Will the Next Silicon Valley Be in the U.S. Heartland?

While traditional coastal tech hubs still dominate, rising venture activity in the heartland signals that America’s geography of innovation is the midst of change

Published in

DataDrivenInvestor

8 min readJul 11, 2024

Ron Levin is Managing Partner of Alumni Ventures’ Seed Fund. Ron was previously a consultant with McKinsey & Co. and Co-Founder and CEO at TravelPerk, an enterprise travel platform based in Barcelona that is now valued at over $1B. Deeply committed to social impact through entrepreneurship, Ron recently published the book “Higher Purpose Venture Capital,” which profiles 50 venture-backed startups that are making a difference for society.

In the past decade, venture capital has broadened its reach beyond traditional hubs such as Silicon Valley and the Boston-New York-Washington Corridor, as significant startup ecosystems have popped up across the country’s midsection.

From Austin, Texas, to Columbus, Ohio, regions nationwide have invested significantly in developing robust ecosystems to support entrepreneurship. They are building the necessary infrastructure for startups and innovation by creating incubators, accelerators, co-working spaces, and more.

According to the book Silicon Heartland by Rebecca Fannin, the number of institutional startup investors (such as VCs and angel groups) in smaller inland hubs tripled to 3,700 between 2011 and 2022. This extensive funding network and the associated infrastructure provide startups with essential guidance, mentorship, and resources, contributing to a substantial increase in venture investments in “middle America.” These investments nearly quadrupled to $20.2 billion, supporting the growth of nearly 18,000 startups in the heartland.

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For early-stage startups, regions with a lower cost of living and more affordable operating environments present an enticing opportunity to stretch their limited funding further. States like North Dakota, Indiana, Arkansas, South Dakota, and North Carolina were ranked by Forbes in 2024 among the top states to start or run a business. These states offer a supportive regulatory environment, growing workforce, and low labor costs, making them attractive destinations for startups.

Universities in America’s heartland are playing a key role in the growth of their regional venture ecosystems, providing access to resources, talent, and domain-specific expertise. For example, WARF Ventures (Wisconsin Alumni Research Foundation) provides seed and growth funding to early-stage startups that are commercializing technology out of the University of Wisconsin-Madison’s Morgridge Institute for Research. WARF has invested directly in over 50 startups, holds more than 2,000 patents for campus discoveries, and licenses inventions to industry. About 600 miles northwest of Madison in Grand Forks, the University of North Dakota’s Center for Innovation has helped over 670 startups, which employ more than 6,000 people and have attracted over $140 million in investments. UNK is also home to Dakota Venture Group (DVG), the first completely student-run VC investment fund.

The COVID-19 pandemic accelerated funding flows into the heartland as the shift towards more remote and distributed workforces presented startups with an opportunity to transcend the limitations of traditional tech hubs and unlock a wealth of talent and resources that were previously inaccessible. According to Forbes, as of 2023, 12.7% of full-time employees work remotely, while 28.2% work in a hybrid model, and it’s projected that 32.6 million Americans will work remotely by 2025.

Examples of the numerous successful companies that have emerged from non-traditional hubs across include:

Duolingo (Pittsburgh): A language learning app that went public in 2021 and is now valued at over $7 billion
Duo Security (Ann Arbor): A cloud-based, zero-trust security platform for all users, devices and applications, acquired by Cisco for $2.3 billion
Arcadia (Denver): A climate-solutions data company that achieved a $1.45 billion valuation in 2022 following a $200 million funding round
Equipment Share (Columbia, Mo.): A tech-enabled construction solutions provider offering an ecosystem of products and services for contractors, valued at $3.75 billion with plans to go public in 2025.

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“Greatness Is in Our Backyard”

As the country’s most active VC firm, New England-based Alumni Ventures has invested nearly $150 million in these regions. AV portfolio companies include VeroSkills (Birmingham, Ala.), a workforce platform that retrains refugees around the globe into highly paid careers in AI, automation, and software engineering. Another portfolio company is Lessonly (Indianapolis), a cloud-based training and enablement platform acquired by Seismic in 2021. AV has also backed AIQ Solutions (Madison, Wis.), creating a faster and more comprehensive way to analyze multiple radiological images at one time; and Axiom Space (Houston), the leader in providing human spaceflight services now building the world’s first commercial space station.

Many prominent VC firms have made the Heartland their home, “looking for the billion-dollar opportunities east of the Rockies and west of the Hudson River,” as stated in the mission of Drive Capital of Columbus, Ohio, with its motto “Greatness Is in Our Backyard.”

O’Leary Ventures has taken a regional focus with its management of Wonder Fund North Dakota. Founded by Shark Tank’s Kevin O’Leary and renowned investor Paul Palandjian, the fund has partnered with North Dakota to manage a $45 million direct investment program aimed at bolstering economic growth throughout the state. According to Palandjian, North Dakota is a hotbed for entrepreneurship and innovation in multiple industries — from agriculture to defense technology to data centers and AI.

Another tailwind for Heartland investments is the Startup America Partnership. Led by Revolution (and AOL) founder Steve Case, the foundation has helped shaped government policies to cast a wider net in expanding access to capital and talent for entrepreneurs nationwide. Case has been a leading voice in advocating for policies that support the growth of startup ecosystems across the country.

“Great startups can be found everywhere, not just in Silicon Valley and entrepreneurs are building great companies in ‘Rise of the Rest’ regions across the U.S.”

— Steve Case, AOL Co-Founder and author of The Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream

One of the most high-profile, high-tech Heartland investments this year came in May when Microsoft announced a broad investment package designed to strengthen the role of southeast Wisconsin as a hub for AI-powered economic activity, innovation, and job creation. These investments include $3.3B in cloud computing and AI infrastructure, the creation of the country’s first manufacturing-focused AI co-innovation lab, and an AI skilling initiative to equip more than 100,000 of the state’s residents with essential AI skills.

As venture capital continues to flow into these emerging regions, the future of innovation and entrepreneurship is being redefined, fostering economic growth and job creation across the country. The decentralization of startup ecosystems represents a seismic shift in the landscape of venture capital, democratizing access to opportunity and fostering innovation on a national scale.

Alumni Ventures offers accredited individuals access to professional-grade venture capital, a key asset class missing from the portfolios of many sophisticated investors. Since 2014, AV has raised $1.3+ billion from 10,000+ investors and backed 1,300+ unique portfolio companies. AV is a top 20 venture firm in North America according to CB Insights, as well as the #1 most active venture firm in the U.S., and #3 most active in the world, according to PitchBook’s 2022 and 2023 rankings. AV has won awards from Inc. Magazine, Fast Company, Benzinga, and the US FinTech Awards.

Sources

This communication is from Alumni Ventures, a for-profit venture capital company that is not affiliated with or endorsed by any school. It is not personalized advice, and AV only provides advice to its client funds. This communication is neither an offer to sell, nor a solicitation of an offer to purchase, any security. Such offers are made only pursuant to the formal offering documents for the fund(s) concerned, and describe significant risks and other material information that should be carefully considered before investing. Venture capital investing involves substantial risk, including risk of loss of all capital invested.For additional information, please see here.

This communication includes forward-looking statements, generally consisting of any statement pertaining to any issue other than historical fact, including without limitation predictions, financial projections, the anticipated results of the execution of any plan or strategy, the expectation or belief of the speaker, or other events or circumstances to exist in the future. Forward-looking statements are not representations of actual fact, depend on certain assumptions that may not be realized, and are not guaranteed to occur. Any forward-looking statements included in this communication speak only as of the date of the communication. AV and its affiliates disclaim any obligation to update, amend, or alter such forward-looking statements, whether due to subsequent events, new information, or otherwise.

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