Cincinnati ranks among M25's top 10 best Midwest startup cities

Cincinnati's new batch of unicorns helped the city retain its top 10 spot on an annual ranking of the Midwest's top startup cities.

The Queen City once again ranked No. 10 on Chicago venture capital firm M25's power ranking of regional startup cities. Cincinnati has held that position since 2020.

M25 praised Cincinnati's three new unicorns — Astronomer, Enable Injections and 80 Acres Farms — along with Mason-based startup Vndly's $510 million exit to Workday. Those successes helped Cincinnati close the gap between it and Columbus, which ranked No. 6 on the list.

M25 managing partner Victor Gutwein writes:

Continuing on Ohio rivalries, we look at the battle for top C-city in the state. Columbus is still definitely taking the cake, but the score difference of #6 Columbus (23.1) to #10 Cincinnati (19.7) is shrinking: it was 4.0 last year and now lowered to 3.4. Give Cincinnati another year or two for their fresh crop of unicorns to exit and they might start to really compete. The opposite is to be said for #12 Cleveland — last year they were a 0.1 difference to Cincinnati but this year that lead grew to 1.6 and they fell below #11 Kansas City dropping to twelfth. This is the biggest spread on these three cities (#6 to #12) since they started and if the trend continues we may have to discuss soccer-style relegation…

M25 compiled its rankings based on three factors: startup activity (active startups, startup formation growth, number of exits and large outcomes), access to resources (how much local startups have raised from VCs, the number of local investors, incubators/accelerators, universities, government support and access to quality talent) and business climate (cost of living, labor costs and business-tax friendliness).

Here are the top 20:

The biggest change occurred in the top four with Indianapolis overtaking Pittsburgh in the No. 3 spot for the first time since the list was started in 2017.

While Chicago has a “commanding lead” in the rankings year after year, it was more significant than ever in 2021.

The number of startups launched in Chicago has increased by 343 since 2017, a five-year growth rate of 40%. The city's startup momentum score — which shows the growth over the past five years in terms of the number of startups that are based in Chicago — reached 48.4 in this year's rankings, compared to 35.8 for Minneapolis, the No. 2 Midwest city.

There were 12 unicorns (companies with a $1 billion valuation or higher) created in Chicago in the 2021 calendar year, highlighted by companies like ActiveCampaign, Project44 and M1.

“That’s something no other city in the region can claim coming close to," Gutwein told Chicago Inno, a Cincy Inno sister outlet.

He said cities like Columbus and Cincinnati may have had three unicorns a piece, but Chicago’s “depth chart” when it comes to the number of billion-dollar companies it houses remains “crazy impressive.”

“And it grew a lot last year,” Gutwein added. “To me, that’s a sign that it’s going to continue to grow for Chicago. For a long time I think it’s been overlooked, but with the amount of companies that have both exited and raised huge rounds here, it’s really a transformational city.”

In fact, launching a startup in the Midwest feels a little bit different today than it used to when the rankings first started thanks to Covid-19.

The pandemic brought with it a remote-centered world, and the challenges that used to exist for Midwest startups, like raising capital from the best investors across the country and accessing experienced talent, still exist to some degree but are largely mitigated.

“It was hard to get investors to come outside their core cities and commit more time, travel and money to something they aren’t connected with, and furthermore the experienced talent that’s worked in startups and seen a product go from seed stage to IPO has been lacking in the Midwest,” Gutwein said. “That’s been changing pretty fast because you can hire somebody to your team that isn’t necessarily based in Chicago and you can supplement what you can find locally with people on a national or international level.”

Finally, despite what appears to be a slowdown in venture funding, Gutwein was encouraged to see six new funds of $300 million launched in the last year.

“In the past, we’d be lucky to have one. We had six new family funds, mostly based in Chicago, and that means there’s a lot of capital,” he said. “There may be a bit of a slowdown right now, but there’s a lot of VCs ready to write checks.”

You can see the entire M25 ranking here.