Draft & Develop: Applying baseball thinking to Midwest startups

I've been watching a lot of baseball lately, in large part because my team, the Milwaukee Brewers, has been on a historic tear. 

But part of what has been drawing me to the team is that the dynamics of the MLB and what the Brewers have been accomplishing this summer bears some resemblance to the work of startup founders and investors here in the Midwest. 

After the LA Dodger's World Series win last year, there has been renewed debate among MLB owners this season about the fairness of the league when there is no salary cap (like there is in the NFL for instance). Will a small market team realistically ever be able to win a World Series again? 

This means that teams like the New York Yankees, Los Angeles Dodgers and New York Mets can afford to attract the best of the best players with proven track records to their rosters with enormous salaries and incentive packages. 

To put this into perspective – this year the Mets (one of largest market teams) will pay its players ~$340M, while the Brewers (smallest market team in MLB) will pay its players ~$114M. Teams like the Brewers have little hope of holding onto their best young players at the end of their contracts when the Mets, Dodgers and Yankees can pay them 3x more. 

This puts intense pressure on small market teams to develop top-notch farm systems in the minor leagues. The thinking is - if we can't buy a winning roster, then we've got to build one with young, unproven players. 

The A's did it in the early 2000s, and right now the Brewers, the smallest market team in the MLB, have the best record in all of baseball. 

This narrative is very parallel to the one we have been attempting to write in Wisconsin since gener8tor’s inception in 2012, and our peers in many other markets across the Midwest and other markets outside of traditional VC hubs like NYC and SF. 

If Andreesen Horowitz posts a 3x+ DPI on their latest fund in San Francisco, that's great for them, and unsurprising to everyone.

If a place-based VC posts the same or better performance in Wisconsin, Indiana, Michigan, North Dakota or Nebraska... and so on - that means something. Much like the small market Brewers winning the World Series. 

It means the traditional frameworks through which the most prestigious and credentialed leaders in the industry think about risk and return as it relates to geography is at best flawed and at worst wrong. Conversely it proves us all right - that our communities have talent and untapped potential that is worth giving the time of day. 

And the most exciting piece is that, for better or worse, we don't have the Yankees, Mets or Dodgers to worry about. For the most part, early-stage investors outside of coastal hubs are the ones funding startups in the Midwest, which means we have first pick in our region of the top talent to develop in-house before they get picked up by a bluechip coastal fund. 

The pathway to (the business equivalent of) a World Series for us is narrow and extremely difficult, and it relies much like it does in the MLB on an extremely good and well developed farm system (the Draft & Develop mentality). 

As a Midwest-based accelerator currently evaluating companies in our backyard for potential investment, the questions that come to mind are: who has the most obvious talent? Quickest processing speed? Sharpest hunger? Most unique perspective? Who intuitively grasps the importance of how their customers view and process value and making purchasing decisions relative to the next best option? Who could I see walking into a room with a customer and walking away with a sale? Who wants to play the game, and wants to do it better than anyone else? Who is capable of convincing a room they will deliver a billion dollar outcome? 

In other words, who has the raw talent and drive to shape themselves into a league MVP with the right support and network? 

On the flip side, speaking to founders considering building in the Midwest vs. the coasts - what kind of market and early supporters would be the best for their development as they are figuring it out? Similar to a young prospect debuting in the playoffs for the Dodgers - do the return expectations of a $1B fund on a pre-seed company act as a crucible forging the best founders? Or can those expectations crush them underfoot and cut short the career of a would-be great? Would they be best served by funders and supporters willing to work with them on their game and give them the space to develop? If so, why not stick around in the heartland and let’s win a World Series together leveraging the power of friendship and pocket pancakes.

Ben Stanley is a Principal at gener8tor 1889, a venture fund focused on investing in high-growth, seed-stage startups. Based in Fargo, North Dakota, he is originally from Wisconsin. He began his career as a reporter for local news media, and worked for BizTimes writing about startups before taking a role with gener8tor in Milwaukee.