A new report from a Chicago-based venture capital firm ranked the top Midwest cities for startup activity, and the Twin Cities came in second overall.
Published by M25, the VC firm's second annual Best of the Midwest report listed the top 54 tech hubs in the region. Unsurprisingly, Chicago took first place. Minneapolis claimed second place, with Pittsburgh and St. Louis coming in at No. 3 and No. 4 respectively.
For this year's ranking, M25 added some new methodologies to rank the cities. It added a startup momentum category, which measures the growth of the number of startups over time, and it also factored in tech exits and fundraises to measure how impactful the outcome of the average startup is on its ecosystem.
Amongst the top 5, the Twin Cities had the highest startup momentum of any city, even beating out Chicago. This is particularly interesting, said M25 Managing Director Victor Gutwein, because the Twin Cities beat out many smaller cities (which tend to have the most momentum).
"This rising tide can help communities," Gutwein said. "It helps you stand out and get the attention of coastal VCs and big local companies. It's the reason why Target or Cargill might get involved with an accelerator."
The Twin Cities also received high marks for the number and quality of startup accelerators. Minneapolis is home to programs like gener8tor and the Target + Techstars retail accelerator. Techstars established its second Minnesota accelerator, Farm to Fork, through a partnership with Ecolab and Cargill earlier this year. St. Louis, however, out-ranked the Twin Cities in this category.
The report also measured the quality of tech talent, investor activity, accelerators, universities and government support.
Minnesota ranked low in government support compared to its Midwest peers. Many states like Wisconsin and Ohio have government programs to support startups and funds to encourage the development of further venture capital infrastructure. Minnesota's decision not to renew its angel tax credit program earlier this year affected its score in M25's report.
"The state's tax environment is among the worst in the Midwest for being friendly to businesses," Gutwein said. "This really matters when you're trying to argue for a company to be based in Minnesota instead of Wisconsin or Indiana."
As expected, venture capital investment in the Midwest is lower than tech hubs on the coasts. But the Twin Cities' VC infrastructure is "relatively robust" compared to the rest of the Midwest, Gutwein said.
M25 has invested in five Minnesota companies: Branch Messenger, Bizzy Coffee, Local Crate, Upsie and Geneticure.
"The community is very active, and a lot of that energy seems to be coming from the founders themselves," Gutwein said. "Fortune 500s and universities are also contributing, but the startup founders are playing a major role in pushing things forward."
View M25's full report here.
