Midwest Predicted To Be Fastest Growing Venture Market In 2011

One surprise investment story of 2010 has been the rebound in Midwest venture. Some expect 2011 to be better.

Many regions of the country still struggle to top weakened 2009 investment totals, Silicon Valley included. But Midwest venture, known for its health care focus and now its fledgling commitment to cleantech, passed the mark with its third quarter numbers.

As of September, the region’s GPs placed $818 million with emerging companies, comfortably above the $778 million of 2009. With a steady fourth quarter, the year could near the 2008 total of $1.27 billion.

Silicon Valley may have no such luck. Through the first three quarters of the year, valley VCs put $6.37 billion into startups. They will need a gargantuan fourth quarter to reach the $10.9 billion of 2008.

Given this backdrop, local leaders are encouraged. Ray Leach, the chief executive of JumpStart Inc., a Cleveland based organization investing in and nurturing startups, sees the region as the nation’s quickest growing market next year.

“With portions of the Great Lakes region seeing investment dollars doubling or even tripling this year over last, the Midwest will emerge in 2011 as the fastest-growing US market for VC due to the capital efficiency of the companies, the transformative biomedical and cleantech technologies, and the thriving pipeline of early-stage companies that are ready for growth capital,” he (pictured) predicted in an e-mail.

Signs suggest he could be correct. Ohio, for instance, saw significant momentum build through 2010, with second quarter investing up and the third quarter total spiking higher to $73 million. Michigan also was relatively resilient, despite a third quarter dip, according to data from the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters, the publisher of this blog.

Part of the explanation may be the scarcity of capital. Venture investor Koleman Karleski, a managing director at Chrysalis Ventures, sees it this way:

“In 2011, I believe the Midwest and South will continue to be excellent regions for entrepreneurs to build scalable, profitable businesses.  This geography is under-ventured, but its ecosystems spawn and support the kinds of assets you need to build successful businesses, including a large, tenacious entrepreneurial talent pool, exceptional colleges and universities, and a host of established large companies whose challenges become opportunities for the next generation of venture backed companies.”

As 2010 becomes 2011, the Midwest will be a place to watch. But like elsewhere, it will require a steady improvement in the nation’s economy, building consumer confidence and a constructive relationship between opposing camps in Washington.