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The American midwest is home to the country’s scrappiest tech startups

AP Photo/Seth Perlman
Farming isn’t the only midwest’s only growth activity.
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Engineers in hoodies walk around a bright office, while casually dressed marketing executives grab snacks from the kitchen’s unlimited supply. Visitors pass through a workspace divided into “team pods” as interns between meetings play foosball in the common area.

It’s the quintessential portrait of a tech startup, one most people associate with Google, Facebook, and other giants of Silicon Valley. But this particular office isn’t in the Valley, or in California at all. It’s the headquarters of five-year-old video production company TruScribe—in Madison, Wisconsin.

Founded by Jim Herkert and his son and son-in-law, TruScribe has three offices and more than 650 clients, Walmart and Hewlett-Packard among them. Weird Al Yankovic even worked with the company on the music video for his song “Mission Statement.”

But most people have never heard of TruScribe. While the US tech scene is having a major moment, the glitz and glamour of Silicon Valley can be hard to come by in the American midwest. It’s a challenge that affects everything from investment to hiring to press—but also one that makes for bootstrapping success stories.

Flyover money

To date, TruScribe has raised $2 million in venture capital, all of it from local investors. Herkert says coastal VC firms have a knee-jerk aversion to the so-called “flyover states.”

“There’s a bias in people to focus on what’s in their backyard,” says Chris Olsen, a partner at Columbus, Ohio-based Drive Capital.

The numbers bear that out. According to PricewaterhouseCoopers, in 2014 less than 5% of the $48.3 million in VC money doled out to US tech companies went to startups based in the midwest. In the second quarter of this year, it was only 3%. Chicago, the only midwestern city to crack the top 20 for global VC investment, commands just 1.6% of total funding. And AngelList shows roughly 300 open startup jobs in the region, compared with 3,000 each in Silicon Valley and New York.

“The people in San Francisco think you’re not as good,” says Jeff Shinrock, a Des Moines-based developer with gamification platform Bunchball. “Because if you were, you would already live in San Francisco.”

Startup savvy

While Silicon Valley is rife with stories of funding preceding viable products, midwest startups don’t have the luxury of easy money. But that does give them the advantage of thrift.

“The amount of work we got done from the limited funding we got, our tech was what we put that money toward,” says Herkert.

TruScribe recently cut costs by automating part of its whiteboard animation process, which reduced the man-hours needed for each video by 25%. The company put that savings toward new production systems.

“What you see a lot here [in the midwest] is bootstrapping more than anything,” says Jordan Lampe, head of communications and policy affairs for Dwolla, a Des Moines-based real-time payments platform. “A startup [here] must do all it can to hedge the aversions of local investors.”

On the horizon

There is hope, though, as a confluence of factors give midwest startups new opportunity. Chief among them: The region is home to more Fortune 500 companies than anywhere else in the world.

“The opportunity here to be engaged with larger companies has limited [startups’] needs to go the venture capital route,” says Dana Davis, CEO of the Bentonville/Bella Vista Chamber of Commerce in Arkansas. “If you’re near a large company, that obviously ups your chances of finding an exit.”

Moreover, Olsen says these corporate giants are “dying to have a startup come in and show them how to run their business better, faster, and cheaper.”

Hiring is getting easier, too. Many midwestern states are now providing STEM initiatives to get kids interested in science, technology, and math, and to entice graduates to stay in the area. It doesn’t hurt that New York and San Francisco are more expensive than ever, or that technology infrastructure has made location increasingly less import to startups, their potential employees, or future acquirers.

Perhaps most important though, the midwestern mentality is changing. Growing up in Cincinnati, Ohio, Olsen says many people he knew were on the track to work at Procter & Gamble, which is headquartered there. Now young people want to build their own companies.

“In the next 10 years, the midwest will be one of the best places for tech startups,” he says. “You don’t have to raise $100 million to be profitable.”

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