In the heart of the Midwest, the race is on to become the next Silicon Valley. While Chicago and Indianapolis have proved to be contenders, venture capitalists may want to take a close look at Ohio's capital city.

With a population of more than 850,000, Columbus saw the biggest jump in rank on Kauffman's 2015 Startup Activity report, ranking at No. 12 -- up 10 spots from last year. (Austin led the list at No. 1.)

While Columbus is still known to many as "The Biggest Small Town in America," it is also home to successful health care companies that churn out massive revenues. One of them, CoverMyMeds (No. 329 on this year's Inc. 5000 list), booked $47.5 million in revenue in 2014. Matt Scantland, a Columbus native who co-founded the company, says Columbus's entrepreneurial landscape looks much different from it did when he was a kid. 

"Growing up, the super ambitious people either ended up working on Wall Street, or a big technology consulting firm," he said. "Now, the brightest and biggest achievers at Ohio State [University] either want to be an entrepreneurs, or they want to work for a startup."

As a result, a city that was once known more for playing host to large corporations is now offering some of that same support to entrepreneurs. Now home to multiple tech incubators, like Endeavor Forward and Rev1 Ventures, Columbus launched its inaugural Startup Week this past May in order to strengthen the region's entrepreneurial community.

Here are three reasons why Columbus has large potential to lure ambitious entrepreneurs away from Silicon Valley.

1. A support system of large VCs.

Columbus is home to a number of high-profile VC firms. In 2011, a total of $16.3 million in investment money was poured into Columbus-based startups, according to the National Venture Capital Association. In the first half of 2015 alone, that number has risen to $32.8 million.

Drive Capital, founded in 2012 by former Sequoia partners Mark Kvamme and Chris Olsen, is one of the city's leading firms. 

To date, Drive Capital, has raised $250 million and invested in four Columbus startups. One of them is CrossChx, which closed a $5 million Series A round and a $15 million Series B round in April.

Founded in 2013, CrossChx aims to make it easier for health care companies to verify patient identities though fingerprint-scanning technology. Co-founders Sean Lane and Brad Mascho wanted to modernize America's health care landscape by building a system that could provide a "lifetime of health information" on each patient in a single place.

The two envision that their company will one day be a billion-dollar titan rooted in Columbus, and not Silicon Valley. "You had these guys from Silicon Valley coming to be pioneers, and we wanted to be pioneers with them," Lane says.

2. Proximity to a young and eager customer base.

Olsen's top advice to entrepreneurs is to always remember how much of a priority their customers should be.

"They're the ones who are going to build your company. They're the ones who will buy your product because it fixes their lives," he says. "And, if you look where your customers are, it's going to be in the Midwest."

That's proved true for CrossChx. The major U.S. health care centers, including the majority of the 250 CrossChx has signed on as customers, are approximately within an hour or two of Columbus by air, not Silicon Valley.

Columbus was also declared "America's Test Market" in January by Columbus Monthly because of the tendency of fast-food chains like Starbucks and McDonald's to test their products there, due to the city's large number of young, educated consumers.

"For small businesses, it's a great place to find your first few customers," Lane says.

Talent sourcing also lends a lot of edge for startups in Columbus. Thirty-three percent of people in Columbus have a bachelor's degree or higher, according to the most recent Census data. That's higher than the national average of 29.6 percent.  

What's more, the city is home to Ohio State University. With a total enrollment of 58,322, it is one of the largest universities in the nation.

3. Corporate support.

Columbus is home to three Fortune 500 companies, and just a two-hour drive away the 20 others in the state.

Access to Fortune 500 companies alone, however, can't make up for a small venture capital scene, cautions Lane and Olsen. They hope that will change as more and more companies are proving that they're not just $10 million companies, but $100 million companies, or even $1 billion companies.

Last year, Columbus-based Milestone Aviation sold to a unit of General Electric for $1.78 billion, and CoverMyMeds is on track to do $100 million in revenue this year, according to Scantland. 

Lane suggests that to experience a quantum shift, in any entrepreneurial ecosystem, entrepreneurs must realize they need to build massive companies.

Luckily, he says: "There's a group of people here in Columbus who realize this, and are 100 percent dedicated to getting there."

Published on: Oct 2, 2015