How a Midwest startup generator bursts the Bay Area tech bubble and solves real problems

Launching a technology incubator in a mid-size Indiana city might strike some as a challenge. It can be hard, after all, to compete with the talent, investor pool, and innovation potential of the Bay Area and other big cities. But one of the founders of Invanti, a unique startup generator in South Bend, Indiana, believes the atypical location is an asset.

Putting people, and the problem, first—entrepreneurs in the program spend months researching an issue before putting together a business plan—Invanti aims to flip the script on the traditional venture capital formula behind the country’s entrepreneurship ecosystem, says co-founder Dustin Mix. And instead of trying to create a mini Bay Area in the Midwest, Mix and cofounder Maria Gibbs believe Invanti’s location is its strength.

“Our competitive advantage is being something different,” says Mix. “And to be frank, a lot more of the country looks like South Bend than like San Francisco. There are a lot more places eager to adopt solutions and ideas that we create here, for places like here.”

Courtesy Invanti

Building tech’s equitable future in South Bend

Invanti invites groups of potential entrepreneurs to come to South Bend, Indiana, for six months and solve problems around a social impact theme, like improving personal finances or helping small businesses. Unlike startup incubators, which usually audition entrepreneurs who already have an idea or business concept, Invanti seeks out “people who want to be entrepreneurs, but don’t know what that means,” says Mix, starting them at stage zero, researching a problem and talking to stakeholders and community members.

That process is why the program, which launched with a small pilot in September 2016, benefits from South Bend. A city of roughly 102,000, it’s big enough to have complex problems, but also small enough to navigate easily and make connections—and it doesn’t hurt that the University of Notre Dame is in town. But Mix argues it’s more about meeting middle America where it is, and tackling everyday problems.

Courtesy Invanti

A testing ground that looks more like the rest of the country

Situated in the center of the Great Lakes region, South Bend has a history that mirrors many other manufacturing-heavy Midwestern cities. Once the proud home of Studebaker, an automobile company that employed thousands, South Bend was hit hard when the company closed shop in the ’60s.

Like many cities with manufacturing heritage and a factory workforce looking to reinvent themselves, South Bend and the surrounding region has been looking to diversify, increase entrepreneurship, and convince new businesses to set up shop.

Invanti, which seeks to meet that call to create new economic opportunity, grew out of Gibbs’s and Mix’s experience in international development. Both educated as civil engineers, they worked in Central America and Africa, focused on projects in rural communities. They came away with experience building from the ground-up, as well as criticisms of the startup method of solving problems. Many startups or nonprofits working in these regions either had great concepts without real knowledge of what was happening on the ground, or a brilliant grassroots idea without a platform large enough to succeed.

They would later conclude that these issues were also problems plaguing the startup economy in the developed world.

“We were surprised to see with how even in an advanced entrepreneurship system, it’s still based on a lot of randomness,” says Mix. “The right group needs to come up with the right solution and find the right resources to make this happen. The engineer in both of us was like, ‘there has to be a more efficient way to do this.’”

Invanti launched its first official cohort in September of last year focused on financial health, with a class of six potential founders and entrepreneurs who had a stipend large enough to cover food and rent for six months, money to fund a prototype, and plenty of help making connections with the community. With the time and freedom to establish personal relationships, and the ability to quickly test ideas for validation and further discovery, Invanti embodied a more grassroots and inexpensive version of the learn-quick-and-iterate model of innovation.

This topical focus created startups that seemed a lot more relevant than a new meal delivery service. Ella uses a coupon-style model to help users create a rainy-day fund, inspired by founder Lizzie Merrill’s observation that most Americans couldn’t come up with $400 in an emergency. LastLoan, founded by Aaron Vernon, connects employees who need loans with employers, creating a new means for short-term emergency loans.

“Employers have an incredible incentive to make sure their employees aren’t financially stressed,” Vernon told the South Bend Tribune.

Courtesy Invanti

Solving for problems that don’t exist in San Francisco

A success story from Invanti’s first cohort underscores why it’s constructive to leave the tech bubble. Hurry Home, co-founded by Jada McLean and John Gibbons, solves a problem that would baffle most Bay Area investors: how to make it profitable to create mortgages for homes worth less than $80,000. It may seem like a minuscule problem from the viewpoint of someone familiar with the real estate markets in New York or Los Angeles, but roughly 1 in 5 homes nationwide is worth $80,000 or less, especially in rural areas. Banks, which charge fixed fees for mortgage services, often can’t make a profit on these transactions and are loath to take part in these transactions.

Gibbons and McLean didn’t come to South Bend expecting to solve this problem; they didn’t really know it existed. But after learning about the issue and doing research—in a smaller city, eager to help startups, the duo was in the offices of five mortgage lenders in five days—they found out that 1 in 5 homes in South Bend sat within this price range, and scores of cities, such as Chicago, Detroit, Cleveland, and Baltimore also have significant issues matching willing buyers of low-cost homes with financing.

“The question became, ‘How can we help people who want access to homeownership get it?” says Gibbons.

Hurry Home’s solution is to have the company raise funds to purchase the homes and let buyers pay a monthly down payment, eliminating the need for a traditional mortgage. Unlike some programs attempting to help low-income homeowners, this program works with buyers and has them pick a home, offering more flexibility, and reports monthly down payment info to credit unions, helping these new homeowners build their credit scores.

The team that would form Hurry Home not only benefited from talking to mortgage lenders, but was able to speak to Judith Box, a Noter Dame professor known for her housing research,

Ever since finishing at Invanti last February, Hurry Home has continued to grow. They’ve won a number of startup funding prizes, including TechStars in Chicago, and have been working to round up more funding for expansion. Gibbons and McLean hope to end the year with four to six buyers in new homes, and plan to scale up the process next year.

Gibbons says working in South Bend was invaluable.

“It’s a beta city,” he says, “large enough to have big city problems, but small enough to care.”

Does the heartland need tech, or does tech need the heartland?

Invanti comes as increased attention is being paid to the growth of the tech world outside of the superstar coastal cities. Programs such as Cortex in St. Louis, which has built a startup ecosystem downtown, have helped jump-start local innovation. Indianapolis, one of Amazon’s 20 HQ2 finalists, has become a hub for smaller firms and startups, and had one of the fastest-growing tech industries in the nation, according to a Brookings Institution report.

Technology, as well as the money and investors bankrolling innovation, is still overwhelmingly located on the coasts. But as more and more programs like Invanti show the value of incorporating different perspectives into a tech world that’s sadly still easily stereotyped as myopic.

“This is about a different kind of innovation,” says Mix. “Will we develop the next blockchain or machine-learning algorithm? I don’t know. The kinds of businesses we start don’t necessarily create new, shiny technology, but apply technology that actually disrupts things that people have bad or uninformed assumptions about. We think that’s where it works best. We’re not competing with San Francisco. This is a kind of venture couldn’t start in San Francisco.”