A central piece of our investment thesis at Lewis & Clark Ventures is that the Midwest is undercapitalized. But is it?

Our daily conversations with entrepreneurs provide anecdotal evidence that the middle of the country is capital-starved. So too do the many examples of good companies moving to the coasts to raise money.

But it could be argued that entrepreneurs always perceive a shortage of capital. Raising money is onerous, and this simple fact might lead founders to see a shortage of capital. Further, for every story of a Midwestern company moving to the coasts, there could be a similar story of a coastal firm moving to the heartland. Arch Grants alone has lured a handful of companies from the coasts here to St. Louis.

So it is possible that anecdotal evidence has made for shaky inferences. Maybe there is no shortage of venture dollars in the Midwest, just fewer opportunities, and this explains the paucity of VC dollars in the middle of the country.

One way to go beyond the anecdotal evidence is to consider the level of innovation in a state relative to its VC activity.[1] Presumably, states with more innovation should have greater VC activity. States with relatively high levels of innovation but low levels of VC activity are undercapitalized. Read the full story here.