, new mentorship networks have been started, and a slow but steady shift in how local corporations engage with startups is happening. Recent IPOs begin to infuse capital (and confidence in making big bets) back into the ecosystem.

The truth is, building a thriving startup ecosystem takes time. The examples in this data demonstrate what can be done in a wide variety of locations - from Israel to Estonia and even South Africa - when a network of talent, skills, institutional funding, and entrepreneurial leaders reinvest in their community. Michigan and the rest of the Midwest is home to its own seeds in the form of big corporate anchors, top-tier schools, and founders eager to build the next generation of local success stories.

As more local talent re-invests, as more networks form around proven successes, and as more risk capital flows from both in-state and out-of-state investors, you can picture the flywheel starting to spin. In the near future, if a bright founder from East Lansing or Detroit has a dream that they believe is worth pursuing, they shouldn’t have to catch a flight to the coasts just to make it happen. They should be able to find the necessary mentors, capital, and talent in their own backyard.

That day might arrive sooner than we all expect. But not automatically. It will take deliberate efforts. With its massive GDP and underutilized resources, the Midwest could see a multiplier effect that’s rare in more saturated markets. Once the flywheel starts spinning in earnest, it could reshape not only Michigan but the entire region, turning it from a sometimes overlooked backwater of ‘flyover states’ into one of the most dynamic and fertile tech hubs in the world.

Personally, I’m here for it.

Sources:

CIA World Fact Book: GDP (2023 est), National Population

Census Data: State population est 2024

State GDP: Bureau of Economic Analysis (2024 est)

Dealroom: Funds raised based on Founding HQ location 2024