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Businesses Move To The Midwest, First Stop: Columbus

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POST WRITTEN BY
Tom Walker
This article is more than 6 years old.

According to VentureOhio’s 2017 Venture Report, more VC funding is currently flowing through Ohio than at any point in the state’s history. In fact, in 2016, $470 million was invested in 210 startups, a 46 percent increase over the previous two years. On top of that, Columbus, its capital city, is now the top U.S. metro for scaling young companies, according to a recent report by the Kauffman Foundation.

So, why now? In short, the Midwest is buzzing, and it’s being driven by a national VC industry that’s hit a record high (the highest since the dot-com era). Since 2013, Ohio-based venture capital funds have raised nearly $1 billion in new capital, and over 70 percent of those dollars were raised by Columbus-based investors. Now, national investors are noticing: take JD Vance and Steve Case’s new seed fund, for example. The Rise the Rest® Seed Fund will invest $150 million in startups in the Midwest with the support of a group of America’s major business leaders, including Jeff Bezos and Howard Schultz.

This comes on the tail of Steve Case’s successful Rise of the Rest® tour, which added Columbus to its roster last fall. The winner of this year’s $100K cash prize was real estate transaction security startup SafeChain Financial—and SafeChain is just one of the many startups experiencing success and growth in this region. Due to a mixture of established VC firms, low business costs and local business trailblazers, companies are growing rapidly in Ohio, which has now become one of the top 15 states by total capital invested in Q4 2017. Businesses are shifting to the Midwest, with Columbus as its main draw.

Population and Innovation Concentration

The Columbus Region – and the rest of Ohio – is home to powerful research organizations, including The Ohio State University, Nationwide Children’s Hospital and OhioHealth, all of which are spinning out and commercializing research at a strong pace. Getting products to market has sped up, and the Region’s unparalleled logistics capabilities are moving them to consumers faster than ever. Nearly 50 percent of the U.S. population is within a day’s drive of Columbus, a city flanked by five Fortune 500 and 10 Fortune 1000 headquarters. And with the dense Fortune 1000 base (45 more are headquartered in other parts of Ohio), many corporations are signing on to be startups’ first customers, while also investing in them. Many companies are taking it one step further and launching significant innovation efforts to support the startup ecosystem. For example, State Auto Labs Corp., the innovation arm of the State Automobile Mutual Insurance Company, recently launched a $25 million corporate venture fund to support entrepreneurs and innovations in the insurance industry.

 

The tools, resources and funds required for business success are readily available for entrepreneurs

As Columbus Region startups continue to expand, so do the tools fueling their growth. Columbus-based startup studio Rev1 Ventures generated $1.4 billion in startup impact over the past five years, investing in more than 80 startups since 2013. In 2018 alone, Rev1 invested in 31 companies, making the firm the most active VC in the Great Lakes Region for the third consecutive year, according to PitchBook. Columbus-based VC firms Ohio Innovation Fund, Drive Capital and NCT Ventures also focus on startups in the Midwest and have met with thousands of new companies over the past 12 months. Ohio TechAngel Funds (OTAF), which is managed by Rev1, is one of the nation’s largest angel investor groups, with more than 300 investors, who have invested $33 million into more than 55 Ohio-based companies, specifically high-potential IT, advanced materials and life sciences startups.

 

Low business costs incentivize companies to grow

In comparison to traditional entrepreneurial hubs like New York City, Boston and Silicon Valley, the Columbus Region, and Ohio as a whole, offers comparatively low operating costs for businesses. Columbus’ attractive tax climate was ranked as one of the top three most business-friendly environments in the U.S. by KPMG and EY.

Further, the cost of living in Central Ohio is 10 percent lower than the national average, making living and working in the Columbus Region more affordable for entrepreneurs and local employers alike. These factors, in combination with strong entrepreneurial resources, make the region and state an ideal spot to start businesses, and also scale them.

 

Business success stories (aka “unicorn” exits) boost local confidence

As startups continue to effectively scale in the region, more entrepreneurs are looking to find the same success. Columbus-based CoverMyMeds – a healthcare software startup founded in 2008 – was acquired by McKesson Corp. in 2017 for $1.1 billion, making it Central Ohio’s first $1B+ exit. Paving the way for other Columbus-based startups, the Region’s first unicorn exit shows the maturation of the startup scene in Columbus – and in the Midwest in general – and proves how tech companies can grow and succeed in non-coastal cities.

Exits like CoverMyMeds are an important part of the story not just because of the financial impact, but because of the future entrepreneurs they breed. High-growth Columbus-based companies like Updox and ORIS Intelligence were founded by serial entrepreneurs who have had past success in their respective industries: healthcare and ecommerce. Other high-growth startups like Prevedere, a predictive analytics firm, are founded by first-time entrepreneurs whose leadership and success encourages entrepreneurship as a viable career path. By connecting with and selling into the industries from which they came (industries that are heavily represented in Columbus), entrepreneurs can more easily land pilot projects, secure first customers or engage in strategic partnerships.

As venture capital continues to grow on a national scale, investors are looking to the Midwest for the next round of billion-dollar companies.