If the focus of national news is on Ohio, it's a good bet it's a presidential election year. The old political adage that “As Ohio goes, so goes the nation” has proven true for the last ten presidential contests since 1976. But the biggest surprise to pollsters and voters this year may just be that the state of Ohio for America and the Midwest it reaches far beyond politics.
“Ohio never went away,” says venture capitalist Mark Kvamme, whose Columbus-based Drive Capital Fund raised the second-largest seed round of venture capital ever in 2013 ($250 million) betting on the Midwest's startup ecosystem. “People stopped paying attention.”
Mark Kvamme, co-founder of Drive Capital. Courtesy of VentureOhio
Kvamme is not a Midwest farm boy. But it's in his genetics to know a good opportunity when he sees one. His father, E. Floyd Kvamme, played a leading role in relocating National Semiconductor to Santa Clara, California in the early 1960s, arguably planting the first seeds for what would, over the next five decades, transform Silicon Valley into the central region of the world. hub of technological innovation, early stage entrepreneurship and venture capital.
Raised in the “Shangri-La” days of Silicon Valley, Mark Kvamme didn't think twice about following in his father's footsteps. He spearheaded Apple's entry into France as a “founding member” in his 20s and eventually served as a Director at one of the world's leading venture capital firms. Sequoia Capitalin Silicon Valley by 2013, leading investments in market-defining startups such as LinkedIn.
In 2011, Kvamme took a leave of absence from Sequoia and moved to Columbus, Ohio to lead the job creation division of then-governor-elect and 2016 presidential candidate John Kasich. In 2013, returning to the private sector, Kvamme kissed Silicon Valley, bought a house in Columbus and never looked back.
So why would one of America's most successful venture capitalists, the son of one of Silicon Valley's most iconic venture capitalists, move from a Pacific Ocean beach house to the middle of Ohio?
“The Midwest and Ohio in particular have always had three things going for them in terms of business climate: a cheap, tight energy supply, access to transportation and a well-educated workforce,” Kvamme says. “And Ohio never lost (these) important assets despite the transition from the Industrial Age to the Digital Age. Business in America has always been about being close to customers and managing your supply chain. And if you put a pin in Columbus, you have 60% of the US GDP within a day's drive. That's why 150 of the Fortune 500 companies are in the Midwest.”
Despite Kvamme being newly discovered in Ohio and venture capital bona fide, a large part of the Midwest's persistent Achilles heel when it comes to building the next Silicon Valley is a fundamental “perception problem.” VentureOhio CEO Falon Donohue.
“The difference between people from Silicon Valley and people from the Midwest,” Donohue says, “is that people from California will be shouting from the rooftops, 'Come to Silicon Valley!' People from Ohio will tell you “Yeah, I'm from Ohio” with that classic Midwestern humility that can also come across as almost embarrassed. But we have so much to be proud of that we just don't talk about. In five years the Midwest will have more startups than Silicon Valley. But the perception of Ohio and the Midwest as a business hotbed won't change unless people start talking about it differently.”
Ohio's main economic pulse these days supports Donohue's (and Drive Capital's) fundamental economic case. Consider this:
- Dayton, Ohio was America's computing business center in the 1950s and 1960s
- First text message and email sent from Columbus, Ohio (thanks CompuServe)
- Total venture capital investment in Ohio startups reached $373 million in 2015, up 16% from 2014
- Although overall US venture capital availability fell 9% in 2015, Ohio venture capital availability increased 22% to $296 million
- 80% of the National Venture Capital Association's membership is located in Boston and Silicon Valley. But Columbus, Ohio has the largest angel investment fund in the US
- Ohio had a total exit value of $1 billion in acquisitions in 2015
The Midwest's overall entrepreneurial resurgence is also getting a big boost from an urban culture that's creating a millennial gravitational pull from traditional start-up hubs like California, Boston and New York. Ohio alone is home to seven major league sports teams and many iconic museums and institutions such as the Rock and Roll Hall of Fame and the Cleveland Clinic. Ohio's resurgent food culture, thanks to local celebrity chefs like Jonathan Sawyer who have put down roots in their hometown, has also placed the state in the ranks of America's top food hotspots.
Michael Symon's Lola Bistro in downtown Cleveland. Courtesy of Destination Cleveland
More broadly, Forbes recently ranked Cleveland as one of the “25 cities where your paycheck will go the furthest,” and Cincinnati the 5th most affordable metropolitan area as well as the 9th best city in America to raise a family. Columbus has also recently been named the third “fashion capital” of the US after New York and Los Angeles.
Add to these current statistics the fact that Ohio is estimated to have over $1 billion in unfulfilled venture capital investments, and it makes you wonder why the most experienced venture capital and investment firms on America's shores aren't paying more attention to “Go Midwest” by Drive Capital “I drive.
“Most of the people I know in the VC business in Silicon Valley have gone from the 'You're crazy' stage to the 'I'm intrigued' stage,” says Kvamme. “But the hardest thing I have to do is just get people to get on a plane. Many people still believe that the river is burning in Cleveland. And even the people running for President still call us the Rust Belt on the log. Nothing could be further from the truth.”
Kvamme and Drive Capital co-founder Chris Olsen were prepared to have good startup instincts. But it's also all about big data. At Sequoia, they learned that macroeconomic and microeconomic information can tell you as much about a new company's potential as a hundred interviews with its founders. What they discovered between the Appalachians and the Rockies a thousand miles off the coast of the country is America's next business frontier.
“Mark and I were both trained by the best in our business (at Sequoia) to build strong, well-documented theses,” Olsen recently wrote in a op-ed piece for Venture Beat. Paradoxically, every bit of macroeconomic data suggests that the raw materials for bold, ambitious new companies were more abundant (in the Midwest) than in Silicon Valley.”
Kvamme and Olsen's thesis of shattering conventional wisdom was based on a few simple facts. California is the eighth largest economy in the world. The Midwestern states of America make up the fifth. The Midwest's collective economy is also larger than that of Brazil, Russia, or India, and it has more IT degrees than any other region in the world.
“It's only a matter of time before Midwest cities overtake recent emerging venture capital cities like Shanghai, Stockholm and Mumbai to rival Silicon Valley,” Olsen wrote. “There are more entrepreneurs building billion-dollar companies in the Midwest today than in the last 50 years combined. Think about it. Together, these entrepreneurs have created a growth engine that will shape and reshape the U.S. economy for years to come.”
All of this means that Ohio and the Midwest are on the rise back to where they always belonged. Coupled with the state's reputation as presidential election weather, Ohio has historically been recognized as one of the best places in America to test new products and the proving ground for entrepreneurs to validate the idea. Ohio just needed more people like Kvamme and Olsen to pay attention again.
“The venture capital community here finally came together a few years ago and said we need a unified voice in the country,” says VentureOhio CEO Donohue. “We need to support entrepreneurs and investors, not just as a place to start a business, but as a place to work, live and play. We need to increase the investment capital available for Ohio-based companies. And we need to promote entrepreneurship in Ohio as a connected business community. The momentum that Ohio and the Midwest have right now is so strong. And we must take advantage of it. Not sure if that has anything to do with LeBron James. . . But everyone in Ohio seems to be winning right now.”
First and foremost on this winning list from a balance sheet perspective is Drive Capital. Because they took the bold risk of making the first big bet on the new economic future of Ohio and the Midwest.
“Sequoia is truly a world-class place,” Olsen says “And if you're a founder in any of their geographies, you'd be a fool not to pursue them as your investor. But we also believe that if you're an entrepreneur with a startup in 2016, you'd be a fool not to consider building it in the Midwest.”
Having raised the second largest venture capital in the US, Olsen, Kvamme, Drive Capital and the dozens of other VC firms betting that Ohio and the Midwest are the next Silicon Valley are clearly putting their money on the line.
