Ann Arbor is one of those places that most Americans associate with college football rather than Midwest startup investment. Home to the University of Michigan, the self-proclaimed “Harvard of the Midwest,” with the (apologies to the grammar police) “winningest program” in that sport.
The rest of the world? Most have probably never heard of it, and even fewer could tell you much about its university.
So when a Michigan town of barely 150,000 people is mentioned by a prominent British startup investor as a great place to raise money, on the most listened to VC podcast in the world… our Midwestern ears should prick up.
Why? Because - although most in our region may not be aware of it - there is much more venture capital funding raised in the UK than there is in the Midwest. Which means we’d be right to ask: who is he referring to and why did they choose to invest in a British organization, when so many in our region struggle to raise local VC funding?
“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 of some $70 billion, based in that town in Michigan.
As one might hear people say in the Midwest: it's a neat story. One which grabbed our attention back before this site was even a glint in anyone’s eye because, based on anecdotal evidence from living in the region, it runs counter to what is happening locally. If you zoom out even a little, you’ll see that the Midwest remains deeply undercapitalized relative to its economic potential.
With 2025 now over, we can definitively say that it was an historic one in investment terms. Based on data from Dealroom (which we have made available to view here), fifteen years ago, the six Midwest states that we cover regularly (Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin) would collectively raise more funds for their high-potential startups than those in the UK. But that hasn’t occurred since 2014 and Britain has since then regularly raised more than twice as much VC funding collectively as our region. This year, that variance between the two locations will be the largest over the period we examined from 2010, at almost 3x as much. Keep in mind, this is a UK that its own media is continually saying is stuck in an 'economic malaise'.
But these figures are’t the only reason why 2025 has been historic.
For example, comparing California, New York and Massachusetts with almost anywhere else on the planet in investment terms is just silly. They’re among the very top locations in the world to raise funds for early stage businesses. But when you look at fundraising amounts relative to the size of their respective economies as we have done, the discrepancy becomes more evident. Just look at the difference between the Midwest with India, Canada and… Estonia (see chart below).
Then there is the number of rounds raised this year, also reaching historic lows almost across the board. Our region has been particularly hit with Illinois as the most glaring example at 35% of its average number of rounds, and 25% of what it achieved just two years ago.
What is going in in general? And why is our region so underfunded relative to similar economies? More importantly, is it possible to improve and if so... as we begin a new year, what should we actually be aiming for?
In this article weI’ll compare the Midwest to coastal and international startup ecosystems, and try to outline some of the structural challenges that may be keeping the region from maximizing its potential.
Our goal is to begin a discussion on the local situation. We intend to release a larger report on The State of Midwest Fundraising in the coming weeks that we hope can provide greater context and receive attention. If you're interested in being involved in that report then please get in touch with us here. Until then, read on.
Major Economy, Undersized Venture Capital Funding.
Let’s begin with the big picture: the collective economies of the six Midwest states we look at 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 indeed its own country.
It’s no great revelation to say that California tech startups raised enormous amounts of VC funding in 2025, while the Midwest’s total was a small fraction of that sum.
Nor should it be a revelation.
To continue the California comparison further, and focus on this year especially, we see that in 2025 California raised x22 the amount of venture capital funding of the total of all six Midwest states we cover. In the data from Dealroom, since 2010 that multiple has never been so high. In 2024 it was x13 and in the previous fourteen years prior to 2024 it was an average of x7.5.
We’re not suggesting that everyone in Menlo Park or Sunnyvale should suddenly relocate to Traverse City or the West Loop*. Far from it, although if you're reading this, we’d love to have you here.
*NOTE: If you don’t know, ask a local: maybe Marc Andressen or Larry Page can help.
What we are 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 and creating a flywheel that keeps their ecosystems humming along. If nothing else, this data makes for sobering reading.
Midwest vs… the rest?
In attempting to work out why things are playing out the way they are, let’s dive a little deeper into the numbers. In 2025, businesses in the Midwest states collectively raised just under $8 billion. That isn’t to be sniffed at. Billions are billions, after all. But that equates to $142 raised per person, whereas in New York State that figure is $1409. In Massachusetts it is $1987, while in Canada - just across the river from Michigan - the amount is a third larger than all the Midwest at $177.
This difference is jarring, and at first glance makes little sense. Using these figures, we can calculate that if the Midwest was funded at the same level as the UK relative to its GDP, the amount raised would be more than $30 billion this year - almost four times the current amount.
Let’s make a comparison with another European country which has evolved its innovation economy over the last decade, and that is France.
In 2017 and this year, the total amount raised was $3.7B and there were three unicorns. That same year in the Midwest the amount was $5.4B. In 2023, the French amount raised was a tick over $10 billion* and thirty-three unicorns had been created.
*NOTE: the VC funding amount in France peaked at $17 billion in 2021, but that was also the year where all good fundraising peaks went to die.
To compare these different locations, it is important to consider that we’re utilizing what may be considered an imperfect metric. That metric is the amount raised against the GDP for that region as a percentage. Based on this figure, in 2025 the amount raised in France was equivalent to 0.33% of its GDP. For the UK this is 0.74, for Canada it is 0.33 and for Estonia… 0.59.
The Midwest’s ratio of venture capital funding to GDP is 0.19, with the highest in the region this year being Michigan’s 0.41. However we’ve shared previously how this Michigan figure is heavily dependent on one company.
This is best illustrated when we look at funding per round. As we mentioned in the intro, the number of rounds in 2025 was... scary. This was the case in the Midwest but also in the US as a whole and in other parts of the world.
Back to the example of Michigan, were we to remove the amount of capital for that one business we mentioned previously, Michigan would have its worst year for funding since 2019, the ratio of funding to GDP for the state would drop to 0.11 and the region would be 0.13. But we are where we are. The impact of this one financing outlier on the state is obvious when we look at funds per round over the last ten years. 2025 is so starkly different to the previous 15, and Michigan is close to Cali per round figures... because of ONE company.
These metrics points not only to the mismatch between the region’s overall economic heft and its venture capital funding, but also indicates where the priorities lie compared to other places across the country and the world.
In simple terms the total size of state economies across the Midwest is overwhelmingly larger than the relative amount of capital deployed into its startup ecosystem. In other words, if you take nothing else away from this article make sure it is this: the Midwest has lots of economic power, but relatively little VC funding.
The question we're asking is... why?
Why ‘Just Move somewhere else’ isn’t the answer.
Those in the established tech hubs of the coasts 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 the Midwest. They have deep local networks, personal ties, and domain expertise that might be region-specific, such as in automotive R&D, life sciences, robotics or advanced manufacturing. They may also simply prefer the cost of living and lifestyle, which can indeed be more manageable and with a relatively higher quality of life than on the coasts.
So why do so many new founders still decide to uproot everything and head west or east?
One word: density. The networks available in big coastal venture capitalists 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 in Michigan told us last year that they had advertised a new job simultaneously in their home state and in 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 in the case of large LPs… they’re looking a visiting British investor square in the eye and saying “Sign me up”. And naturally, that investor then goes and tells the story on a podcast.
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 the Midwest and the rest of the world.
Lessons from abroad: The Estonia Test.
It may be surprising to some of you that Estonia - a country with a population of around 1.3 million - actually funds its tech 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 next to the ratio, the relation between the two metrics becomes clear: California, Massachusetts and Estonia stand out with Israel and New York somewhere in the mid-range.
Which makes Estonia an interesting comparison point.
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 ahead of Uber.
These successes have done two things: spurred reinvestment from early employees and founders into new tech 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 as new jobs and more angel investors have been created.
Does the Midwest have the raw ingredients for something similar?
There is an argument to be made that we have an even better chance than somewhere like Estonia due to our historical business success: we have strong talent pipelines (from large research universities), deep industry expertise in sectors like life sciences, mobility and manufacturing, and a stable of corporate giants that can serve as either anchor customers or strategic partners.
Even still, this chart demonstrates how the money coming into Midwest startups is dwarfed by the region’s actual economic muscle. Mapping the numbers 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 Histosonics, Lineage and Acrisure have had major liquidity events, producing new capital that, in theory, could trickle back into local, high-potential startups.
But the cycle isn’t automatic. High-profile IPOs and capital injections 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 early and seed 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 in the Midwest, meanwhile, asked him what boat he was going to buy.
That hypothetical example of how to reinvest may be best demonstrated by the news earlier this month that one of the Acrisure founders had provided a $401 million dollar donation… to the Michigan State University athletic department.
The cycle of reinvestment has been replicated elsewhere. Instead of the Paypal mafia, in the UK it has been Revolut. We’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.
In other words, a culture of reinvestment into entrepreneurship and innovation is an absolute must to build a flywheel that becomes self perpetuating. 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. the best startups need more than seed stage money to scale - they also need follow-on capital 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 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 or avoid the Midwest venture capital firms, heading straight to known 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. Chicago, for instance, is the third largest city in the country and the state is the 5th largest in the nation. As home to a wide variety of major corporations - from McDonald’s and Kraft to United Airlines and Allstate Insurance - and while there are some great initiatives in the space to connect theses businesses with innovative entrepreneurs including our contributors TechNexus, the data we have shared here would indicate that far that hasn’t translated into a larger surge of early stage funding. In fact, this year Illinois will have its lowest year in fundraising terms since 2016, and its funding to GDP ratio will only match the region average, not exceed it as it does in most years Why is this?
It is likely that major corporations in the Midwest are oriented around traditional R&D structures rather than bets on external startups or Midwest venture capital firms, and that corporate boards here are more risk-averse, and therefore less likely to champion a big venture capital funding. 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 high-potential 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 this also manifests itself in shouting about success to encourage others. That's one of the reasons this site exists.
In startup world, a sure investment is 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 these changes are thinking: “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 can even land a well-paid remote job with a Silicon Valley startup. So where’s the problem?
The short answer is that - according to the numbers we see here - there’s a huge economic opportunity being left on the table. When a region with a massive GDP invests too little in its innovation economy, it is leaving its 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. This makes everything around us weaker.
It’s not just about the immediate returns from successful exits; it’s also about building resilient local economies. Historically, industries like auto manufacturing and its associated supply generated enormous prosperity - but when those industries falter, cities and communities struggle to adapt.
A thriving entrepreneurship and innovation ecosystem is one of the best buffers against economic downturns in any single sector. If we in the Midwest want to ensure that our long-term prosperity is better aligned with the rest of the country, doesn’t it make sense to do everything we can to cultivate and diversify our 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 us leave you with reasons for optimism. The Midwest has an abundance of qualities that matter for building world-class companies: top universities, robust research labs, a deep pool of skilled engineers, lower cost of living, and big industries and corporations that can serve as launching pads for the next wave of high-tech disruption.
The region is already evolving. New VC funding has been raised, new mentorship networks have been started, and a slow but steady shift in how local corporations engage with the local startup community is happening. Recent IPOs and large capital injections can begin to infuse more 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 France - when a network of talent, skills, institutional funding, and entrepreneurial leaders reinvest in their community. 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 almost picture the flywheel starting to spin. In the near future, if a bright founder from Cincinnati or Madison 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 the entire region, turning it from a sometimes overlooked place full of ‘flyover states’ into one of the most dynamic and fertile innovation hubs in the world.
From the perspective of all of us here at StartMidwest, we’re here for it. And its part of our mission to make it happen.
HEY THERE: If you're still here, please read this. We're producing a comprehensive 'State of Midwest Tech' report in association with Dealroom, and based on the data in this report (with more to be added) in the coming weeks. To ensure that this happens, and to make it becomes an annual series, we need the input of those with a vested interest in the region. If you'd like to hear more about this initiative then please get in touch with us here. Thanks for reading :)
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