Tech Start-Ups Find a Home on the Prairie

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DES MOINES -- As Ben Milne sought money for the mobile-payment company he began developing here three years ago, investors responded with rejections by the dozens.

Eventually, he coaxed $1 million from a pair of local investors. His app, Dwolla, has since attracted more than 100,000 users, and now moves $30 million to $50 million in transactions a month.

So when he decided to seek a second round of financing last year, Mr. Milne, a 29-year-old college dropout, had an easier sell. This time investors courted him. This year, he announced that Dwolla had drawn $5 million more in capital from investors on both coasts, including Ashton Kutcher and a firm with Twitter and Foursquare in its portfolio.

From Des Moines to Omaha to Kansas City -- a region known more for its barns than its bandwidth -- a start-up tech scene is burgeoning. Dozens of new ventures are laying roots each year, investors are committing hundreds of millions of dollars to them, and state governments are teaming up with private organizations to promote the growing tech community. They are calling it -- what else? -- the Silicon Prairie.

Although a relatively small share of the country's "angel investment" deals -- 5.7 percent -- are done in the Great Plains, the region was just one of two (the other is the Southwest) that increased its share of them from the first half of 2011 to the first half of this year, according to a report commissioned by the Angel Resource Institute, Silicon Valley Bank and CB Insights.

Fifteen to 20 start-ups, most of them tech-related, are now established each year in eastern Nebraska, a more than threefold increase from five years ago, according to the Omaha Chamber of Commerce. Today, there is more than $300 million in organized venture capital available in the state, as well as tax credits for investors; six years ago there was virtually none, according to the chamber.

Google Fiber's first ultrafast Internet connection drew about a dozen start-ups to a neighborhood in Kansas City, Kan. And over the past seven months, about 60 start-ups have presented their ideas in Kansas City at weekly forums organized by Nate Olson, an analyst with the Ewing Marion Kauffman Foundation. In Iowa, Startup City Des Moines, an incubator financed with $700,000 in public and private money, including a quarter-million dollars from the state, received applications from 160 start-ups over the past two years. It has accepted 9 so far.

"Traditionally, you'd say, 'Hey, if I want the safe lifestyle, I'll stay here and I'll do what generations before have done,' " said Jeff Slobotski, an Omaha native who four years ago started Silicon Prairie News, a Web site covering the region's tech scene. Now, he continued, "there is a newer potential in terms of what can take place here and not having to hop on the first plane out of here -- saying, 'Hey, I'm going to set up shop in the Midwest in our cities and make a go at it here.'"

Still, the region's entrepreneurs insist that they are not striving to replicate Silicon Valley or other well-known tech hubs like Boston.

"We're creating different types of start-ups using local ingredients," said Christian Renaud, a principal at an information technology start-up incubator here.

Among the companies that have started in the region over the past few years are Ag Local, a firm that created an online marketplace for trading meat; EyeVerify, which verifies people's identities through eye-vein patterns; and Tikly, which created a platform for bands to sell concert tickets. But there also are many start-ups outside the information technology realm, focusing on fields like biotechnology, advanced manufacturing and medical devices.

Many entrepreneurs credit Silicon Prairie News for the region's start-up growth. In addition to writing about start-up activity, The News also organizes conventions that connect entrepreneurs and investors. In the four years since its creation, Silicon Prairie News has covered the emergence of more than 80 companies in the region and more than 50 additional endeavors that spawned mobile or Web apps.

The Silicon Prairie still lags in national recognition as a start-up hub, however. Capital remains relatively sparse, and software engineers are in shorter supply than on the coasts.

"We're just not aware of, potentially, the opportunities that exist in a variety of places in the middle of the country," said Stephen T. Zarrilli, the president and chief executive of Safeguard Scientifics, a Philadelphia venture capital firm that has invested in companies across the country but not in the Great Plains.

Tech enthusiasts in the region are hoping to change that by pointing to other strengths: lower costs and a work force focused more on building strong companies than moving on to the next big thing, they say.

"In Nebraska and the Midwest in general, because the work ethic is so strong, you will find people that will work like they worked on the farm," said Gordon Whitten, the chairman of VoterTide, an Omaha start-up that tracks and analyzes social media trends for campaigns, media companies and others.

Dwolla exemplifies both the potential and the challenges for the region's start-ups.

Business owners here said that few people in Des Moines seemed familiar with Dwolla, which allows real-time money transfers that are less costly for merchants than credit card fees. Yet the fast-talking, matter-of-fact Mr. Milne, in his jeans and untucked shirts, has proved to be a savvy ambassador for his company and the region. He always pays with Dwolla when he can.

"How much do I owe you?" he asked a barista at a coffee shop he frequents in Des Moines, his hometown, before tapping his iPhone and watching his payment register on the shop's touch screen.

He eagerly rattles off the advantages of building Dwolla here, where his headquarters boast all the trappings of Silicon counterculture: beer-stocked refrigerators, neon orange accent walls with well-used whiteboards tacked to them, and a legal counsel who comes to work in flip-flops.

One of the biggest boons, he said, was siphoning the expertise of executives in the city's robust financial services sector. They advised him on structuring the company so it would not have to hold customers' money, saving millions of dollars in licensing and bonding costs. That structure also led the company to create a unique system for transferring money without the usual days of processing delays.

"I don't know if we would have found that relationship in the Valley," Mr. Milne said. "We just hit so many golden-nugget opportunities in Des Moines and golden-nugget pieces of feedback."

nation

This article originally appeared in The New York Times.


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