Greatest concentration of Venture Capital? Not where you think

Silicon Valley, meet Ann Arbor, Michigan. Yes, Michigan.

I’ve been spending time in Ann Arbor for several years. It was one of the first cities beyond Chicago we went to source deals when we started Hyde Park Venture Partners. Why? Lots of ideas, talent and willingness to take risk, but very little capital. We invested in two deals there – FarmLogs and Stratos Card – in our first 18 months.

Then a funny thing happened: on every visit, I’d meet another VC opening up an office there. Sometimes a new fund and sometimes an out-of-state fund seeing what we saw. There is now even a shared space just for VCs across from my favorite lunch join, No Tai! (exclamation point part of the name… it’s that good)

A few months ago, I thought “you know, I bet this is the highest concentration of venture capital in the country”. Yup. Here’s how the math stacks up between Ann Arbor and the seemingly more likely Bay Area. Wow!


For nerds: Active capital for Ann Arbor based on size of active current funds with an office in the city. Active capital for Bay Area based on $30B (source: SFgate) of US venture capital deployed in 2013 multiplied by portion deployed in Bay Area of 50% (source: CBinsight) multiplied by investing life cycle of venture funds of about three years. Not exact math but close. Populations from US Census Bureau via Google.

This is not to say every startup in SF should up and move to Ann Arbor. Entrepreneurs raising capital have to kiss a lot of frogs. There are still a lot more frogs to kiss in the Bay Area. With the outcome of each kiss being very very low probability, the more kisses, the better. But these stats are still a very positive sign for Midwest entrepreneurs and investors. It would be hard for an Ann Arbor entrepreneur looking at these stats to point at capital as the scarce resource keeping them from growing their business in Ann Arbor. Of course some of this is stage dependent. Some of the capital in the Ann Arbor figures is mid-stage venture capital – one of the reasons the market is still attractive for my Seed and Series A fund despite the crowds.

What is so special about Ann Arbor?

Ann Arbor is one of the most concentrated pockets of talent, thought leadership and willingness to take risk in the country. This is what happens when a world renowned university draws talented students and their spouses/partners into its gravity… and then often retains graduates locally who love the smart but quaint college town life. Four of the five most active venture markets outside of the Bay Area are college towns:

Chart2Source: Martin Prosperity Institute, Startup City, 2013

There is more to the story in Ann Arbor than just being a college town, however. With Michigan’s factory and union labor economy past its prime, a number of public and private initiatives are working to draw technology and innovation to the state. Many of the firms in the chart below were seeded, partially funded or attracted to Michigan by a set of State of Michigan backed funds of funds. The private backed Renaissance Venture Fund has also played a huge part in attracting out-of-town venture funds to setup shop in Michigan and Ann Arbor.

Chart3Source: VentureSource, public articles. Data labels represent values for recent active funds.

Now compare the above chart with the same for Chicago, a city almost 100x Ann Arbor’s size. Ann Arbor is clearly doing a great job bringing in capital.

Chart4Source: VentureSource, public articles. Data labels represent values for recent active funds.

So, has Ann Arbor cracked the recipe to success outside of the Valley?  

Not quite. Capital is an important input to growth – as is raw talent. But so are customers, acquirers, experienced talent, “critical mass”, and (early on) community leadership.

Customers and acquirers: For B2B startups, college towns will always be light on customers, though proximity to a major airport helps. For B2C startups, college towns can actually be a viral petri dish to test a new product. You’d also think college towns would be light on acquirers, and 15 years ago this was true, but no more. Many large tech companies like Google, Yahoo and others have college town campuses for the same reasons startups do – access to raw talent. Startups and VCs can take better advantage of these relationships and work to bring companies’ corp dev reps into town to see the local tech startup offerings.

Experienced talent: Startups can seed with raw talent but need experienced talent to add to management and leadership layers to scale. Finding these people in or attracting them to Ann Arbor is tough, though not impossible. This is the biggest challenge to growing a startup in Ann Arbor and many other college towns.

Critical mass: Startups are fissile material. You need to get enough startups close enough together for the chain reaction to take place. I am amazed at how many of the startups I know in Ann Arbor don’t know each other. Normalized for size, we don’t see that in Chicago, where founders and employees are well connected and exchange information much faster. This leads to faster failure (a good thing), faster formation of new startups and better exchange and utilization of talent.

Critical mass is created offline and online. In Chicago, 1871 and Builtinchicago have respectively acted as launch pads for the Chicago ecosystem to take off. I haven’t seen this in Ann Arbor yet. Tech Brewery is an amazing and affordable location for startups to seed, but it is not quite a community centerpiece, partly because it’s not downtown. I’m hopeful that the recently launched MadeInA2 will be the much needed digital hub and would love to see an 1871-like facility built downtown.

Leadership: Fledgling startup communities need strong leaders to get off the ground. Fortunately, there is a lot of organic community leadership in Ann Arbor working on the challenges above. Dug Song, CEO of DuoSecurity, Guy Suter, formerly of Barracuda Networks, and Jesse Vollmar, CEO of FarmLogs – as well as a number of VCs – are scheming more and more (the positive English version of the word). Keep it up and let me know how I can help!

19 thoughts on “Greatest concentration of Venture Capital? Not where you think

  1. Hey Guy! Great article, really interesting perspective. Any chance you could give some insight for where you found the active venture capital dollar amount for Ann Arbor? I’m trying to do an apples-to-apples comparison between that and Madison, my hometown. Any help would be appreciated! Thanks!

    1. Hi Sam, great to hear from you. Would love to meet sometime. Most of the data I used is from Dow Jones VentureSource (via a subscription), but much of it should be available for free on Crunchbase and in news articles. I assumed any fund with a vintage of 2010 or later is active.

      The funds in Madison that I know include Venture Investors, 4490 and AmFam, but I think there are a few others.

      Would love to see what you put together!

  2. Way down at the bottom is a tweet storm from Venky Ganesan at Menlo. Venky didn’t like my math, and I’m glad he piped in to share his thoughts. Below is my response in detail.

    First, I’m just happy that a big fund in SV is showing some interest in the Midwest.

    Venky, I would love to have you out to the Midwest for a few days and personally show you around. Yes, Drive has a terrific portfolio, and there are a number of other funds that do as well. Ours is pretty damn good too 🙂 I’m sorry we haven’t seen Menlo here much. We see a lot of Battery, RRE, August, NEA, Accel etc…. but there is plenty of opportunity for all!

    In any case, the point is quite simple. We all know that the Bay Area (or however you define it) has an amazing concentration of capital. Very few people realize that Ann Arbor has a similar distinction. Can you change the math to make it lower that Silicon Valley? Sure. The point is they are pretty damn close, regardless of who is ahead. That is an amazing thing. Not a panacea though, there are other things Ann Arbor and other budding ecosystems need to do to take better advantage of it. SV still has the upper hand on those and the sheer number of funds. Again, need to kiss a lot of frogs….

    Concern 1: Including east bay… why not just Menlo Park even?

    There are a lot of startups and even a few VCs in Berkeley and Oakland. Menlo doesn’t make sense, because there are lots of VCs and startups outside of Menlo Park. Not true in Ann Arbor, which is very concentrated. Doesn’t strike me that AA and Menlo would be apples to apples in any way.

    Worst case: drop ~2.5M people from 7M for total Bay Area

    Concern 2: Included all active capital in Ann Arbor funds and only 3 years of capital in the Bay Area:

    Yes, I didn’t have the time to work through the hundreds of bay area funds one by one as I did in AA, so I took a short cut by determining inventory of overall bay area capital assuming a cycle time of deployment as defined by cycle time of raising.

    It is true that most funds have a 5 year investment period and 10 year life cycle. However, the reality is the big funds (where most of the $ go) raise every 3 to 4 years, and some faster. NEA is on a 3 year cycle, Sequoia on a 3 to 4 year cycle and A16Z on a 2 year cycle based on fund vintage years in Venture Source. These are just examples.

    In Ann Arbor I only included funds with a 2010 vintage year or later. I don’t think there were any 2009 funds in there. Definitely not 2008. So that’s a ~4 year assumption. The velocity of raise and deployment in California funds has sped up significantly in California. It has not in the Midwest.

    Worst case: Increase cycle time in CA to 4 years

    So, let’s take these two adjustments and see how the math would change.

    Active VC Capital ($M) Population Active $ per capita
    Ann Arbor 1,271 117,025 $10,861
    Bay Area 60,000 4,500,000 $13,333

    (Note: If you assume the Bay Area cycle time is still 3 years, Bay Area would only be 10,000, even without the east bay population.)

    With both adjustments, “Bay Area” slides ahead. But then is this the right comparison? What about all the outside capital that comes into Ann Arbor…. something that happens less (except very late stages) in the Bay. Battery, True, Google Ventures, Benchmark not to mention outside funds on the healthcare side have all been active with some big checks in Ann Arbor. This could move things back the other way.

    Venky, thanks again for hopping in to the discussion, and I hope to see you here soon!


    Venky’s Tweet Storm:
    Venky Ganesan ‏@venkyganesan 11h11 hours ago Menlo Park, CA
    @guyhturner @revolution @SteveCase for the record I would love to see more VC in the midwest and Chicago. Good friends with drive folks
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    Venky Ganesan ‏@venkyganesan 12h12 hours ago Menlo Park, CA
    @guyhturner @revolution @SteveCase this is more like a buzz feed article than an analysis. happy to email you a more detailed critique
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    Venky Ganesan ‏@venkyganesan 12h12 hours ago Menlo Park, CA
    @guyhturner @revolution @SteveCase adding east bay of bay area to pump up the number of people to 7 million is just misleading
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    Venky Ganesan ‏@venkyganesan 12h12 hours ago Menlo Park, CA
    @guyhturner @revolution @SteveCase 3/ then you compare Ann Arbor to Bay Area for no reason. Why not compare Ann Arbor to Menlo Park
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    Venky Ganesan ‏@venkyganesan 12h12 hours ago Menlo Park, CA
    @guyhturner @revolution @SteveCase 2/ For Bay Area you take the amount they are going to invest over three years
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    Venky Ganesan ‏@venkyganesan 12h12 hours ago Menlo Park, CA
    @guyhturner @revolution @SteveCase 1/First of all you are comparing apples and oranges For Ann Arbor you take full amount of active VC funds

  3. Interesting post Guy.
    If you are really feeling adventurous how about swinging up to check out the technology scene in Halifax, Nova Scotia, Canada?

    Halifax has one of the highest per capita of post-secondary institutions in Canada & we are always looking for investors.
    With the recent drop in the Canadian dollar (to about $0.88 USD), your money definitely goes further.
    Most of the companies in the Atlantic Region will be targeting the US market in any event, so will probably at some point be looking to set up a branch in the US as they grow.

    If you are interested I would be happy to put you in touch with a few good VC, angel, start-up houses, gov’t agencies.

    If you do ever decide to drop in, and are interested, I’ll demo the video sharing technology we are developing to make large libraries of video assets (and video on websites) more transparent and searchable to help increase their monetization potential. ( a little shameless self-promotion here).


    Paul Farmer
    President – VidSnippets Incorporated

    1. Hi Paul,

      Thanks for reaching out! We’ve spent time in Toronto (relatively close to Chicago) and have been really impressed with Canada’s startup ecosystem.

      East coast is a stretch for our Midwest focused fund, but please intro any companies in Toronto you think we should meet.

      Thanks again. Guy

  4. Guy, great article! Thanks for pulling the data together and framing up what we all are feeling. Let me know next time your in Ann Arbor. No Thai! is great but we need to help you find other favorite restaurants. Liberty Street has a lot of tech activity (sorry Ryan). 🙂

    1. Otavio, apologies for the delay in responding. Wanted to have some data for a good answer. Also, I appreciate your questions.

      It is true that most funds have a 5 year investment period and 10 year life cycle. However, the reality is the big funds (where most of the $ go) raise every 3 to 4 years, and some faster. NEA is on a 3 year cycle, Sequoia on a 3 to 4 year cycle and A16Z on a 2 year cycle based on fund vintage years in Venture Source. These are just examples, but you get the picture.

      Even if you do the math with an assumed 5 years cycle, the Ann Arbor math still comes out on top, though barely.

      Thanks again for joining the conversation.

  5. That shared space across from No Thai! is called “The Headwaters”. HRV, Mercury, Draper Triangle, Arsenal are Cultivian are here. You know you are welcome here anytime you are in town as well, Guy!!

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