PACE Fund bets on health tech startups in the American Midwest for strategic investments
Investments in health tech startups in the American Midwest are finally starting to get the attention they deserve. And it is no coincidence.
For a long time, entrepreneurs in the region watched their projects take off in the center of the country, only to feel the pull toward the East or West Coast once it was time to raise capital. It was almost a ritual: you built something solid in the Midwest, proved the concept, landed your first customers, and then came the pressure to relocate because the money was in San Francisco, New York, or Boston. Those who stayed behind often got swallowed up by the lack of access to institutional capital, even when they had a better product and a more real customer base than plenty of coast-funded startups.
This exact pattern is what led Julia Monfrini Peev to create the PACE fund, based in Chicago. After years of watching this cycle repeat itself, she decided to do things differently, building an investment thesis that runs counter to what the American venture capital market typically practices. Her logic is simple and straightforward: instead of following the money, the money should follow the healthcare. And when you look at the numbers, that idea makes a lot of sense.
A region that supports nearly half of all hospital beds in the U.S.
The Midwest is not just a dot on the map. It is the operational heart of the United States healthcare system. The largest electronic health record systems in the country are based in Kansas City and Madison. Major health insurers are headquartered in Minneapolis, St. Louis, Louisville, and Indianapolis. Pharmaceutical and medical device giants are anchored in Indianapolis, Detroit, Minneapolis, and Chicago. When you put it all together, the density of healthcare infrastructure in the region is staggering.
And there is one data point that still surprises a lot of people: the major health systems in Chicago, Kansas City, Minneapolis, Cleveland, and St. Louis collectively represent approximately 45% of all hospital beds in the United States. That is not a small number. And unlike the more concentrated markets on the coasts, the Midwest offers real diversity in clinical settings, with every type of insurance, every type of patient, and both urban and rural environments. It is a natural laboratory for anyone looking to develop healthcare technology that actually works at scale and under real-world conditions.
Yet innovation capital keeps flowing to the coasts, leaving behind an ecosystem rich in real customers, operational partnerships, and specialized talent. This creates an absurd distortion: startups that are born right where the biggest healthcare buyers in the world are located have to relocate just to keep going. The result is that many products end up being developed far from the environments where they need to work, which increases the risk of a disconnect between what gets built and what the market actually needs. This is one of the reasons so many health tech solutions hit the market with a beautiful pitch deck but stumble when it comes to real-world implementation.
Receive the best innovation content in your email.
All the news, tips, trends, and resources you're looking for, delivered to your inbox.
By subscribing to the newsletter, you agree to receive communications from Método Viral. We are committed to always protecting and respecting your privacy.
Why the traditional venture capital model does not work well in healthcare
One of the most interesting observations Julia Monfrini Peev shares about creating PACE is that the classic venture capital model simply does not translate well to the health tech sector. The traditional model works like this: you invest in dozens of companies, accept that many will fail, and hope that one or two generate massive returns to make up for all the losses. It is the famous power law model, or as some call it with a bit less ceremony, the spray-and-pray approach.
In the Midwest, this model runs into at least two fundamental problems. The first is cultural. The business culture of the region is built on values of responsibility and careful stewardship of resources. Farmers and industrialists may be risk-takers, but they expect real and responsible management of capital. You cannot convince this audience that half the portfolio will die quickly as part of a strategy to generate returns. It simply does not fit the local mindset.
The second problem is even more structural. Healthcare adopts technology slowly. As Dick Flanigan, president of Digital Health KC, likes to say: healthcare adopts at the speed of trust. Sales cycles are long, validation processes are rigorous, and exits, while attractive, generally land in the $200 to $400 million range — not the billions that fuel the dreams of many generalist funds. To generate real returns in this environment, you need to be selective, get in early, deeply understand the landscape, and grow sustainably.
That is why PACE was built around a vision that Peev calls anti-log. Instead of betting on volume, the fund bets on depth. Over the past five years, the team has demonstrated that a selective portfolio of execution-focused companies can produce top-decile financial results without relying on a single extreme success story. Fewer companies in the portfolio, but with far more support, hands-on guidance, and dedicated resources for each one. 💡
Building the connective tissue of the ecosystem
One of the things that sets PACE apart from other funds is the way the team invests time and energy to build connections within the region. The Midwest does not have thousands of serial entrepreneurs, let alone second- or third-time founders who can learn from each other the way they do in hubs like Silicon Valley. This experience gap is real and can be a serious obstacle for early-stage startups.
To address this, PACE assembled a larger team and a bench of senior advisors who work directly with portfolio companies. Traveling across the region constantly, the team built what Peev describes as the connective tissue of the ecosystem: access to customers, talent networks, relationships with health systems, and communities of operators. This behind-the-scenes work is less glamorous than announcing an investment check, but it is what makes the difference between a startup that dies trying to land its first meeting with a hospital and one that walks into that conversation with credibility and context.
And the results are showing up. Five years after its founding, PACE has already demonstrated that this model produces more durable healthcare companies, real exits, and consistent returns. It is not magic. It is the consequence of investing where the customers are, where the talent understands the sector, and where operating costs allow capital to go further.
What is changing in the Midwest health tech ecosystem
Over the past few years, a series of factors has started to transform the startup investment landscape in the center of the United States. The pandemic accelerated the digitization of healthcare at a speed few predicted, and that opened the door for solutions developed in the Midwest to gain national visibility without having to relocate. Telemedicine tools, clinical data management platforms, hospital interoperability solutions, and remote patient monitoring apps exploded in demand, and many of the companies best positioned to meet that demand were right in the heart of the country.
On top of that, operating costs in the Midwest are significantly lower than in the major coastal metros. This means a startup based in Chicago or Columbus can stretch its capital much further, hire engineers and healthcare specialists at competitive rates, and maintain a lean operation without sacrificing quality. For funds like PACE, this translates into more realistic valuations, longer runways, and far less pressure to grow at all costs before finding a sustainable business model. It is exactly the opposite of what happens in overheated ecosystems, where the pressure for hypergrowth frequently destroys companies that could have been excellent with a little more time and patience.
Another important shift is the growth of accelerators and innovation programs tied directly to major regional health systems. Leading hospitals have been increasingly investing in innovation arms that serve as gateways for startups looking to validate their solutions in real-world environments. This creates a virtuous cycle: the startup gets access to clinical data, feedback from healthcare professionals, and a proof of concept in a live setting, while the hospital gets early access to technologies that can transform its operations. For investors with the PACE thesis, this kind of partnership is exactly what separates a health tech startup with a future from one that will die during its second funding round. 🏥
Why the PACE thesis matters for the future of health tech
The PACE approach is not just a regional strategy. It is an implicit critique of the dominant venture capital model applied to healthcare, which has historically favored rapid growth and scalability above all else — even when that means ignoring regulatory complexity, long hospital adoption cycles, and the need to build trust with health systems that handle extremely sensitive data. Healthcare is not e-commerce. You cannot scale before proving the product works under real conditions, and implementation mistakes carry far more serious consequences than in any other sector.
PACE backs startups that are already embedded in the Midwest healthcare ecosystem, that understand how a negotiation with a major insurer works, that know what it takes to get clinical committee approval, that are familiar with the real pain points of a hospital CFO trying to justify a new investment in technology. This contextual knowledge is impossible to replicate if you are building a healthcare product from a distant office without ever having set foot inside a real clinical environment. It is the difference between building for a market and building with it — and that distinction makes all the difference when it comes time to convert users into paying customers and customers into product champions.
As Julia Monfrini Peev herself puts it, the coasts may be loud, but the Midwest is proving to be durable. The next era of health tech will belong to companies that combine technology with trust and scale with discipline. And the Midwest will be at the center of that transformation.
The healthcare innovation map is becoming more diverse
In the long run, what funds like PACE are doing is rewriting the narrative about where healthcare innovation can and should happen. If the thesis proves correct — and the early signals over five years are promising — other investors will start looking at the Midwest with much more interest, attracting more capital, more talent, and more startups to the region.
This does not mean the major coastal tech hubs will stop being relevant for health tech. But it does mean the innovation map will become much more diversified and, quite possibly, much more robust. A healthy startup investment ecosystem does not need a single center of gravity. It needs multiple hubs, each with its own specific strengths. And when it comes to healthcare, the Midwest has strengths that no other place can replicate: proximity to the largest health systems in the country, diversity of clinical settings, competitive operating costs, and a business culture that values real results over inflated narratives. 🌎
The PACE movement is, at its core, a reminder of something that should be obvious: the best health tech companies of the future will probably be built where healthcare actually happens. And on that front, few regions in the world can compete with the American Midwest.
