By Anna Fifelski, Crain’s Detroit Business
Ann Arbor cracked the top five of the best tech startup cities in the Midwest, and Detroit fell one slot to seventh-best in an annual rankings list released by a Chicago-based venture capital firm.
The firm M25 has released an annual rankings list of the best Midwest cities for startups since 2017. The firm considers 24 different variables in its considerations, from the single most important factor — the number of active startups in a city (weighted at 18% in the M25 algorithm) — to the number of nonstop flights at the local airport (weighted at 2%).
Chicago tops M25’s ranking, followed by Minneapolis, Indianapolis and Pittsburgh.
Six Michigan cities were ranked among the 63 on the list: Ann Arbor at No. 5; Detroit at No. 7; Lansing at No. 24; Grand Rapids at No. 28; Traverse City at No. 32; and Flint at No. 57.
M25 has invested in startups in Grand Rapids, Detroit, Ann Arbor, Saginaw and Houghton — and the last two cities don’t make the startup ranking list.
Victor Gutwein founded M25 in 2015 to invest in pre-seed and seed-stage tech companies based exclusively in the Midwest. Gutwein is from Indiana and resides in Chicago, but spent periods of his childhood growing up in St. Joseph County in Southwest Michigan.
M25 doesn’t take its city rankings into consideration when making startup investments, Gutwein, who also serves as the managing partner of M25, told Crain’s.
All Michigan cities on the list got a boost from the recent implementation of the Michigan Innovation Fund, a $60 million state-backed investment into nonprofit venture capital funds and the startup ecosystem. Gutwein said the state’s “slow but sure” investment in the State Small Business Credit Initiative, or SSBCI, also gives the cities a bump.
Ann Arbor pulled ahead of other cities in Michigan when it came to what M25 calls “big outcomes,” which it defines as exits and fundraises larger than $50 million (weighted at 15%). The city is also second to Chicago in startup momentum (weighted at 4.5%), meaning that the volume of startups in the city is increasing at a rapid pace, Gutwein said.
But Detroit is lagging when it comes to startup accelerator programs compared to other cities, which resulted in its fall to No. 7 in the most recent iteration of the rankings. However, its score only falls short by 0.9 of a point behind Columbus, Ohio.
As Michigan’s highest-ranking cities, Detroit and Ann Arbor contribute to a strong tech corridor, for which industry leaders have pushed to drive the state’s innovation economy.
Traverse City and Lansing also moved up on the list from No. 34 and No. 24, respectively, in 2024.
To boost their rankings, Gutwein suggested Michigan cities could also benefit from an angel investment tax credit, which helps encourage smaller investors to participate in local startup funding, and a state fund-to-funds program like those that are present in other Midwestern states like Indiana, Illinois and Iowa.
Gutwein said he hopes the list will not only draw the attention of VCs to the Midwest for future investments, but also give founders an idea of where in the region their startups can thrive and maybe even convince people to start companies.
“We have a more conservative culture in the Midwest for taking risks and starting a high-growth tech company and shooting for the stars, and so we kind of want to enable that, and encourage and allow there to be even more tech companies coming out of this region,” Gutwein said.
