Midwest failing to capture its share of venture capital investment

Stateline Midwest ~ March 2012

States in the Midwest were part of a national uptick in venture capital activity in 2011, but the region is still failing to capture its share of investments in high-growth, innovative economic sectors and businesses.

The latest MoneyTree report — conducted by PricewaterhouseCoopers and the National Venture Capital Association — shows that venture capitalists last year invested $28.4 billion in more than 3,600 deals, a 22 percent increase in money invested and 4 percent rise in the number of deals compared to 2010.

According to the report, 2011 also marked the third-highest annual investment of venture capital money over the past 10 years. Last year’s expansion occurred across a number of industries and sectors, with clean technology and Internet companies undergoing a resurgence in investment. The software industry continued to rank as the largest investment sector, capturing $6.7 billion — a 38 percent increase over 2010. There was also a precipitous rise in the biotechnology and medical-device sectors.

In the Midwest, venture capital investment increased everywhere except Iowa, Michigan, Nebraska and Wisconsin.

Sixty-six percent of venture capital deals nationwide occurred in just five states: California, Massachusetts, New York, Texas and Illinois. (Half of all venture investments were in California.)

In addition to Illinois in the Midwest, only Indiana, Michigan, Minnesota and Ohio rank in the top half of all states for venture capital dollars invested, and only Kansas, Michigan, Minnesota and Ohio rank in the top half for the number of venture capital deals made.

States in the region have tried to support venture capital activity in a number of ways: for example, providing tax credits or grants to venture capitalists, or sponsoring events that bring together entrepreneurs and investors. Another strategy is to set aside a portion of the state’s investment portfolio for venture capital investment. Last year, a measure approved in Illinois (SB 107) allows 2 percent of the state’s portfolio to be invested in venture capital funds.