Headline-grabbing success stories and newly boosted state funding for startup support are a powerful combination, said Victor Gutwein, detailing Kansas City’s higher 2022 spot on M25’s annual ranking of Midwest startup cities.
Kansas City rose to No. 11 of 59 in the deep dive report — which explores how micro-environments in the Midwest are performing in relation to each other on key factors like startup activity, access to resources and business climate.
Click here to check out the full ranking, which saw a first-ever shakeup among the Top 3 Midwest startups.
After five years bouncing between the Nos. 12 and 13 slots, the City of Fountains switched ranking positions for 2022 with Cleveland, Ohio, which has been lagging since 2017.
The two cities share much in common, but KC beats Cleveland with its upward trajectory, said Gutwein, founder and managing partner at M25 — an influential venture fund in Chicago with Kansas City-built portfolio companies like Whipz, backstitch, Super Dispatch and Zohr.
Click here to read more about Whipz recent $1.8 million pre-seed round.
“Kansas City and Cleveland are neck and neck on number of startups, but KC has twice the score on ‘Big Outcomes’ — which is from BacklotCars’ exit; C2FO’s and PayIt’s big fund raises,” Gutwein told Startland News. “That’s a pretty big edge.”
Angel activity is higher in Kansas City, he added, and although Techstars Kansas City recently closed shop, KC still outscores Cleveland on accelerator programs.
“With so many pre-seed funds, accelerators have gotten less important for getting startups off the ground,” Gutwein noted, referencing changing dynamics in city-specific impact from accelerators, in part, because of remote programs during the pandemic. (In turn, M25 adjusted down the weighting of accelerators in its 2022 rankings.)
Signs of KC’s increasingly mature ecosystem — marked in no small part, Gutwein said, by multiple large coastal Series A rounds (think the $24M Series A for TripleBlind led by General Catalyst and the $15M Series A for Kinly led by Forerunner) — position Kansas City to break into M25’s Top 10 soon, he said.
One of the other critical factors in KC’s favor: the dramatic increase in state funding for the Missouri Technology Corporation, which supports startups through direct co-investments and a matching grant program.
The program went from having its funding entirely withdrawn in 2020 to $3 million allocated this year — then jumping to $31 million in fiscal year 2023.
“10-xing the amount of available money for MTC is huge. I’ve already seen the impact,” Gutwein said. “Some of the companies we’re looking at are already set to get matching funds from MTC. And not long ago, MTC had basically become a non-ingredient in the ecosystem.”
“It’s exciting because Indiana and Nebraska both have very active direct investment programs, Iowa has loan programs, Illinois has a really good tax credit and Fund of Funds, so you have competition via state resources on almost all sides,” he continued.
On the other side of the border, support is less rosy, but still promising, Gutwein said.
“Kansas as a whole is lower now than Missouri on resources; it has a very good tax credit program, but that’s about it,” he said. “We’re really optimistic and excited about the future in Kansas, however, because of its selection as one of five states to get approved for State Small Business Credit Initiative (SSBCI) funds.”
“Who knows exactly what that will look like, but the expectation is Kansas putting most of that $69 million bucks toward some sort of equity program for angel capital, so you’d think that will really impact the startup scene,” Gutwein continued.
Click here to learn more about M25’s exploration of Kansas City’s ecosystem.
Across the region, smaller startup scenes are feeling the ripple effect of increased state support (and the promise of it), he said, as well as their own individual success stories.
On the Kansas side, Wichita shot from No. 47 to 41 in 2022, and Topeka rose from dead last (No. 59) to 51.
“Kansas cities are all seeing a boost from incoming government support,” Gutwein explained, noting plenty of room for growth especially with the state’s most populous city.
Click here to read more of Startland News’ coverage of the Wichita and Topeka startup scenes.
“Wichita’s ecosystem is currently developing slower than I would expect,” he said. “In part, that’s because we’ve yet to see any really major funding rounds coming out of Wichita. It has a population of roughly 400,000, so it’s not tiny, right? But so far it doesn’t out-punch its size like a college town typically does.”
Columbia, Missouri, for example — home to the University of Missouri — jumped five spots (No. 27 to 22) in M25’s rankings.
“Unlike a lot of cities of its size, it has an amazing big outcomes score because of EquipmentShare,” Gutwein said, referencing the surging scaleup that’s proven one of the fastest-growing equipment rental and technology companies in the nation. “Columbia has an excellent accelerator, Scale, that’s active and spitting out more startups.”
“And what we’re seeing is that the accelerator is attracting a lot of venture money to a relatively small ecosystem and having a big impact.”