Back in October, I had the pleasure of driving Lydia DePillis from New Republic magazine around Des Moines for a day and introducing her to a number of startups. Earlier this month, she wrote a story based on some of those discussions entitled "Silicon Valley's Profit Killing Provincalism" that bemoans the lack of easy-to-find capital for technology startups in the Midwest. The story is replete with anecdotes from top tier VC firms about the Midwest ('icefishing') and local startup founders lamenting the lack of local/regional VCs.
Life sucks. Get a helmet.
Funding is hard. I'd wager that 98% of companies that climb up Sand Hill Road to secure funding come away empty-handed. You never read about them in Pando Daily, TechCrunch, or VentureWire. You read about the funded. As such, it's an easy fairytale to believe that there are magic money trees that exist in a grove between El Camino Real and 280N, which is sadly not true.
The reason that (probably, again) 98% of companies don't get funded is that about 85% of them should never get funded. Their idea sucks. 10% of them probably don't get funded because their pitch sucked, which got between their idea and the investor. The other 3% were victims of the associate being hungover, negative association, or some other externality that they had no control over.
You read about the 2% and think "Wow, these midwestern investors just aren't investing!".
Midwest investors are investing, in companies and markets they understand, like biotech, ag, and manufacturing. This is why Silicon Valley VCs invest in tech deals, because that's what they see most of in deal flow. We have ~200 tech startups in Iowa, and the percentage of these that hit local money is relatively low, so it's not surprising that they don't know what the hell you are talking about most of the time. And when you whip out that valuation that looked so good in "The Social Network" outtake, don't be surprised when these professional investors, who are accustomed to looking at manufacturing deals where the valuations are far more reasonable than tech, do a spit-take of their chai latte all over the Microsoft Word term sheet template you scraped off Google.
Go get funding from people that understand you. That's always good advice. Find people that believe in you and your idea. It will take fucking forever to find these people, just ask Ben at Dwolla who spent a year finding the right investors .
HINT: They won't be the people who offer you money first.
As Bob Marley said, “If she's amazing, she won't be easy. If she's easy, she won't be amazing. If she's worth it, you wont give up. If you give up, you're not worthy. ... Truth is, everybody is going to hurt you; you just gotta find the ones worth suffering for.”
So load up your iPod with some Bob Marley and start knocking on a lot of doors, in the Midwest and outside of the Midwest. If anyone ever told you that your startup was in any way entitled to be funded, they lied to you.