Indiana leaders have worked collaboratively to build a solid foundation for tech sector growth in past years, fueled by the growth of startups and venture funds. New data suggests that now is the perfect time to focus on more startup success.
PitchBook in October debuted its global Venture Capital ecosystem ranking, which placed Indianapolis 15th for growth.
The data reminded me of Brad Feld’s book, “The Startup Community Way: Evolving an Entrepreneurial Ecosystem,” which posits that a long-term commitment is required when building an entrepreneurial ecosystem and that “startup communities must function on a generational cycle.”
Indiana’s startup community is approaching that sweet spot now, as landmark acquisitions of homegrown Aprimo, ExactTarget and Interactive Intelligence date back to 2011, 2013 and 2016, respectively.
Also, PitchBook places Indianapolis as “an investment hotbed for well over a decade.” The region’s VC fund manager growth, particularly first-time fund managers with small assets under management, is driven by increases in quality seed and early-stage deal flow. These managers are well-positioned to build return-track records and grow their assets under management.
Capital isn’t everything to a VC ecosystem, but it is an important input to venture building and is an indicator of a robust innovation ecosystem.
Our PitchBook ranking reflects recent effort and activity. To remain competitive (and bring other areas of the state into the mix), Indiana leaders should keep three key things in mind:
Overall size matters: Key metrics for overall VC market size are VC investments, exits and VC fund values. San Francisco dominates in all three, generating more than $364 billion in venture investments over a six-year-period. Indianapolis captures less than 1% of that amount.
Density matters: Quantity in deals, exits and the number of funds, or density, are also important, for both maturity and potential to reach maturity. This is where Indianapolis has experienced most of its growth. The number of VC deals funded, along with the increases in VC funds and entrepreneurial support organizations, enabled more startup founders to take risks. Investment in entrepreneurial support programs, direct investment and fund-of-funds strategies by the state and corporate and academic institutions played a key role in building a strong foundation for venture growth.
Success matters most in the end: The maturity of an ecosystem is based on the ability of its startups to secure capital, grow, successfully exit and create outliers. Mature companies obtain more capital, increase valuation, attract talent and generate returns for investors. Key success indicators include mega exits and unicorns, late-stage to early-stage ratio and nontraditional investor participation, which tend to participate in later-stage deals. A healthy pipeline of mature/successful companies is necessary to attract large VC rounds and to spin out the next generation of startups.
That’s the flywheel effect San Francisco has enjoyed for years. We are ready to speed up our own flywheel:
◗ A wide range of investors has recently seeded more Indiana startups than ever before.
◗ The ConnectIND resources portal offers more than 1,000 entrepreneurship support programs.
◗ TechPoint launched an unprecedented level of support for Hoosier innovators on the Venture Support platform, including the Indiana Founders Network.
◗ Indianapolis was the No. 3 city in the Midwest for startups for the second consecutive year, according to a report from Chicago-based venture firm M25.
◗ We experienced one of the largest increases in business openings in the United States during the first half of 2023, according to a Yelp report.
If you’re involved in Indiana VC activities at any level, you can certainly feel momentum building. Let’s capitalize on that and invest in the venture success.•
Gootee is CEO of TechPoint.