You can have a deep tech company in the Midwest, AND you don’t have to leave. That may be counterintuitive to most of you reading this, but stay with me, and we’ll go through the data that backs this up. According to one founder who recently viewed this data, “If I’d known this [when I had my business], I would’ve done things differently.”
If you've spent any time around high-tech innovation, the common narratives you hear are “go big or go home”, “billion-dollar markets are what matter”, and “you need to move to the coasts to get the capital and talent that you need”. While they are all important narratives to debate, they aren't the focus here. Instead, I want to start with the basic premise: What if the conventional story about Midwest science-based startups isn't actually accurate? The data presented here comes from the U.S. National Science Foundation Innovation Corps (I-Corps for short) and offers a way to test that assumption. What it shows is a story not simply about companies surviving, but about place-based innovation: companies being built here, staying here, and contributing to the economies where they started.
The I-Corps Hub for the Great Lakes Region# has been tracking its companies' outcomes since 2012. That data tells a different story from the one we often hear about Midwest innovation and points to scientific companies as a distinct segment of the startup landscape. Again, I want to emphasize up front: this is a federally funded, nationwide program, but the data presented here is for the entire Great Lakes Region only. I may be writing from Michigan, and the team that runs this Hub may be housed at the University of Michigan, but we represent regionwide ecosystem data. This article will discuss several conclusions from a recent data analysis, which include:
1) Most companies formed through the program stay in the region
2) Most remain relatively small, with 150 or fewer employees
3) Most outcomes are ongoing, revenue-generating businesses that continue to contribute to their local ecosystems.
The purpose of the NSF I-Corps Hub: Great Lakes Region is to provide experiential education to help highly technical researchers gain valuable insights into commercialization, with the goal of spurring innovation and economic impact. The design of the program supports and connects academic researchers and entrepreneurial ecosystems across the Midwest. And through sharing resources, the aim is to bolster participation and partnerships among institutions and industry in the region.
Most companies from the I-Corps program stay local
This brings us to the data that supports what may be three counterintuitive conclusions. First, the companies founded in the Midwest are staying in the Midwest. How do we reach that conclusion? Using data tracked for the teams trained and companies subsequently formed through the I-Corps program since 2012, the analysis examines the number of jobs created and bases the total economic impact on job-years of employment. Over that period, Great Lakes teams are responsible for $2.83 Billion in economic impact in the Midwest. That’s 70.9% of their total impact, with the remaining 29.1% of economic impact geographically distributed elsewhere. This means that the majority of the economic impact produced by these Great Lakes companies is staying local. This supports a place-based innovation thesis that scientific innovation does translate into economic growth in the places where it has originated.
Most companies from the I-Corps program remain relatively small while maintaining productive businesses
So what else do we know about these companies?
We gathered further insight through the next piece of data, which concerns company size. Overwhelmingly, 99% of the companies are made up of 150 or fewer employees. Adding to this counterintuitive metric, we looked into the status of the companies, and most outcomes are ongoing, revenue-generating businesses that contribute to their local ecosystem. In deep tech, the narrative is usually “go big or go home,” which translates to the need to grow quickly (in both raising capital and number of employees), and either get acquired or fail fast, in other words, go out of business. However, with the data collected by the Hub, instead, we see that 65% of the companies are currently revenue-generating and didn't take on substantial amounts of capital. They are continuing, hiring employees (while still keeping the total number relatively small), and bringing tech to the marketplace as smaller but nonetheless stable, growing revenue-generating companies. We only see 4% of the companies being acquired and 14% going out of business (with the remaining 17% either pre-revenue or with an unknown outcome).
What does this mean for the definition of success?
The data suggest that these smaller companies have a substantial impact, even rivaling - in total - the handful of larger I-Corps companies in the region. There's a common assumption that only billion-dollar companies move the needle, but our data tell a different story: the combined employment of many small to midsize startups can be comparable to that of the handful of big winners. After all, 84% of companies remain active 5+ years after formation, and 65% of all companies have reached revenue generation.
This has implications for how we define “success” for scientific businesses and how we advise them to approach funding and growth. The “go big or go home” mentality can push companies to take on more capital and pursue unrealistic growth targets when they could instead build highly successful, profitable businesses at a smaller scale. In some cases, pursuing that growth can undermine a company that might otherwise have continued to generate revenue, employ people, and contribute to its local economy. Many of these companies may be better served by funding strategies that match their goals and growth trajectories, including investment from regional firms that understand how to grow scientific companies.
Scientific companies represent a different segment of the startup landscape, and our strategies for supporting them should reflect that. The data points to alternative ways of defining “success” and therefore an opportunity to rethink how we support these companies so they can continue producing place-based, Midwest economic impact.
#Great Lakes includes participating universities in Ohio, Illinois, Iowa, Michigan, Minnesota, Missouri, Nebraska, Indiana, and Wisconsin.
*The reported data comes from pitchbook.com for the companies that were able to be directly linked between participating I-Corps projects and companies listed in the database.
We know 500+ companies have been established (self-reported); 259 companies exist as an entry in the PitchBook database, giving us company status; of the 259, only 177 list/report employment data or job history numbers.
Ruby Miller is a Postdoctoral Research Fellow at the University of Michigan, Center for Entrepreneurship (CFE) where she conducts research using data from the NSF I-Corps program to evaluate how universities translate research into innovation. She holds a PhD in Chemistry, has worked on the commercialization of cutting-edge biomedical technologies and has a keen interest in how these technologies are funded and come to market.
