The argument in favor of investing locally is simple. Face-to-face meetings are much easier to facilitate when everyone鈥檚 within a short car ride or public transit trip from one another. Even in a time where video chatting is near-ubiquitous, there鈥檚 still something to be said for convening in person. Again, it makes sense.

鈥淪o what,鈥� you might be asking yourself. Isn鈥檛 it obvious that investors would rather invest close to home, when possible? Sure, but as is typically the case with most plainly obvious things, when one takes a slightly closer look, nuance and variation abound.

So let鈥檚 delve a bit deeper, shall we? Using data from 附近上门, we鈥檝e built and analyzed a dataset of nearly 36,700 venture capital deals struck by almost 21,000 investors with nearly 22,000 different US-based startups between Q1 2012 and November 1, 2017. And it鈥檚 the goal of this article to use those findings to back up and, where necessary, bust the beliefs and biases about which investors have the most loyalty to their locales.

Most Investment Is Local, But Slightly Less So Over Time

Let鈥檚 start with the basics. In the almost six years since the beginning of Q1 2012, an average of roughly 57 percent of all the financial relationships we analyzed were between companies and investors from the same state. Overall, roughly 50 percent of those ties were between investors and startups from the same metropolitan region.

However, it鈥檚 important to mention that this is the average over all deals, all kinds of investors, and all stages of company development. There is plenty of deviation from these means to keep things interesting.

Staying somewhat abstract, it鈥檚 also interesting to note that, over time, startup investors are seemingly more willing to venture outside the familiar confines of their home states and metro areas to make their investments. The chart below shows a slow, yet steady decline in the number of times when investors and their portfolio companies shared a home base.

Now that we鈥檝e restated the obvious 鈥� this time with data! 鈥� let鈥檚 go one step further. Are different types of investors more or less likely to seek out deals close to home?

Of course, every investor will tell you that, like snowflakes, they are unique, not just in their approach to investing, their perspective, or 鈥� their favorite topic 鈥� the value they add. But just like there鈥檚 a difference between flurries and blizzards, so too are there categories of investor.

Certain Investors Are More Anchored Than Others

Handily, much of 附近上门鈥檚 investor data is tagged by type, and below we鈥檝e displayed the nationwide averages of in-state vs. out-of-state investment activity for several of the most common types of venture investor.

Here too, there aren鈥檛 many surprises. Government offices and similar state-backed entrepreneurship initiatives tend to invest close to the constituents they ostensibly serve, and most individual angel investors tend to invest within their own states as well. Considering that many accelerator programs have a distinct geographic focus 鈥� for example, the various TechStars outposts in cities ranging from San Francisco and New York to comparatively smaller hubs in Kansas City 鈥� it鈥檚 not surprising to see that a majority of the deals accelerators source come from the same state in which they鈥檙e based.

With venture funds of all amounts of assets under management, many use their geography as a point of differentiation, especially if they鈥檙e located outside of Silicon Valley, so a slight bias toward investing in companies from the same state is expected.

However, moving up the financial stack a bit, we can see that, in general, opportunism begins to outweigh any particular affinity to a particular locale. Family investment offices 鈥� private wealth management firms that typically invest on behalf of a single (ultra-)high-net-worth family 鈥� and, more notably, corporate venture capital funds seem to be the most location-agnostic of the investor types we鈥檝e surveyed here.

This predisposition for more earlier-stage investors to invest closer to home is again echoed in the data. Here, using the same classification rules 附近上门 News has used in its quarterly reports (which can also be found at the end of this article), we鈥檝e sorted the venture rounds into their various stages. Also where data was available, we delineated between lead investors on a round and those that have merely participated. Here, we display these investors鈥� tendency to invest in companies from their home state.

In general, it appears that being closer to portfolio companies is particularly important for angels and seed funds, which are typically the first formal source of outside funds for a company. But this becomes less important as companies mature.

Interestingly, seed and angel-stage companies are more likely to take on a lead investor who鈥檚 in the same metro region, but as they proceed through the funding cycle, they鈥檙e more inclined to find lead investors outside of their metro regions. So, for a first round, a company鈥檚 legitimacy in the market gets a boost when a well-respected local investor leads the round. But, at Series A and beyond, there may be benefits to having a non-local investor lead the round, particularly if a company is located outside a major tech hub. This latter point could go some way to explaining why lead investors often come from out of state in subsequent rounds.

Location, Location, Location!

So if different types of investors are more likely to park their money closer to home, and investors at different stages exhibit similar kinds of variability, does an investor鈥檚 location affect their likelihood of investing closer to home? This is likely the most contentious question we鈥檙e tackling here, and the answers may be surprising because they both contradict and bolster certain regional stereotypes.

Below, we present a chart that divides US venture investment by regions . We show the proportion of investor-company relationships that are intra-regional (i.e. both parties come from the same region) and the outside regions where investors are most likely to invest. In doing so, we鈥檙e able to show both the degree to which investors from a particular region are inward-focused, and where they鈥檙e most likely to invest when they want their money to travel a bit.

For such a historically pioneering region, venture investors in the West are fairly cloistered when it comes to making deals. This is in no small part due to investors in the San Francisco Bay Area live in the region鈥檚 鈥� indeed, the nation鈥檚 鈥� surpassingly dominant single market for venture investing activity.

In the Bay Area, out of almost 36,000 company-investor ties captured in our dataset, almost exactly two thirds (66.2 percent, for those of you dying to know) of those were between Bay Area companies and Bay Area investors. And for those brave, pioneering investors who want to venture back east for their deals, well, they basically overlook companies based in the South and Midwest, with only rare exceptions.

Which brings us to the Northeast. All of those stereotypes about 鈥渃oastal elites,鈥� at least as far as venture investing is concerned, are borne out by the data here. Although East coast investors are much more likely to invest outside of their region than their West coast counterparts, it鈥檚 only because a relatively large chunk of their out-of-region investments are on the Pacific coast.

It’s the investors in the middle and southern parts of the country that seem to have the most geographically diverse portfolios, at least when it comes to those investments outside the region.

To take just one example, investors from Chicago, the largest market for venture investment from both the South and Midwest, are far below the national average when it comes to investing inside their own metro areas. For the nation as a whole, fifty percent of investor-company relationships are within the same metro area. However, in the case of Chicago investors in particular, just over 37 percent of those relationships are between investors and companies both located in the greater Chicago metro area. At least from this perspective, it seems like Chicago investors鈥� reputation for being insular is somewhat unearned.

Perhaps with the exception of Chicago, America鈥檚 South and Midwest (again, as defined by the Census Bureau) generally lacks a deep well of startup investment opportunities. It makes sense that the average investor from that part of the country will seek out potential investments a little further afield. As we saw in the chart above, that often means going East or West.

Most Investment Will Stay Local For A Long Time To Come

As a general rule of thumb, it鈥檚 safe to say that venture investment tends to be a local affair. But as we鈥檝e seen here, there aren鈥檛 really hard-and-fast rules, just patterns and probabilities. If you鈥檙e a founder based in the Bay Area and you鈥檙e raising a Seed round, chances are good that the lead investor will also be based in the Bay Area. If you鈥檙e an angel investor in Boston, you鈥檙e likely to invest in startups based in Boston or thereabouts. There are, of course, plenty of exceptions, so data isn鈥檛 destiny here.

It will be interesting to see how all of this changes over time, though. As we mentioned in the beginning, communicating across wide distances is a richer experience now than ever before. It鈥檚 not like board meetings will be conducted through Snap Stories, but it wouldn鈥檛 be surprising to see investors venture away from home more often. Despite this, there鈥檚 something to be said for investors paying closest attention to their home turf. No amount of research or interviews, done from afar, will replace the 鈥済round truth鈥� learned from being somewhere in person, at least not yet.

Glossary of Funding Terms

• Seed/angel include financings that are classified as a seed or angel, including accelerator fundings and equity crowdfunding below $5 million.
• Early-stage venture include financings that are classified as a Series A or B, venture rounds without a designated series that are below $15M, and equity crowdfunding above $5 million.
• Late-stage venture include financings that are classified as a Series C+ and venture rounds greater than $15M.
• Technology Growth include private equity investments with participation from venture investors.

The American Midwest, to some, is just the 鈥渇lyover states.鈥� Its tropes 鈥� rusted-out factories, cornfields, and calorically-dense fried foods at state fairs 鈥� are well known.

However, it鈥檚 also increasingly home to more technology startups.

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Looking through the lens of startup and venture capital funding activity, we鈥檒l be looking out how the midwest and its metros stack up against one another. This is an extension of 附近上门 News鈥檚 growing coverage of startup ecosystems outside Silicon Valley, New York City, and Boston.

What We Talk About When We Talk About The Midwest

What, exactly, constitutes the Midwest? A by FiveThirtyEight had 10% of respondents say that places like Wyoming and Pennsylvania are Midwestern states. That鈥檚 a stretch. At 附近上门 News, our definition of the Midwest will be based on the .

Twelve states 鈥� Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin 鈥� make up the official group of Midwestern states.

Since there is no one 鈥渞ight鈥� way to go about ranking the metropolitan regions in each of these states, we have opted to do a lot of rankings instead! We鈥檒l be sure to keep track of which cities perform the best in each of these rankings, which will produce an all-around ranking for the best of the Midwest.

Before we continue, it鈥檚 recommend that you don鈥檛 fly over the rest of this post.

Metros Ranked By Number Of Startups Founded Since 2015

In the Midwest, here are the key measures of startup and venture capital activity聽附近上门 News is going to rank:

• The number of startups founded in each metro over the past two and a half years.
• The number and total dollar volume of venture capital rounds raised by companies based in those areas.
• The number of startup investors based in each city.

The number of companies founded in a particular geographic area is a good proxy for the amount of entrepreneurial activity happening. And, when these figures are gathered for a number of areas, we can compare the absolute level of new startup activity.

In 附近上门’s data, we were able to find exactly 1,000 startups founded in Midwestern states with 鈥渇ounding dates鈥� between January 2015 and the end of July 2017. Aggregated around metropolitan regions, here鈥檚 how they all compare.

Of course, there鈥檚 the possibility that these numbers are slightly skewed. Not every company in 附近上门鈥檚 dataset has a founding date listed, so it鈥檚 likely that there are more companies that have been started than what鈥檚 listed here. However, although the exact numbers might be a bit off, there are notable trends when marked proportionally.

Over five times as many companies were founded in Chicago than in Minneapolis. Interestingly, the Detroit metro area saw roughly the same number of startups starting up as Minneapolis, despite having a population that鈥檚 30% smaller and comparatively less well-off than the area around Minneapolis and Saint Paul, MN. to the MSP Regional Economic Development partnership, the greater Minneapolis-St. Paul metro area is home to seventeen Fortune 500 companies, which is 鈥渕ore per capita than any other metro region.鈥� The abundance of good jobs in Minneapolis may explain why startup founding activity, on a per-capita basis, is lower.

A 鈥渢hird tier鈥� of cities like Cincinnati, St. Louis, and Indianapolis seem to chug along quite nicely. But still, those metro areas pale in comparison to market-leading Chicago.

Metros Ranked By Investment Round Counts

The number of investment rounds in local startups is another important measurement of vibrancy in a startup ecosystem.

We analyzed just under 2,400 venture capital deals struck with companies based in the Midwest between the beginning of January 2015 and the end of July 2017. This gives us a relatively broad measure of startup ecosystems in the broader region.

Again, Chicago leads the pack, a trend we鈥檒l see throughout other rankings as well. That being said, the relative difference in venture funding activity is less dramatic than our ranking of startup founding activity. Since 2015, Chicago only had a little over three times as many venture rounds as Minneapolis.

Metros Ranked By Funding

Although the number of VC deals point to a more 鈥渁bsolute鈥� yardstick of investor interest in a metropolitan region, the dollar volume represented by those deals often draws a starker comparison between ecosystems.

Of the 2,400 deals we analyzed from above, roughly 1,840 of them had dollar amounts associated with the round. Here鈥檚 how the metros compare.

Please note that there were around 560 rounds for which we didn鈥檛 know much money was invested. Again, like with our measure of startup founding activity, this means that the actual dollar volume invested into these markets is greater than what鈥檚 listed here. However, like with previous measurements, there鈥檚 strong reason to believe that the relative rankings are sound.

Metros Ranked by Number of Venture Investors

It goes without saying that investors are a necessary ingredient in healthy startup ecosystems. And there are many kinds of investors, broadly defined in two categories: institutional and individual investors.

Here, we鈥檙e focusing only on institutional investors of a few types, specifically venture capitalists (so-called 鈥渕icro VCs鈥� and 鈥渞egular VCs鈥� alike), accelerators, incubators, seed funds, and angel investor networks.

Here鈥檚 the ranking of metropolitan regions in the US ranked by the number of institutional investors.

Again, mostly by dint of being a major financial center, as well as being the region鈥檚 biggest city, the Chicago metro area is home to the most institutional investors in the Midwest. Although Minneapolis places third in the rankings here, it鈥檚 also home to a vibrant scene of and life sciences companies, which are capital-intensive to start up and run. This could explain Minneapolis鈥檚 strong performance relative to Detroit and other metros in the ranking of total VC dollar volume.

Finding The Best in the Midwest

We鈥檝e taken a look at the number of different metrics, each time comparing the relative performance of over 50 metropolitan regions in the Midwest. But now it鈥檚 time to bring it all 聽together to see which metro regions are the 鈥淏est of the Midwest鈥� for entrepreneurs and investors alike.

In the chart below, we鈥檝e ranked each metro region by its average ranking over the four metrics we examined. (The lower the number, the better the city did.)

Again, it鈥檚 no surprise that Chicago ranks at the top of this list. Some might say it鈥檚 unfair that such a big city is placed at the top of this list, but it makes sense that Chicago ranks as #1. In startups and venture capital, networks are everything, and cities with bigger, more variegated populations typically have the richest networks.

There are, no doubt, plenty of opportunities for entrepreneurs and startup investors in smaller Midwestern cities to find a path to success. So if you鈥檙e from Omaha, Kansas City, or other cities on this list, take heart. And if you do find yourself in need of a 鈥渂igger pond,鈥� Chicago鈥檚 just a few hours鈥� drive through the heartland away.

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