J.D. Vance, author of the bestseller Hillbilly Elegy, plans to move back to his native Ohio, in part to find venture capital opportunities in the area where he grew up. Is it worth following Vance into the Midwestern capital market?

The Midwest has a lot to offer: A lower cost of living for workers, plenty of labor, business-friendly governments. And, in fact, the Midwest is on the upswing. The unemployment rate in Michigan, for example, is 5.3%, down from nearly 15% in June 2009. Ohio’s unemployment rate is 5.1%. The national rate: 4.7%.

“Employers find in Minnesota a well-educated and highly motivated workforce with a strong work ethic,” Mairs & Power, a Minneapolis-based mutual fund company, wrote in a January white paper on working in Minnesota. “The state ranks 4th nationwide for overall human resources and holds the second highest labor force participation rate in the country, consistently several points above the national average.”

What the Midwest lacks is sources for venture capital funding, argues Inveniam Capital Partners CEO Pat O’Meara. “The banking market changed radically: Major banks are swamped by the unintended consequences of regulation,” Mr. O’Meara said. Banks aren’t reaching out as much to small businesses who need capital, he said. “If you have a $60 million small business, the only people to turn to for advice is your accountant and your lawyer.”

Inveniam, which matches investors with venture capital investments, clearly has a stake in pushing venture capital in the Midwest. “As opposed to being underserved, I’d say the Midwest is under-recognized,” said Maureen Miller Brosnan, executive director of Michigan Venture Capital Association. “We have an amazing amount of talent in the state.”

If you’re looking for agribusiness or manufacturing however, you’ll likely be disappointed. In Michigan, for example, 53% of venture capital investments are in health care or life sciences, and 21% is in information technology. Ann Arbor, home of the University of Michigan, gets the most venture money, with Grand Rapids and Detroit sharing second place.

And Midwestern venture capital is growing, according to the Michigan Venture Capital Association. In the Great Lakes region, venture capital asset have growth 144% the 10 years ended 2015, vs. 112% nationally. Michigan’s venture capital assets have growth 150%.

Yet the Midwest remains relatively lightly covered, Mr. O’Meara said. “You’re not going to see Goldman Sachs sending someone out to Grand Forks.”

Venture capital is risky, and failure is a distinct option. For that reason, it’s restricted primarily to sophisticated investors who know the risks and can afford to take them. For those interested investing in the Midwest with a somewhat less risky profile, consider the Mairs & Power funds.

Investing in Midwestern companies has worked out well for Mairs & Power Growth (MPGFX), which has beaten the Standard & Poor’s 500 stock index the past decade, as well as 95% of those in its Morningstar category. The fund holds such Midwest giants as US Bancorp, headquartered in Milwaukee, and 3M, based in St. Paul, Minnesota.

Similarly, Mairs & Power Small Cap (MSCFX) has beaten 99% of its small-blend peers the past five years. (The five-year-old fund closed to new investors last year). Its top holding, Apogee Enterprises Inc. (APOG), makes glass for commercial buildings and framing art. It’s based in Minneapolis, and has gained 9.1% this year, according to Morningstar.

Source: Investing in the Midwest: opportunities abound