All the effort underway to kickstart innovation and entrepreneurial activity ((e.g., MHTA; MNCup; MOJO MN; Minnedemo/Minnebar; Minnov8; tech.mn) is clearly a reaction to the nearly terminal decline of risk taking and venture funding in Minnesota. Wherever there is a vacuum, something will fill it!
How true is the perception that Minnesota lacks funding and risk-taking venture capitalists? If you read these three things below, you’ll see that it’s highly likely perception is reality.
- Having Eric Caron (@ecaron) point out this thread to me at Hacker News which was sparked by someone submitting this tech.mn article for discussion. While commenters have usernames vs. real ones and there is a lot of anecdotal discussion in the thread, it’s a troubling read since this is how many startups feel about being here in Minnesota
- Next I fired up my iPad RSS reader in order to skim the top tech sites I read at breakfast each morning. I immediately was presented with an incredibly contrarian-to-Minnesota-VC-funding-experience in an article on the tech site GigaOM entitled, “Seed Stage Investments Jump Sharply in Q2 2010.” It begins with this: “If there were any doubts that the entrepreneurial activity is hitting new highs, then the new data from the National Venture Capital Association puts them to rest –venture capitalists invested $6.5 billion in 906 deals during the second quarter of 2010, thanks to a renewed interest in seed and early stage companies along with new found enthusiasm for clean technology-oriented startups. This is in sharp contrast to a slowdown in the new money flowing into venture funds themselves.“
- In a pretty clear sign that everyone’s perception is reality came when I popped open StarTribune.com’s business section this morning and this article leapt out at me, “Venture capital still scarce in Minnesota.” It led with this: “Venture capital investments in emerging Minnesota companies perked up a bit in the second quarter but remained on track for the weakest year in 15 years of record-keeping, according to data being released Friday.“
The passing of the Angel Tax Credit will go a long way to tap in to the seed stage momentum GigaOM reported on this morning. Read Why Now? MN Legislature Passes Bill w/Angel Investment Tax Credit and Angel-backed Startups 30-50% More Likely To Be Successful to learn more about seed stage investing in Minnesota…
…but then tell us what else needs to be done? Make your voice heard in the comments!
July 16th, 2010 at 9:32 am
It’s unfortunate that this appears to be the case. I’ve been hearing these comments for some time now. I’ve only just started to get to know the entrepreneurial community in MN (the groups you mention… MHTA; MNCup; MOJO MN; Minnedemo/Minnebar; Minnov8; tech.mn). I’ve personally become very grateful for their help, and I still have high hopes that the buzz they are generating will turn the tide regarding investors.
But if there simply isn’t any money to be had in the area, and the tax incentives are so great elsewhere, I don’t know how to avoid stories like Josh’s about Seeing Interactive.
July 16th, 2010 at 7:59 pm
The legislative report leading to the angel tax credit had a very interesting chart ranking MN venture capital relative to other states. (The report is available at http://archive.leg.state.mn.us/docs/2010/other/100190.pdf )
Rather than the “doom and gloom” scenario we usually hear, this suggested MN was actually far ahead of the curve on venture capital financing. When you compare MN per capita investment with the national average, it appears weak. But when you compare MN per capita investment against other states, it’s well above average! It’s just that venture capital is so consolidated in a small number of states (CA, MA, TX) that the national average is not a good benchmark. Compared state by state, Minnesota was:
2007: 7th in per-capita investment, 16th in number of deals, 14th in total investment
2008: 6th in per-capita investment, 15th in number of deals, 9th in total investment
2009: 7th in per-capita investment, 15th in number of deals, 11th in total investment
These are not bad numbers! There’s certainly room to improve, but this does not suggest MN is a loser in venture capital. Why not find who *is* getting money and figure out what sort of businesses *are* getting funded? It might not be information technology, but there does appear to be money available.
It’s certainly much better ranking than WI, despite the angel investment credit there. (36th, 35th, and 32nd in per-capita investment for the same years.)
Certainly there are a lot of things that MN could be doing better. The university is a second-tier computer science research center; there is relatively little movement of ideas and people into startups. (Compare with the medical side!) Local entrepreneurs could aim bigger— I hear a lot of pride about companies that are profitable right away or “didn’t have to give up control” but a lot less about companies that scale beyond their founders. But, unfortunately, it is hard to get that sort of virtuous cycle started— today’s VCs are often yesterday’s successful entrepreneurs.
July 16th, 2010 at 10:56 pm
Today I scored a meeting for a local tech start-up with one of the top five VC’s in the world. I put my reputation on the line with this high profile Silicon Valley firm because I believe in Minnesota tech, and I believe in this company. In return, I asked for nothing. It can be done… We need to help each other out.
July 17th, 2010 at 7:24 am
Neal: Good point…if the money isn’t here then the stories like that will occur, but the money *is* here so we’ll have to see. Success breeds excitement so we need a good breakout story to get their attention.
Mark: Great numbers. Thank you! You’re right too, there’s room to improve. This post is a prelude to a podcast with Pete Birkeland of Rainsource Capital so wanted to spark discussion and it’ll be interesting to get Pete’s take.
Rob: What a nice thing to do…and it’s up to that firm to look at the merits of the company you tossed their way and decide if they want to cough up the dough…but they wouldn’t have known about them had you not done that.
July 17th, 2010 at 9:53 am
Neal, Rob, Mark and (of course) Steve – you all make fantastic points and I’m guessing we’re all preaching to the choir.
It’s been 48 hours, and I know I shouldn’t still be thinking/caring about this, but I’m trying (and failing) to concoct a concise argument to use against their arguments (like the following comment from the aforementioned thread):
***
As a former Minnesotan I can say that it goes beyond taxes. The culture in Minnesota is very risk averse and if you’re starting a software company finding able software developers is very difficult. Because of that culture, finding funding is very difficult as well which pretty much confines the field of potential startups mostly to ones that can be bootstrapped.
It’s a shame because there is a pretty vibrant tech community in the Twin Cities. But it leans very heavily to contracting and consulting. I’d suggest going elsewhere to start a company and moving to Minnesota when you’re ready to raise a family.
***
There must be a simple statement, maybe with some brief examples, that can be made to the contrary and tell them to (pardon my internet french) stfu. But I can’t come up with it and it is driving me bananas.