Despite COVID-19, optimism reigns in the Midwest’s startup scene

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Startups in the Midwest are optimistic despite the fact that a fair number of companies in the region are suffering from economic impacts stemming from COVID-19, recently collected data shows.

The global pandemic has shaken the U.S. economy, but it hasn’t affected each area in the same way. States have seen differing levels of infection, paces of response, qualities of medical infrastructure and so on. What happens to Silicon Valley startups in the COVID-19 era, therefore, might not be exactly the same as what happens to Boston’s or Utah’s startup ecosystems (more on Boston here, Utah here).

A report out this month from Sandalphon Capital that digs into the reality, reaction and sentiment of the Midwest’s startup scene paints an interesting picture. While data collected from 197 startup CEOs from the region includes worrisome responses regarding fundraising and cash runways, it also reflects more optimism and green shoots than we anticipated.

This morning, let’s study a few key data points from the Chicago-based, early stage venture capital firm’s survey to better understand one of America’s most interesting, if least-covered, startup scenes.

Chin up

The full survey — you can find Sandalphon’s summation and the link here — contains a wealth of data, but today we’re focusing on three things:

  • COVID-19’s direct impacts
  • runway and fundraising situations
  • CEO optimism


Starting with the bad news, 7% of Midwest startups surveyed have been “extremely negatively impacted” by COVID-19. Another 12% said they have been “very negatively impacted.” So, about one in five startups from the region (19%) have taken a strong hit from the pandemic.

Another 20% of firms surveyed say they have been “moderately negatively impacted” by COVID-19. The next cohort on the impact scale, those “slightly negatively” impacted, totaled 26% of startups in the area.

In more positive territory, 5% of Midwest startup CEOs reported that there was no impact on their business so far, the smallest cohort answering the impact question. The final group was the largest and the most positive: 30% of startup leaders reported that they have seen a “positive impact” from COVID-19.

So, around 20% of Midwest startups are struggling, 20% are taking some fire from COVID-19, 25% are seeing some friction (but nothing too bad), a handful are seeing no impact, and nearly 30% have received a boost due to economic changes stemming from the pandemic.

That’s not as dire as I would have guessed before reading the data.


Parsing a few slides from the report, here’s the lay of the fundraising landscape amongst Midwest startups in May:

  • 45% are burning cash and have a “near-term financing need.”
  • 43% are burning cash but have no “near-term financing plan.”
  • 11% are profitable and may or may not raise more capital.

The rest of the companies are in a sales process or shutting down. From the main data points, however, we can see that nearly one in two Midwest startups need capital quickly and more than two in five will need more capital — just not right now.

Given that capital needs range from acute to around-the-corner, how are Midwest startup CEOs reacting when it comes to fundraising?

  • 40% have delayed fundraising.
  • 30% no change reported.
  • 20% have “accelerated” fundraising.

Another 10% said the question didn’t apply, which probably encompasses the profitable and M&A-active startups in the mix. But with 50% not changing or even accelerating their fundraising process, there’s a host of young companies in the market today.

How are investors responding? Around half of companies declined the question (noted as an answer of “not applicable” in the data), but among those that did, far more reported a slower response than those who noted that their VCs were acting more quickly. That’s not a tremendously positive sign, but it doesn’t seem to be holding Midwest startup CEOs down.


Midwest startup CEOs appear able to look past the data on impact, fundraising and how the VC community is reacting to the capital needs of regional startups. Sure, there are some issues, but most of the executives polled are feeling pretty good.

Of the 197 area startup CEOs surveyed, just 19% reported being “a little” or “very worried.” Another 14% said they felt neutral, while 35% reported feeling “a little optimistic.” Another 32% said that they felt “very optimistic.”

Put another way, 67% of Midwest startup CEOs said they are more optimistic than not this deep into the COVID-19 pandemic. That’s far more sunny than I would have guessed.

How grounded to reality that optimism is we leave to you to sort out, but at least the area’s startup scene is keeping its chin up. That fact could bode well for other ecosystems with even more developed investor ecosystems.

We’ll keep digging into regions as we can, especially those further outside the orbit of Silicon Valley.