Dear TechCrunch: It’s 2018 And You’re Still Wrong About Minneapolis + Minnesota

OK, here we go again with Jason Rowley and TechCrunch / Crunchbase network spreading misinformation about the business of tech in Minneapolis and Minnesota.

It’s not a first, they actually started this trend last year…so let’s break it down once again, though a quick warning: proceed at your own risk if you don’t like questioning sources, critical thinking, or facing the facts.

It starts with a very basic yet authoritative title – “Here are the top Midwestern states and cities for startups”… hmmm…should we be skeptical?

“The American Midwest has a long history of making stuff,” Rowley says in an opening line – though a more applicable introduction at this point might as well be “TechCrunch has a history of making stuff up”.

“…During the 20th century, it was the manufacturing center for the nation, and indeed much of the world. It’s still where a surpassing majority of agricultural commodities are grown and processed. But is it also a major producer of technology startups? Maybe not as much as the coasts, but the Midwest’s bustling metropolis and vast expanses of rural land prove to be fertile ground for quite a bit of startup activity.”

OK, so the author here is using the s-word right out the gate without any definition to what it really means to be a startup in this context. This is fundamental…does startup span all industries? How old or young is a startup?  Is it bootstrapped or funded? How many employees does a startup have?

What does startup mean to you, Jason?

You see without a definition…any definition laid out with some parameters…the scope of “startup” in a data-driven sense, as this article seeks to be, is already empty….by definition there is no meaning.  But OK, let’s give it an open mind here….it’s a new year, what do you have to say about “startups” in Minneapolis now?

“And that’s what we’re going to take a look at here. In a similar vein to our recent analysis of startup fundraising in the South, we’ll break down the region into its constituent parts, assessing deal and dollar volume trends in the Midwest’s two primary sub-regions, some of its individual states and the most active metropolitan areas in the U.S.’s midsection.”

OK, so our measurements are set to include (1) deal volume and (2) dollar volume. Roger that.

“And, to be clear, this is not Crunchbase News’s first foray into the region. We’ve covered the region’s seed-stage interest in AI and hard tech, a fewnotablerounds and have always included the Midwest in all manner of data-spelunking expeditions. And to this, we’ll add a deep dive into the numbers.”

Very clear it’s not your first foray, now let’s dive into the deep end!

“Defining the midwest: Borders and boundaries are a deep well of disputes. To preempt debate, we use the U.S. Census Bureau’s definition of the Midwest region which, unlike its definition of the South, shouldn’t be too controversial. If you have something against Kansas or Ohio being included in this group, take it up with the Feds.  The good folks at the Census Bureau split the Midwest into two distinct — and rather unimaginatively named — sub-regions: the West North Central and East North Central states, which are separated by the Mississippi River.  By splitting the Midwest into two distinct parts, we’ll be able to see where most of the startup and funding activity is concentrated. Spoiler alert: The farther west you go, the startup population (and the population itself) grows more scattered.”

There’s an established geography known as the Midwest and Minneapolis and Minnesota is undeniably part of that. Very good, go on…

“Capital flows into Midwestern startups Based only on reported data in Crunchbase, the Midwest appears to be affected by the same phenomenon as the rest of the country.”

OK, so in addition to having no meaning to “startup” established by now, the author very casually admits that this article is based only on “reported data in Crunchbase.”  Which anyone who knows is terribly incomplete as it relates to Minnesota – but do continue, we want to hear about the best Jason – because even if your data isn’t thorough, you can just pretend!

“Crunchbase News has previously found that the number of seed and early-stage deals has gone off a cliff in the U.S., resulting in a top-heavy market featuring many large, late-stage deals.”

OK, that’s another report to review for another day…let’s stay focused here.

“And this wouldn’t be a problem if it weren’t for a shortfall in new startups to fill the next cycle of early-stage funding. “

But what does this even mean…there’s a problem now complete with a “shortfall of new startups”? You haven’t even told us what a startup is…there must be a shortfall!

“The “hollowing out” of the Midwestern venture deal pipeline becomes readily apparent when you look at funding data for the past several years, which you can find in the chart below.”

OK. So Crunchbase’s own funding data of (1) deal volume and (2) dollar volume in the Midwest is visualized above, for the years 2012-2017.  Check. Since this includes all Midwest cities/states, and has no definition of business scope or startup meaning there’s no comment here the veracity of this dataset.

“To wit, deal volume is down markedly since 2014, as Crunchbase News reported in its Q4 2017 report of startup funding activity in the U.S. and Canada. But somewhat counterintuitively, the amount of money being invested into startups is on the rise in the Midwest and throughout many other parts of the country, reaching fresh multi-year highs in 2017. Almost one full quarter into 2018, the trend appears to continue unabated. But this chart abstracts away a lot of nuance, so let’s take a closer look at the region and its states.”

Actually agreed, it remains general and abstract up to this point.

“Focusing in on Midwestern deal and dollar volume, We’ll start first with deal volume, because that’s a fairly decent indicator of a geographic region’s level of startup activity. Below, we’ve plotted venture deal volume, divided by sub-region.”

OK, this is still just all Midwest stuff, nothing unique to any specific city/state yet…

“Again, based on the reported data from Crunchbase, we found that deal counts have been on a downward trend for several years.”

There’s that subtle disclaimer again because Crunchbase isn’t known for having good data in the first place, at least when it comes to tech in Minneapolis and/or Minnesota.

“And though some of this may be attributable to reporting delays, projected deal volume data for the whole of the U.S. and Canada (fourth chart down in the Q4 quarterly report) shows a years’-long downtrend. There’s no reason to believe that startup activity in the Midwest is materially different from the rest of the U.S. and Canada.”

OK, zooming out again, it’s still very abstract, nothing unique to Minnesota, carry on.

“But what about the relative “balance of power” between the two sub-regions? At least when it comes to deal volume, has one sub-region waxed while the other waned? To a limited extent, the answer is yes. Between 2012 and 2017, the percentage share of all Midwestern dealflow going to West North Central states like the Dakotas, Minnesota and Missouri has grown from 25.4 percent to 31.2 percent, up by nearly one-fifth in relative terms.”

OK, now this is the first mention of Minnesota…though grouped in with the Dakotas and Missouri.

“Now let’s check out dollar volume. The chart below displays aggregate reported venture capital dollar volume raised by startups in the Midwest.”

Still nothing to really see here, just general Midwest dollar volumes…

“As far as the amount of money Midwestern startups have raised over time, the trendline is generally up and to the right. But that’s not the only way this differs from the deal volume data we looked at earlier. For dollar volume, there appears to be no appreciable change in the “balance of power” between the two sub-regions since 2012. Depending on the year, East North Central states like Illinois, Michigan and Ohio raked in between 70 and 78 percent of total dollar volume, but that variance doesn’t appear in an orderly trend.”

…still nothing pertaining uniquely to Minnesota…

“Where are most Midwestern deals done? We started first at the regional level, then compared smaller groupings of states. Now, let’s see how deal and dollar volume is distributed on a state-by-state level. Doing so will point to the states that lead the region in venture-backed startup activity. Below, you’ll find a chart of how deal volume is split between the top five Midwestern states.”

OK, now were getting somewhere although the author is still saying startups without any substance and that’s concerning in and of itself…but:

Here they have a claim made, a first of it’s kind specifically about Minnesota, which says that 13% of all VC deal volume from January 2017 – Mid March 2018 involved Minnesota.

And another one shows “VC Dollar Volume” raised by state, putting Minnesota at 15%.

What’s “VC” or “Venture Deals” here?  Again, just like startup, we’re left wondering where the lines are drawn because there is no definition provided…and these charts may look professional, but they’re really empty without clarifying what is and is not VC. Not that there is no universal definition, or even a right one —  but having none at all is just a joke.

As we saw with our analysis of the South, the top five Midwestern states for deal volume are the same five top-ranked states for dollar volume. But there is some notable variation in how these states rank among each other and the amount of deal and dollar volume they account for. Considering that Illinois is home to Chicago and a number of downstate universities with deep tech startup roots, the fact that it places first for both metrics shouldn’t come as much of a surprise.”

Hmmm…so Illinois has ‘Chicago and downstate universities with tech roots.’ OK, that’s random, but what’s really going on?

“What might be more of a head-scratcher is Minnesota, which ranks third in deal volume but second in dollar volume. Why does it switch places with Ohio? The answer could lie in the industrial mix which, in the case of Minnesota, includes a disproportionately high number of medical device and other life sciences companies, which typically take a lot of capital to get off the ground.”

Yeah…this whole thing is a headscratcher isn’t it! And Minnesota has a lot of Medical Device and Life Science, there’s some news…still no definition of startup. No definition of VC.  Congratulations Jason, you have, in over 1,000 words managed to define the Midwest, while pointing out that Chicago is in Illinois (and has universities) while Minnesota has a med device & life science sector. This is so original.

“The top Midwestern startup cities. Longtime readers of Crunchbase News may remember a ranking of Midwestern startup cities we wrote back in August 2017. However, here we’re just focusing on deal and dollar volume over the past 15 months, since the start of 2017.”

The only memorable thing was how wrong you were in the first place. Is it going to be any different this time around? There’s always an opportunity for redemption…

“Let’s start first with the top 10 Midwestern cities as measured by number of startup funding rounds.”

Bingo!  So here is something concrete to finally consider.  They say 110 “venture deals” in FY 2017 + Jan through mid March ’18 (again based on only on Crunchbase reportings) from Minnesota. Right?

Safe to assume by now that the lack of any parameters around “startup” means any and all business types of any stage in the lifecycle, not just tech or life science or med device, but anything and everything – all sectors. Right?

Ok, cool, so we are talking here about every possible business in Crunchbase’s database – and they only counted 110 unique deals from Minnesota — across all sectors from that time period?

Because just in tech for Minnesota (IT/hardware/software/mobile/web) for 2017 there were 96 unique companies that raised capital.  Add in Jan – mid March ’18 and  that’s about 18 more so far this year.

In Minnesota tech during the same timeframe, there’s ~114 unique deals reported, which exceeds the 110 claimed by Crunchbase without even counting all the other industries, period.

If you were to factor in all the other Minnesota-based businesses which have raised capital during this time period, a conservative figure is in the 200-300 range, more than twice of what Crunchbase can even count to before starting to determine dollars.

So we could stop here because it’s clear that Crunchbase only captures a slice of the tech & overall business activity in Minnesota… yet has the audacity to claim to know what’s “best”.  But wait, there’s more!

“And in the chart below, you can see the top cities, as ranked by venture dollar volume, from the same period of time.”

Oh yeah, that’s right you wanted to talk about dollar volume in Minneapolis, Minnesota too. And with that coming in at $698m that Crunchbase claims was raised by any and all businesses in Minneapolis metro from the beginning of 2017 to present. Right?

Well, just in tech here in Minnesota (IT/Software/Web/Mobile/Hardware), some $333m was raised in 2017 and now so far in 2018, the rough math is up to around $85m which equates to $418m just in the tech sector.

Add in the med-device + bio/pharma side of things… where according to Medical Alley, they saw 50 companies and $295m dollars for the year 2017 (not even counting Jan – present, since data not in yet) and all of a sudden it’s up to $713m & 164 companies represented just in those three areas.  In less than sixty seconds, we can easily see these figures are over and above any Crunchbase stats while only factoring three market verticals from within Minnesota.

Imagine what could turn up if one dug into all the other sectors — food and beverage, energy, manufacturing/machinery, retailing, etc. Likely closer to a billion dollars raised here during that same time frame just scanning the Form D filings alone.

Point is there’s a plethora of other companies in the Minneapolis metro and greater Minnesota which don’t fit in tech or med device or bio tech – and we’re already over Crunchbase benchmark – so just how wrong is Crunchbase in the grand scheme? Does it even matter anymore?  Are they qualified to say “best” ?

“In both rankings, four of the top five cities are the same, but the odd ones out appear to be Columbus, Ohio. Although there were a fairly large number of rounds raised by startups in that metro area, most of the rounds were fairly small by national standards. And one of the main reasons why Kansas City, Missouri jumped so much in the dollar volume rankings was a $100 million Series F round raised by C2FO.”

Ohio, Missouri…nothing to do with Minnesota, though likely just as inaccurate about those markets!

“But, again, as far as the Midwest goes, everything pales in comparison to Chicago alone.  For many, the Midwest is in a kind of Goldilocks zone. The East and West coasts seem to hold more or less equal sway over the culture and economy and most of its cities are neither too big nor too small. The only extreme it seems to occupy is its winter weather.”

Ah yes, Chicago, everything Midwest just pales in comparison doesn’t it now?  Garbage in, garbage out, Jason – get your facts straight about Minneapolis and Minnesota already!


  • Grady

    Start up
    /start up/


    A company that is investible through multiple stages, usually with Intellectual property and barrier to entry that provide it good prospects for an exit. ie those that invest in start ups tend to be investing in it’s future value than only it’s EBITDA, especially at early stages.

    • Jeff Pesek

      Grady – so just about every single company in the US is a startup then…sounds about right ;)

      Seriously though, find a company that doesn’t fit such vague criteria? Any operating entity with a product or service will have IP, faces some barrier to entry, can be invested in for the future, and bought/exit. There’s certainly some exceptions, but that definition really covers the vast majority of everything…

      Though the defining of a word is for the user of said word to explain…there’s no point in anyone else speaking for them, as much as you seem to want to? Which is interesting that of all the things one could say in response, you chose this…ah well, thanks for reading and sharing your thoughts, always welcome.

      • Grady

        No, start up doesn’t cover the vast majority of businesses, there is a small subset of businesses where the term applies. There is an ongoing war against the term start up on and it is absolutely the lingua franca of the valley and it has a specific meaning. A start up is defined by the fact that a company investment worthy in a specific way. Lots of great businesses, even in their early stage, are not start ups as such as they are not investible by VCs or other speculative entities. Their only potential investment will come from private equity companies looking for someplace to put their money.

        Uber is still a start up, as they are focused exclusively on growth, future value, and ROI for VC investment. They must exit or IPO successfully to stand on their own and they will then cease being a start up. Their cap table is such that running as a run rate business would not be acceptable as they need a big exit to pay off all of their VC investment. That’s the arc. Start ups have a specific arc that at a certain point is intractable, it must go a certain way or implode. See Shazam for reference. If a start up has taken the kind of investment to which I’m referring it has to exit a certain way. That is the connotation of start up in SV. I don’t mean to labor the point but nearly half the article was spent on it so I feel it’s worth discussing.

        • Jeff Pesek

          Right on Grady, thanks for sharing your definition of startup with us, it’s obviously a subjective concern.

          • Grady

            Thank you Jeff. Keep up the great work! Even if you have a vendetta against the term start up I love what you guys are doing and visit the site every day:-)