Minnov8

Showcasing Minnesota Technology Innovation

In Its 24th Year, Venture Conference Asks If Minnesota Has ‘Lost It’

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We’ll find out Thursday, because I’ll be there to live-blog it all: the proceedings of the annual Minnesota Venture & Finance Conference at the Minneapolis Convention Center, co-hosted as always by the Minnesota Venture Capital Association and The Collaborative. The blue-suit crowd will turn out once more to hash over where, oh, where is venture investing going in our state, and whether Minnesota is holding its own or falling behind in relation to other states.

This is great sport, people!  We can’t beat Wisconsin in college football for seven years straight, but, oh yeah, we got those cheeseheads when it comes to the game of innovation!  Or do we?  (And, Gopher fans, I won’t even bring up South Dakota.  Shees.)

“Innovation?  Jobs?  Has Minnesota lost it?  Not for one day in October we haven’t,” says The Collaborative in one of its promos.  “2010 marks our second full year of the worldwide recessionary malaise.  Our state’s economy is also not what anyone is calling ‘robust’.  Our unemployment rate is higher than it’s been in decades.  On the plus side, we’re still one of the brightest economies in the nation,” the pitch goes on to say.

“The positive gap between our jobless rate as compared to the nation is at its highest in 30 years… Yet we also hear many reports of our state losing its way in innovation.”

Can you sense the drama, people?  I’m nervously doing finger and hand exercises right now, in great anticipation of the nuances I may be able to capture on my Macbook or iPad (decisions, decisions) as I contemplate the live-blogging nirvana that awaits me Thursday.  It has me breathing heavy.

“Last year, in the throes of the recession, 54 companies gave presentations, 400+ investors and entrepreneurs came, shared, and discussed growth in tough times,” said Dan Carr, CEO of The Collaborative, in his announcement of this year’s event.  “It actually felt optimistic! These companies also go on to create jobs.  Lots of them.  Minnesota is 8th in the nation in venture backed employment: 365,000 jobs.”  (No word on how many of those people may have been laid off in recent times because those ventures couldn’t raise enough money.)

Carr continues:  “This year’s ‘homecoming’ promises another day-long celebration of ‘doing’ more than ‘hand wringing’.  It’s true that some of our greatest companies rise from difficult times.  Our annual conference has a knack for bringing together Minnesota’s best ‘Up & Comers’.”

…  [Read More…]

Making Rain in Bloomington

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Today was the first day of the Rainmaker’s Conference, the 7th Annual event that brings together RAIN Fund members (an angel investment fund), entrepreneurs, investors and sponsors. The intent is networking, education, and exposure to RAIN fund entrepreneurs as well as numerous other startups in order to expose their companies to this key group of people.

Ironic that it was raining like mad all day? Yep. My key takeaway? There is A LOT of very interesting and exciting investment and entrepreneurial activity going on in Minnesota! There were well over 200 people in attendance, substantially more than last year and a great turnout.

Opened by Steve Mercil, CEO of RAIN Source® Capital (the largest network of Angel Investment Funds in US), and keynoted by Richard Sudek, an angel investor, former entrepreneur and academic, there was ample opportunity to connect with local and regional startups at tabletops in the lobby. I happened to run in to Lief Larson of Workface (who was showing BusinessCard2 with some new and interesting value added capabilities); Aaron Weber (co-founder of W3i) and his to-be-launched startup Inveni on Tuesday out at Techcrunch Disrupt (and it is HOT so go watch the video); Lisa Foote with MixMobi who has garnered key investments already for their mobile platform; and Jerry Grabowski of Redliner (see Minnov8’s story here) among others.

Two panels rounded out the day: one on Angel Investing in 2010 & Beyond and the second Funding Universe’s Crowd Pitch…a company showcase where six startups pitch their business plans followed by screening sessions and voting on whether they’re worthy of investment. Crowdsourcing at its best (the winner won’t be announced for another hour or so).

Graeme Thickins pulled aside Pete Birkeland, CFO at RAIN Source Capital to chat about the event. Pete is part of a team that manages 23 funds in 6 six states with $40 million under management and is a guy who has worked in this area for 10 years on both the entrepreneurial and investor side.

Podcast (m8-audio): Download (Duration: 3:47 — 4.4MB)

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Risks for Investors and Entrepreneurs

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A local Minnesota serial entrepreneur, Philip Hotchkiss, gave me a heads-up on this post from a a serial entrepreneur turned VC, Mark Suster. After reading it I was compelled to post about it here on Minnov8 and strongly encourage you to read it.

Though I’m a glass-is-more-than-half-full kind of guy and am constantly seeking out silver linings, opportunities and the positive, I wouldn’t be a good risk manager if part of that seeking didn’t acknowledge input that pointed out the downsides and the negative so I could modify our business strategies.

Suster starts off talking about the “funding frenzy” occurring in 2010 and later in the article discusses why this concerns him. He points out that the US economy has structural employment issues, consumer’s “piggy banks” (i.e., their houses) are empty, the appetite for government stimulus has waned, and what he sees as an end-of-year stock market sell-off will negatively affect VCs and angel investors.

His argument is that 2011 is likely to be bleak and that this year’s initial funding rounds, while fabulous due to that funding frenzy, could leave entrepreneurs in a “funding gap” as VC money dries up.

If you have time, read the entire article of if not, this post was originally published in a shorter format in the Wall Street Journal online.  Either way, read it.

Is Perception the Reality with MN Venture Funding?

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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!

Method Patents: Good or Bad?

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On July 31, 1790, the first U.S. patent was issued to Samuel Hopkins for an improvement "in the making of Pot ash and Pearl ash by a new Apparatus and Process" and signed by then President George Washington.

Let’s say you’ve founded a startup and think you have a completely original idea no one has thought of before with new approaches to the way an old process works. You might then think all you have to do is patent that process and you can achieve the protection patenting is all about: excluding others from copying you.

Oh, if it were only so simple. The world of patents has become incredibly complex and is a minefield just waiting for a startup to get traction selling their offering before the unaware entrepreneur takes a step, hears a click, and thinks “Oh-oh” just before the “patent landmine” blows up. This is especially true in the area of method (i.e., process) patents but there’s hope.

Ernest Grumbles III

Ernest Grumbles III, an intellectual property attorney with Merchant & Gould and co-founder of MOJO MN, has one of the best posts I’ve read yet at StarTribune on the current state of method patents (and it’s obvious why you need somebody like him to ensure your idea is capable of being patented or even worthy of protection). As Ernest points out, method patents are neither good nor bad and are granted based on the merits of the claim and its level of abstraction. If you have a method idea you’re already moving forward on (or are about to) then you owe it to yourself, and your current and future investors, to make certain you are protected and that you wrap that idea in a way that minimizes abstraction and ensures you’re granted that patent!

That said, calls for patent reform are growing louder by the week and many of us who see some patents as ways to extort money from entrepreneurs and innovators or stifle innovation, hope the U.S. Patent & Trademark Office moves faster on reform.

Until there are significantly more precedents set in the area of method patents, people like Ernest will have no shortage of work and startups no end of concern over whether a method idea is too abstract to be patented or likely infringing on some obscure patent already granted.

Angel-backed Startups 30-50% More Likely To Be Successful

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A landmark study was just released by two professors, one from Harvard Business School and the other MIT, which reveals that, for the most part, angel-backed companies enjoy performance gains of 30-50% when compared to other non-funded startups.

From the executive summary:

What difference do angel investors make for the success and growth of new ventures? William R. Kerr and Josh Lerner of HBS and Antoinette Schoar of MIT provide fresh evidence to address this crucial question in entrepreneurial finance, quantifying the positive impact that angel investors make to the companies they fund.

Angel investors as research subjects have received much less attention than venture capitalists, even though some estimates suggest that these investors are as significant a force for high-potential start-up investments as venture capitalists, and are even more significant as investors elsewhere. This study demonstrates the importance of angel investments to the success and survival of entrepreneurial firms. It also offers an empirical foothold for analyzing many other important questions in entrepreneurial finance.

Key concepts include:

  • Angel-funded firms are significantly more likely to survive at least four years (or until 2010) and to raise additional financing outside the angel group.
  • Angel-funded firms are also more likely to show improved venture performance and growth as measured through growth in Web site traffic and Web site rankings. The improvement gains typically range between 30 and 50 percent.
  • Investment success is highly predicated by the interest level of angels during the entrepreneur’s initial presentation and by the angels’ subsequent due diligence.
  • Access to capital per se may not be the most important value-added that angel groups bring. Some of the “softer” features, such as angels’ mentoring or business contacts, may help new ventures the most.

I came across this post from the excellent blog of David B. Lerner, a guy who describes himself as, “a Serial Entrepreneur, Director of Columbia University Venture Lab/Spin-Offs Program, Angel Investor, and Golfer-in-Exile” but who is, most importantly, someone who tracks this space and has this series on angel investing if you’d like to know more.

Why Now? MN Legislature Passes Bill w/Angel Investment Tax Credit

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After many years of lip service to angel investment tax credits, the House voted 112-20 to approve a package of tax credits designed to stimulate job growth in Minnesota with a subsequent 58-3 approval by the Senate shortly thereafter and it now goes to Gov. Tim Pawlenty for signature.

Sponsored by Rep. Ann Lenczewski (DFL-Bloomington) and Sen. Tom Bakk (DFL-Cook), HF2695/SF2568 includes a small business investment tax credit — the so-called “angel investor” credit — and several others.

While we applaud and are delighted by the passage of this historic tax credit to kickstart Minnesota innovation, why did this get passed in a time when Minnesota is struggling mightily with balancing our state budget? Is this more about competing with Wisconsin for startups, or a true effort to create a climate that is a catalyst for innovation in Minnesota?

NPR’s Bob Collins take on it might shed some light when he points out how VitalMedix’ CEO talked to the StarTribune about the need for an angel tax credit, took investment predicated on moving his operations to Wisconsin, and has now filed for bankruptcy:

An “Angel investment” tax credit rewards investment in companies with tax breaks. Investing in a start-up company, especially in the high-tech world, is risky. The angel investor credit provides a cushion for the investor, its proponents argue.

Wisconsin has such a program. Minnesota doesn’t.

While Collins didn’t come right out and say that this bill is a reaction to Wisconsin luring startups away from Minnesota–especially when it comes to a sector, medical devices, many proudly boast that within which Minnesota enjoys a dominant position–but there is evidence that this Wisconsin competition is precisely why this modest angel investment tax credit was included in this bill at this time rather than true leadership in startup investment incentives….  [Read More…]

MinneSpark Has $1,000 (Potentially) For You

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MinneSpark is an initiative from the team that brings you MinneDemo and MinneBar

What could you do with $1,000 for your best idea? Could you turn it into a scalable business? Let’s find out!

MinneSpark will award 1 to n grants of $1,000 to Minnesota-based teams who demonstrate to their trustees the ability to take that money and turn it into something real. This is about doing more with less, and building a profitable business from day one.

Winners will get some help along the way in the form of mentoring from the trustees and services from sponsors.

Applications are due by April 30, 2010. Winner(s) will be announced at MinneBar on May 22, 2010. Find the FAQ, application and more here.

Dan Mallin Presents MN Science & Tech Committee Findings

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Pretty sobering assessment of our state and the future of innovation here….we might not have one if we don’t get moving in a positive direction!

Minnesota faces a crisis of competitiveness in attracting high-tech industries, and needs a comprehensive science and technology initiative to remedy the problem. A 16 member committee of experts from the public, academic and private sectors have been assembled to assess the challenge and make recommendations to the legislature, and on February 16th, Co-Chairman Dan Mallin (@danmallin, partner in Magnet360 and co-founder of the Minnesota Cup) presented the findings of the committee to the state legislature.

The full report is available on the DEED (Department of Employment and Economic Development) website here. Watch these videos in two parts and listen to the end for the recommendations the committee makes around incentives for investors to accelerate funding for startups and growth of companies in Minnesota:

httpvhd://www.youtube.com/watch?v=xxQ_-dLcKFg

httpvhd://www.youtube.com/watch?v=0DDzQJXW6Kw

‘RAIN Makers’ Event to Attract Angel Investors from Far and Wide

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Members of the largest multi-state network of angel investor groups in the country will gather in Minneapolis for the 6th Annual RAIN Makers Conference (http://www.rainsourcecapital.com/rainmaker/conferenceinfo.cfm) on September 23-24 at the new Hilton in Bloomington. Sponsored by St. Paul-based Rain Source Capital (http://www.rainsourcecapital.com/), this event has been held in other cities throughout the Upper Midwest in previous years. In addition to members of the RAIN funds network of angels, this is the first year that members of the Angel Capital Association (http://www.angelcapitalassociation.org/) are also being invited. RAIN Source Capital is partnering with the ACA, which is dubbing the event a regional meeting for their organization, to encourage networking and sharing of best practices in investing and syndication.
RAIN Source Capital anticipates more than 100 angel investors representing its 23 funds across eight states will be in attendance, along with investors of other angel investment organizations. The company told me they expect a larger representation from the Twin Cities this year, of course, since the event is being held here. Any active or would-be angels (accredited investors) are welcome to register for the event, and RAIN said entrepreneurs may also register, although they will not be allowed to attend the second-day (Thursday) morning sessions.
Minnov8 is a media partner for the RAIN Makers Conference.  Steve Borsch and myself will each be attending portions of the event, and we’ll have a table where we plan to do some audio and video interviews during breaks. (I’m returning from DEMOfall in San Diego late the night of the 23rd, and will attend RAIN Makers the morning of the 24th.)
The first day of the event, actually just the afternoon, will feature sessions devoted to trends in angel investing, due diligence tools and techniques, corporate governance/board service, valuation and deal terms, and patent landscaping, followed by a reception. One the second day, there will be a session in the morning devoted to four companies making presentations, chosen from among RAIN Source’s portfolio companies. The presenting firms have received an investment from at least one RAIN fund (angel network), but are now being syndicated to the rest of the fund network for additional financing.  Those companies are:
• Inovus Solar http://www.inovussolar.com (Boise, ID) — This company has pioneered the next generation of outdoor street and area lighting that reduces dependence on the grid, power bills, maintenance bills, and CO2 pollutants. Its SmartPole™ and Visia™ LED retrofit product lines come from the minds of people who helped build companies like Hewlett-Packard, Microsoft. and CH2M Hill.
• Ntractive http://www.ntractive.com (Grand Forks, ND) — Ntractive launched the latest release of its product, Elements CRM 2.0, on July 21st, 2009. The release of Elements CRM 2.0 has garnered significant attention and recognition from Apple and the Mac market, including the honor of being named an Apple “Staff Pick.” Elements CRM is a Customer Relationship Management solution built on a new “hybrid” platform, which is part desktop and part cloud. Elements CRM is currently available on the Mac and iPhone.
• Pranah Storage Technologies http://www.pranah.com (Stillwater and Mendota Heights, MN) — Pranah designs and manufactures scale-out unified storage systems for the SMB market, in the under $50K market segment, the fastest growing part of the data storage industry. Its hardware and software systems are purpose-built for data storage, designed and built domestically, delivering simple, scalable, and flexible network storage. The efficient design behind the Pranah product makes it the most complete network storage system available in a 1U footprint.
• Recon Robotics http://www.reconrobotics.com (Edina, MN) — The company launched the Recon Scout® throwable reconnaissance robot in the local, county, and state police/SWAT market. Building on that successful start, it continues to design, develop, manufacture, distribute, and support miniature robotic systems. The company’s robots are specifically designed to provide real-time information in hazardous or restricted space areas, for military, police, and commercial markets worldwide. It has now sold more than 500 of its Recon Scout family of robots, has recently won a large military order, and has distributors in 28 countries.
After these companies present, in what’s being called a “Syndication Showcase,” attendees will divide into four breakout groups to discuss due diligence and investment recommendations relating to each of those firms.  The afternoon of day two will feature panels focusing on the topic of exits, including M&A, the current market, and analysis of some of the RAIN Funds network syndicated investments and their exit potential.
Cosponsors for this year’s RAIN Makers Conference include the Blandin Foundation, Cimarron Capital Partners, Development Capital Networks, MN Deptartment of Employment & Economic Development, Oak Ridge Financial, Deloitte, Sage Group, ESD Group, Quazar Capital, Ethicon/J&J, Gray Plant Mooty, Granite Equity, Sofia Angel Fund, and South Metro Investors.
More About RAIN Source Capital
RAIN Source is a multi-state network of investment funds that are made up of angel investors who are interested in supporting growing companies. The company helps bring together like-minded angel investors to form individual RAIN funds, and then provides these funds with a process for due diligence, legal templates, management support, access to deal flow, and other resources.
RAIN funds share expertise, deals, and experience between and among RAIN Source Capital’s multi-state network to support growing companies throughout the area.
RAIN Source Capital works with angel investors in Minnesota, Iowa, North Dakota, South Dakota, Montana, Idaho, Washington, Oregon, and other areas, where it expects to form additional RAIN funds in the next year. There are currently 23 RAIN funds located in:
• Minnesota – based in Alexandria, Grand Rapids, Worthington, Willmar, Montevideo, St. Cloud, Mankato, Northfield and Minneapolis.
• Iowa – based in Cedar Falls, Mason City, and Rock Rapids.
• North Dakota – based in Grand Forks, Fargo, and Bismark.
• South Dakota – based in Sioux Falls, Brookings, and Sisseton.
• Idaho – based in Boise.
• Montana – based in Kalispell.
RAIN funds range in size from seven to 61 members, who have pooled anywhere from $500,000 to $2 million for each fund. Each RAIN fund determines what industry(ies) it will focus on, and the type and level of financing to provide, based on the interests and expertise of its members. Each group or fund uses the proven RAIN fund model, with support from RAIN Source Capital’s headquarters staff, for identifying potential deals, performing due diligence, making investment decisions, and monitoring those investments.  The RAIN fund network currently has more than $33 million invested in 55 companies.
For more information about the RAIN Makers Conference, please call Dawn Lundquist at RAIN Source Capital at 651-632-2140, or email her at dlundquist (at) rainsourcecapital (dot) com (dlundquist@rainsourcecapital.com).

RAINmakers-logoMembers of the largest multi-state network of angel investor groups in the country will gather in Minneapolis for the 6th Annual RAIN Makers Conference on September 23-24 at the new Hilton in Bloomington. Sponsored by St. Paul-based Rain Source Capital, this event has been held in other cities throughout the Upper Midwest in previous years. In addition to members of the RAIN funds network of angels, this is the first year that members of the Angel Capital Association are also being invited. RAIN Source Capital is partnering with the ACA, which is dubbing the event a regional meeting for their organization, to encourage networking and sharing of best practices in investing and syndication.

RAIN Source Capital anticipates more than 100 angel investors representing its 23 funds across six states will be in attendance, along with investors of other angel investment organizations. The company told me they expect a larger representation from the Twin Cities this year, of course, since the event is being held here. Any active or would-be angels (accredited investors) are welcome to register for the event, and RAIN said entrepreneurs may also register, although they will not be allowed to attend the second-day (Thursday) morning sessions. RAINsource-logo

Minnov8 is a media partner for the RAIN Makers Conference.  Steve Borsch and myself will each be attending portions of the event, and we’ll have a table where we plan to do some audio and video interviews during breaks.  ACA-logo(I’m returning from DEMOfall in San Diego late the night of the 23rd, and will attend RAIN Makers the morning of the 24th.)

The first day of the event will feature sessions devoted to trends in angel investing, due diligence tools and techniques, corporate governance/board service, valuation and deal terms, and patent landscaping, followed by a reception. One the second day, there will be a session in the morning devoted to four companies making presentations, chosen from among RAIN Source’s portfolio companies. The presenting firms have each received an investment from at least one RAIN fund (angel network), but are now being syndicated to the rest of the fund network for additional financing.  Those companies are: …  [Read More…]