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5 Reasons Investors Should Keep Their Eyes On Omaha, Nebraska

by Mark Hasebroock, Founder and Managing Partner, Dundee Venture Capital

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Here’s a word association game: what do you think of when you hear “Omaha, Nebraska”?

If you answered “cornfields” or “Warren Buffet,” you’re probably in good company. But not for long.

Omaha is rising in prominence among entrepreneurs and investors, making a name for itself in a more broad and diverse range of industries than in previous years. With more startups choosing Omaha as a homebase and an increasing number of success stories, the city is quickly becoming a midwestern hub for growth.

That momentum is likely to continue, with several of the city’s characteristics contributing to an environment that is uniquely ripe for growth:

1. Cash-rich investors with an increasing appetite for risk.

Warren Buffett is known to avoid embracing new technologies ever since his famous remark during the dot-com bubble of the 1990s that he doesn’t invest in technology because he doesn’t understand it. Buffett aside, though, Omaha has no shortage of cash-rich investors that are more eager to take well-informed risks on the startup tech sector.

The earliest Berkshire Hathaway investors living in Omaha are now at an age where they’re passing their fortunes down to their middle-aged children, who are in an excellent position to turn around and put that money into promising local startups. And the staggering fortunes in Omaha aren’t just related to Berkshire Hathaway. From Fortune 500 construction company Kiewit to Omaha Steaks to First National of Omaha to Oriental Trading, big-name businesses have put plenty of capital in the hands of Omaha residents.

Admittedly, many Omaha investors are still wary of early stage investments. Conservative agrarian roots mean that sometimes, even the most well-off Omahans sometimes prefer to choose “sure bets.” But these startups will create a lot of value over the long term, launching successful companies in the process. As startups continue to prove themselves, continuing momentum and increasing profits are sure to sway most investors with time.

2. A collaborative, inclusive approach to startup development.

West Coast incubators are known for being competitive rather than collaborative. The difficult application processes to be accepted into a prestigious incubator fosters a kind of zero-sum attitude, where one startup’s loss is another’s gain. That competitive spirit never really goes away.

In Omaha, things work differently. Like the city itself, incubators are cooperative with a core understanding that this is hard, but it’s less hard if we all work together; a rising tide lifts all boats. Being less selective about entry requirements actually helps to build up an ecosystem that still requires accountability, but is much more open and supportive as a result.

That’s the approach we’re taking at The Startup Collaborative, where companies that are still bootstrapping can share space with companies that have already been validated by the market and are ready to raise capital. The model is extremely inclusive, founded on a university-like model where we recognize that everyone is at a different stage. Startups are surrounded by mentors and by other founders, and can get the resources they need to be successful.

3. A culture of hard work and persistence.

People from Omaha are proud to be from Omaha, and with good reason. The impact of the weather on a city’s entrepreneurial mentality may sound trivial, but the brutal midwestern winters in Omaha truly form a basis for a culture of strong wills and perseverance.

In a relatively small city where the entire population has to get through tough winters, the people become tough themselves. They develop a certain resilience and resourcefulness, and a willingness to put up with getting knocked around a bit before getting back on their feet. That’s a great mindset for an entrepreneur, as the companies that succeed in the long-term are usually the ones who are also willing to risk and to overcome failure in the short-term.

4. Relatively low costs.

Relative to U.S. coastal cities, the costs of operating a business out of the Midwest are extremely low, allowing for greater profit margins.  Additionally, the costs of starting a business in general have been enormously compressed in recent years. Building a website used to be a huge investment of time and money that can now be completed in less than a week at the cost of a few thousand dollars.

These developments make it much less risky, as ideas can be cheaply tested and then easily tweaked. In risk-averse Omaha, this ability to prove market relevance will be a huge boon to startups.

5. The excitement of a city on the rise.

The rising prominence of Omaha’s startup scene feels similar to the excited vibes coming out of Chicago five or ten years ago, when Chicago was on its way to becoming one of the premier destinations for venture capital. Chicago’s venture boom started with a few seed round investments, followed by series A investments that brought with them a wave of rapid growth and major exits: Grubhub, Groupon, and others. As entrepreneurs saw that it was possible to grow and sell a business there, momentum kept growing. Founders exited with millions of dollars, and were ready to reinvest in new startups in the city.

Holding up Chicago as an example has brought a sense of excitement to Omaha, a sense of possibility that the Midwest has something special to offer and that Omaha really is within reach of being next in line. J.B. Pritzker’s formation of the 1871 collaborative startup lab in Chicago is similar to what’s been happening here in Omaha. There really is a feeling that now is the time and that Omaha is the place, and that we’re in the middle of something big.

Area for Improvement: Sales Skills.

The remaining point for Omaha startups to improve on is cultivating sales skills. There are some really talented engineers and developers here, and often they just want to focus on building great solutions to frustrating problem. That’s fine, but at the end of the day they can’t expect that the market will just find them. Sales aren’t glamorous, and universities aren’t teaching sales techniques to their students. It’s a dying art, and it’s a talent gap that entrepreneurs will have to work to close.

While there is still some work to do, the foundations in Omaha are already here for a continued startup boom. The next decade should be an exciting one for Omaha founders and investors alike.

 

mark hasebroock

Serial entrepreneur Mark Hasebroock started his career at First National Bank in Omaha before becoming an early franchisee at Vic’s Popcorn and working 12 years as an investment banker at McCarthy & Company. He then cofounded GiftCertificates.com and Hayneedle Inc. raising over $150M in venture capital for the two from the likes of Sequoia Capital and Insight Venture Partners. Mark went on to found Dundee VC in 2010, in order to help entrepreneurs like himself find hands-on, knowledgeable capital providers that could help a startup grow from an idea through to an exit.

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