There’s a reason why US Midwest startups had fewer layoffs, Chicago VC says

When VCs overlook the U.S. Midwest, it’s not just Chicago they are missing out on. Over time, many cities across the Midwest have been building out bona fide startup ecosystems, as M25’s annual ranking of Midwest startup hubs makes clear.

Each year, the Chicago-based VC firm puts together a list of the Midwest’s most active tech scenes, using a wide range of criteria. And each year, there are surprises, even for M25’s own team.

The main surprise of 2022? That Indianapolis overtook Pittsburgh’s third spot, M25 managing partner Victor Gutwein told TechCrunch.

Gutwein was surprised by the change in ranking, but it wasn’t entirely out of the blue: He knows the underlying factors that helped Indy race ahead. This understanding is precisely why we pinged him for comments on what’s cooking in the Midwest.

In our discussion, we talked about Indy and Chicago, of course, but also about college towns, public funding done right and more.

Editor’s note: This interview was conducted in two parts and has been edited for length and clarity.

TechCrunch: In M25’s latest list, which ranking change in the 2022 dataset compared to 2021 is the most surprising?

Victor Gutwein: I figured Indianapolis could and would eventually surpass Pittsburgh but didn’t know it would happen this year because there wasn’t a “signature” major fundraise or exit or new fund announced.

Is the future of the microchip industry going to be Made in America?

Welcome to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily TechCrunch+ column where it gets its name. Want it in your inbox every Saturday? Sign up here.

With all eyes on Taiwan and worries mounting around semiconductor supply, the U.S. CHIPS Act is particularly timely. But it is not unique: Other countries similarly aspire to reduce their reliance on imported chips. Let’s explore.Anna

From cheap as chips to billion-dollar incentives

U.S. president Joe Biden signed the CHIPS and Science Act of 2022 into law earlier this week after the bill received broad bipartisan support in the House and Senate.

The H and I in CHIPS stand for “Helpful Incentives,” hinting at the main component of the initiative: $52.7 billion in public subsidies.

Biden described the new bill on Twitter as “a once-in-a-generation law that invests in America by supercharging our efforts to make semiconductors here at home.”

Dutchie Pay wants to help you stop paying in cash for your cannabis

Cannabis is now legal in a number of U.S. states, but because it isn’t federally legal, this “legal” status only does so much for cannabis businesses. While dispensaries can sell cannabis products legally in many states, they don’t have access to the same banking facilities that any other retail business would.

As a technology platform for cannabis commerce, Oregon-based startup Dutchie is cognizant of the complexity of the problem it is trying to tackle. “We are frankly a little bit and kind of in the stone age when it comes to payments and cannabis,” co-founder and chief product officer Zach Lipson told TechCrunch.

“It really forces the industry to rely on cash,” he said, pointing out that 90% of all dispensary transactions are handled in cash. This figure might be a tad high or slightly outdated, as it comes from a 2020 report by research firm Aite Group, prepared for Emerging Markets Coalition (EMC), an advocacy group for financial services in the cannabis space. But the point remains: Cashless transactions are often not an option for cannabis businesses.

Zach and his co-founder (who is also his brother and the company’s CEO), Ross Lipson, aim to solve that problem with Dutchie Pay, a payment solution that is designed for the legal cannabis market in the U.S.

How it works

If you’re buying legal cannabis for medical or recreational purposes, you might be able to place an order on your dispensary’s website, but you’ll still have to pay cash upon delivery or pickup. This is where Dutchie Pay comes in.

Dutchie Pay’s moniker is reminiscent of Apple Pay, and that’s not a coincidence — Dutchie also has ambitions to be a one-click payment system.

Bitcoin miners are dusting off Kentucky coal towns, spurred by state crypto tax incentives

Bitcoin mining rigs have been arriving in Kentucky by the truckload ever since Governor Andy Beshear passed two laws in March 2021 to incentivize bitcoin miners to establish roots in the southeastern state.

Senate Bill 255 extends the commonwealth’s clean energy-based incentives to miners who provide a minimum capital investment of $1 million, while Kentucky House Bill 230 provides miners a number of tax breaks.

In the year since their passage, Kentucky and mining-focused businesses alike have reaped benefits from the legislation. As of October 2021, Kentucky accounted for 18.7% of the United States’ total Bitcoin hashrate, second to 19.9% in New York, according to data from Foundry Digital, a subsidiary of the crypto giant Digital Currency Group.

Bitcoin mining is a decentralized computational process that allows miners to add new blocks of verified bitcoin transactions to the Bitcoin blockchain. Over the years, bitcoin mining has become more competitive and resulted in miners typically needing expensive equipment and low-cost electricity to profit from their efforts. Out of the 21 million total bitcoin supply, about 90% of bitcoin (about 19 million) has been mined in the past 13 years.

Blockware Solutions, a blockchain infrastructure and cryptocurrency mining firm, announced on Tuesday that it opened its flagship mining facility in Belfry, Kentucky, a town with fewer than 500 people right near the West Virginia border.

“It is my hope that a region known for mining coal will now benefit from this different type of mining,” Kentucky State Representative Angie Hatton said in a statement. “I also hope that its significant electricity needs will help stabilize our steep residential rates. It would mean the world if our families could save money while Blockware Solutions is literally creating it.”

Its Kentucky flagship location is comparable to the size of a Costco and is one of Blockware’s three planned sites in the state, Blockware CEO Mason Jappa told TechCrunch.

“In the economy and region we’re in, the fact that an energy grid exists is awesome, but there aren’t many energy consumers like us in the region, so if we can take down large amounts of energy, we’re adding stability to the grid,” Jappa said.

The data center is repurposing a coal mining site that has been abandoned for decades and will launch with 20 megawatts, which is equivalent to powering a small rural town of 5,000 people annually, he added.

“We found the perfect cocktail of everything we needed: political sustainability, low-cost energy and support in the local economy, as well as it being in an environmentally safe, sound and cool environment,” Jappa said.

Abandoned coal mines aren’t the only locations getting a face-lift. Empty real estate across the country, from steel mills in Illinois to forgotten warehouses in Oklahoma and parts of the Midwest, is being utilized, Nick Hansen, CEO of a Bitcoin hashrate management platform Luxor, told TechCrunch.

“Most of these places have the power capacity built-in by default, which is perfect for bitcoin miners to come in and start using them,” Hansen said. “These old manufacturing towns are turning into bitcoin towns.”

Dear Sophie: Can our employee travel on DACA?

​​Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.

“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”

TechCrunch+ members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one- or two-year subscription for 50% off.

Dear Sophie,

My company wants to send one of its employees to India to open an office there. He came to the United States from India as a child on a visa, but he now has DACA status.

Can he take on this project and still be able to return to the United States? Will this impact his ability to renew DACA? Are there any other potential repercussions that we should keep in mind?

— Devoted to Dreamers

Dear Devoted,

I appreciate that you and your company are supporting Dreamers and providing peace of mind for your employee. My law partner, Anita Koumriqian, and I have worked with many Dreamers to help them obtain and renew DACA (Deferred Action for Childhood Arrivals) so they can attend university and work. Like other immigrants, Dreamers have to work harder to live the American dream, particularly since the DACA program has faced so many challenges in recent years, which Anita and I chatted about on my podcast.

A composite image of immigration law attorney Sophie Alcorn in front of a background with a TechCrunch logo.

Image Credits: Joanna Buniak / Sophie Alcorn (opens in a new window)

Traveling abroad with Advance Parole

To answer your first question, your employee can travel to India to set up your office there only if he gets what’s called an “Advance Parole” document from U.S. Citizenship and Immigration Services (USCIS).

Since the U.S. ended its COVID-related travel restrictions from India this week, your employee could probably return to the United States with an approved Advance Parole document, complete COVID-19 vaccination and a negative COVID-19 test. You and your employee should know this comes with some risk.

For Advance Parole, your employee (who already has DACA) would have to file Form I-131 (Application for Travel Document) to USCIS and receive approval before he leaves for India. USCIS usually takes eight months or more these days to process travel document applications due to pandemic-related backlogs. Advance Parole is basically a travel document that allows DACA recipients living inside the United States to travel abroad temporarily for up to a year and seek to reenter the United States.

At its discretion, USCIS may grant Advance Parole for one of three reasons:

  • Educational purposes, such as academic research or a semester-long study abroad program.
  • Employment purposes, such as overseas projects, conferences, training, interviews or meeting with clients.
  • Humanitarian purposes, such as to receive medical treatment, visit an ailing relative or attend the funeral of a family member.

Based on our experience, DACA recipients requesting Advance Parole based on employment purposes tends to be more difficult to obtain. USCIS adjudicators seem to be more willing to approve Advance Parole based on humanitarian reasons.

Some things to keep in mind: Your employee should not leave the U.S. before USCIS issues the Advance Parole document, otherwise his departure from the U.S. will automatically terminate his DACA status, his application for Advance Parole will be considered abandoned and he will not be able to reenter the U.S. In addition, he must have a valid passport from his country of citizenship.

Heavily VC-backed salad chain Sweetgreen heads toward public markets

Rent the Runway is expected to price its IPO later today and trade tomorrow morning, provided that all things go as planned. Udemy is also on the way to the public markets. Allbirds, too.

And this week, Sweetgreen threw its hat into the ring.

Sweetgreen is a food chain best known for salads that are popular with the office-lunching crew. I can safely say that as a longtime member of that cohort back when I worked in an office in a major city.

Why are we talking about a fast-casual restaurant chain here on TechCrunch? Because Sweetgreen raised hundreds of millions of dollars during its life as a private company, including myriad venture capital rounds — through a Series I in 2019 — along with capital from other investors.

It’s an incredibly well-backed unicorn, in other words. It just happens to make salads instead of, say, enterprise software.

So, let’s take a dive into its IPO filing, working to both understand the company’s business and its results. We’ll close with notes on how we have no idea how to price the company, a similar issue that we had with Rent the Runway.

The following days and weeks are going to prove illustrative in terms of the value of tech-enabled businesses, especially in contrast to more digital and hard-tech efforts. Yet again.

The fast-casual food game

Sweetgreen operates its 140 food spots in 13 U.S. states and Washington, D.C., with some 1.35 million customers placing at least one order in the 90 days concluding September 26, 2021. And for a technology angle, some 68% of Sweetgreen revenue was generated from digital orders for its fiscal year to date, which ended September 26.

As noted above, office culture has proved to be no small part of Sweetgreen’s growth. Per the company’s S-1 filing, observe how it discusses the impact of COVID-19 — which disrupted going to offices, period — on its business (emphasis: TechCrunch):

We experienced a decline in our In-Store Channel due to the COVID-19 pandemic in fiscal year 2020, particularly in central business districts, which was partially offset by strong sales in our suburban locations and strong off-premises digital sales across all markets. For our fiscal year to date through September 26, 2021, we experienced positive momentum across all of our channels, as COVID-19 vaccines became widely available and customers started to return to offices.

Sweetgreen has consistently expanded during its life, noting in the same filing that it had “119 restaurants as of the end of fiscal year 2020,” and 140 as of the end of September of this year. That growth has not been inexpensive, with Sweetgreen “targeting” an “average investment of approximately $1.2 million per new restaurant” in the future.

Powering Sweetgreen in the background are a few trends that the company views as accretive, including a consumer shift toward more plant-based eating and “rapid adoption of digital and delivery,” key channels for the food chain’s revenue growth.

Regardless of how you feel about Sweetgreen the brand, the company’s overall business plan appears sound on paper. People are eating healthier and ordering more via delivery. Salads transport well — they are not soup — and are as plant-based as you’d like. And because it is possible to make money selling food, why not Sweetgreen?

So, how has the company managed in business terms during its last few years of growth? Let’s take a look.

Does Sweetgreen’s business generate sweet amounts of green?

No, it does not.

In fact, Sweetgreen is rather unprofitable and doesn’t appear to be on the cusp of a rapid march toward profitability. Not that losing money is a sin, per se; many venture-backed companies run stiff deficits while they scale. That is the point of raising private capital, to invest it at the cost of near-term profitability and cash flow.

But Sweetgreen is no corporate child. It was founded in 2007, per Crunchbase data, making it nearly old enough to secure a learner’s permit to drive in the United States. If a human can get to the point of nigh-maturity in a time frame, surely corporations made up of adults and backed by mountains of private capital can manage the same?

Here’s the data:

Image Credits: Sweetgreen S-1

Note that time flows east to west on this particular table, so the company’s most recent full fiscal year is on the far left.

As we can see from the two most recent fiscal years, 2020 was a pretty hard time for Sweetgreen, which saw its revenues decline from $274.2 million to $220.6 million, and its net losses double from $67.9 million to $141.2 million over the same time frame.