Crowdfunding Makes Inroads to Middle America: Kauffman Study

Main Street, Va.

What’s a startup to do if it’s launching far from typical venture capital hubs like Silicon Valley and New York?

Follow the funding.

Startup activity appears to be increasing outside the typical coastal hubs as technology and venture capital trends shift funding toward Middle America, according to the Kauffman Foundation’s annual State of Entrepreneurship report released Feb. 16.

The metropolitan centers with the highest percentage of companies financed by crowdfunding in 2014, the latest year data was available, were Charlotte, N.C.; Las Vegas; Memphis, Tenn.; Minneapolis and Oklahoma City, the study said. Online platforms allowing accredited investors and ordinary citizens to buy equity in startups, known as equity crowdfunding, have taken off since 2013. That was the first year the U.S. Securities and Exchange Commission allowed for this type of funding, under 2012’s Jumpstart Our Business Startups (JOBS) Act.

Venture capital is generally more distributed across the U.S. than it was in the 1980s, and cities like Nashville, Tenn., and Dallas have the highest density of initial public offerings (IPOs) after the Bay Area, Boston and San Diego, the report says. Other midsize metro centers like St. Louis and Kansas City, Kan., have thriving entrepreneurial centers, the report said.

Not all parts of the country are seeing an entrepreneurial upswing, however. Startup activity is declining in rural and smaller metro areas, the study said. In the late 1970s, more than two in 10 U.S. startups launched in rural areas, compared to just over one in 10 today, the foundation reported.

Another reason for the startup growth in midsize metros may be the lower cost of living, the study said. Tech hubs have great infrastructure for launching startups, but they’re also some of the most expensive places to live in the U.S. Midsize cities offer easier-on-the-budget options for founders short on cash, the report said.

In other words, skyrocketing California property values may have put the garages where Apple, Google and Hewlett-Packard were founded out of reach, but garages in Tennessee and Nevada still don’t break the startup bank.