As we continue to deploy the remaining $24M from our early-stage Great North Ventures Fund II, we’re actively seeking exceptional startups to invest in. We are focused on two key profiles: the scrappy & efficient or the ultra-ambitious. Do you know a startup that fits one of these categories? Let us know!
THE SCRAPPY & EFFICIENT STARTUP
- Market Size: $250M – $1B with potential for expansion
- Competiton: Typically, few if any other direct VC-backed rivals.
- Efficient Growth: Growing ARR by more than $1 for every $1 burned. Clear path to $30M ARR in 5-7 years.
THE ULTRA AMBITIOUS STARTUP
- Market Size: TAM exceeds $10B
- Competition: Competitive, but founders have a winning vision.
- Growth Model: Willing to take more go-to-market risk. Path to over $100M in 5-7 years.
Our strongest deal source? Referrals from our network. Thanks to partners like Gopher Angels, Hyde Park Angels, and Community Giving, we’ve invested in incredible startups like HLRBO, ColdCart, and IRALogix.
But, here’s what we won’t invest in:
- Pre-Revenue Startups: We prefer to invest in startups that have some traction and are generating revenue.
- Proprietary Hardware: While hardware can be an exciting space, the capital-intensive nature and longer time-to-market often lead to a slower return on investment.
- Niche Markets: Startups targeting very small, niche markets that don’t have the potential for significant growth or scalability.
We value your referrals and would love to connect with founders who fit our investment goals.
Big exits are important for venture investors because they require large distributions to make up for any underperforming investments.
How much capital is burnt to get to those big exits impacts the return multiple a venture investor will realize.
Startups that grow in a capital efficient manner and achieve a big exit become the real needle movers for a venture investor’s portfolio.
Let’s dive into some of the best research in looking at the top-down exit numbers in the venture capital landscape to see how this has played out in the past.
WHAT QUALIFIES AS A BIG EXIT?
Let’s start by looking at what qualifies as a big startup exit.
According to CB Insights 2016 Global Tech Exits Report where they summarize what they found from analyzing 3,358 startup exits, 54% of startup exits were below $50M while 22% were above $200M.
Even for small early-stage VC funds, it is unlikely that distributions realized from exits below $50M will move the needle for investor returns.
It’s the bigger $200M+ exits that can move the needle, especially the 10% of exits which are greater than $500M.
HOW LONG DO BIG EXITS TAKE?
So how long does it typically take for a startup to get to a big exit?
According to SaaStr’s research, the average time it has taken for a startup to get to a $1B+ exit has been 11.7 years.
There also appears to be some correlation where the less capital a startup raised, the longer it took them to get to a $1B+ exit. A great example of this is Mailchimp which sold to Intuit for $12B after bootstrapping their business for 20 years!
LEADING INDICTORS FOR BIG EXITS
To achieve big exits, venture investors must often hold their portfolio equity positions for ten or more years.
Given the long hold times, what are some of the leading indicators that a venture investor may use to determine if startups in their portfolio could be on track to get to deliver a big exit?
1) Has the portfolio startup demonstrated an ability to deliver capital efficient growth over a long period of time? (strong indicator)
2) Is the portfolio startup achieving high Net Revenue Retention from its customer base and is the high NRR likely to continue for a long period of time? (strong indicator)
3) How consistent is the growth of the portfolio startup quarter over quarter, year over year? (moderate indicator)
4) Does the portfolio startup have significant expansion revenue opportunities as it scales? (moderate indicator)
IN CONCLUSION, PATIENCE IS REQUIRED
How should this impact early-stage investors decision-making framework?
Expect for venture capital portfolios to take significant time to mature when making fund investments.
Patience is required to maximize your equity in startup investments.
As the saying goes, the way you go broke in venture capital is selling your equity in your winners too early.
We announced our $41 Million Fund II back on May 23, 2022.
On the two-year anniversary of our Fund II announcement, here’s a progress update-
- We’ve invested $12,000,000 into 19 startups.
- Thematically, we are still focused on our three primary investment themes. Those are digital transformation through AI, solving labor problems and community driven applications.
- We continue to use a network driven approach to backing founders based in markets underserved by the broader venture capital market.
- Where are these underserved markets?
- We’ve historically been very active in the Midwest, especially in Minnesota where we are headquartered.
- We recently made our first two investments in LATAM with OneCarNow and Mangxo. We are finding the LATAM is a bit of a capital dessert like the Midwest, and we are especially excited by the fintech startups we are seeing in the region.
- Where are these underserved markets?
Team Update
- All three General Partners (Pradip Madan, Ryan Weber and I) are still actively searching for new investments.
- We have added two new Associates who are coming up on their one year of full-time contributions, Joseph Daher and Grant Gibson.
Future Outlook
- We have 60% of Fund II’s committed capital still to deploy, so that’s approximately $24.6M.
- We are planning to invest in another 7-10 new companies.
- We are spending a lot of time in B2B SAAS and fintech.
- From a stage standpoint, we are looking for startups which have launched their product and showing early signs of product-market fit.
- We have no minimum revenue threshold for us to write a first check (we are mostly evaluating a startup based on qualitative factors of an opportunity at the seed stage), however, most of the startups we invest in have anywhere from tens of thousands to hundreds of thousands of dollars in annual revenue run rate at the time we first invest with growth rates in the 25% to 50+% month over month range.
- Typically, our initial checks are $250k to $1M into Seed stage rounds with potential to follow on in subsequent rounds.
- We are comfortable leading rounds, but being the lead investor is not a requirement.
I’d like to personally thank each of our Fund II investors. It’s through their capital commitments which we are able to continue on our journey backing ambitious founders!
Great North Ventures has invested in Mangxo, a company set to revolutionize the way construction material suppliers extend credit terms to subcontractors in Latin America.
Mangxo provides an online credit tracking system for material suppliers. This innovation enables suppliers to offer flexible, interest-free credit options to subcontractors, fostering smoother financial operations and project execution. They are currently focused on expanding the number of material suppliers that use Mangxo in Mexico, along with adding material procurement and tracking capabilities over time.
We believe Latam markets have historically been underbanked, making it an attractive region for new technology-driven startups to launch solutions to better service pent-up demand. Mangxo’s rapid customer adoption since launch shows evidence of the pent-up demand for better financing offerings within the construction vertical, and we are excited to support Mangxo’s rapid, continued growth.
Founded in July 2022 by Sergio Angelini (CEO), Luis Morales (COO), and Patricio Naumann (CTO), Mangxo draws on its founders’ diverse expertise. Angelini brings growth strategies from his tenure at a Y Combinator-backed grocery delivery startup, Morales contributes deep construction industry insights, and Naumann offers technical prowess from fintech consultancy.
CEO Sergio Angelini states- “We are thrilled about the funding from Great North Ventures. Rob and his team share our excitement to innovate an industry still stuck on old-fashioned pen-and-paper procedures with almost no financial solutions. Our team knows this firsthand, and we have experienced it for the last three generations. That’s why we’re committed to creating a solution that’s perfect for our users, with products and financing options tailored to their needs.”
Previous investors in Mangxo included Brick and Mortar Ventures, First Check Ventures, and Built Tech Ventures.
Profitable growth is pretty rare to come by in the early stage startup world. This is the story of our portfolio company WithMe which provides printing and coffee amenity solutions to the multi-family real estate market.
I first met WithMe Founder & CEO Jonathan Treble while visiting Chicago in April of 2019. During our initial meeting, I immediately knew I wanted to invest in the founder and vision. I then spoke with one of their earliest customers based in Chicago CA Ventures, who confirmed my initial interest when they explained their decision to replace all printers across their student housing locations with WithMe’s kiosk solution. We closed our investment not too long after this initial meeting alongside other notable VCs which had previously invested such as M25, Network Ventures, and New Stack Ventures…
Here is what WithMe looked like back in April 2019-
- Product- The initial product, PrintWithMe, was a self-service printing kiosk.You could describe the model as ‘RedBox for printing’ where individuals could handle their own printing needs.
- Traction-
- PrintWithMe was installed in approximately 700 locations, primarily in independent coffee shops with a handful of early multi-family customers.
- WithMe was losing money.
- Team Size- 15 employees
In 2020, WithMe started turning a profit, using their cash flow to fund continued growth since then.
Now let’s look at where WithMe is at today, March 2024-
- Product- In addition to the original PrintWithMe product, WithMe has successfully launched a new product, SipWithMe, a coffee self-service kiosk.
- Traction-
- WithMe’s products are now installed at 4,200 locations!
- Revenue is 15 times greater than back in 2019.
- WithMe is profitable.
- Team Size- 70 employees
How has Jonathan and the WithMe team been able to achieve capital efficient growth? Three takeaways from my podcast interview with Jonathan from back in 2021- Execution is King: Jonathan Treble, PrintWithMe (libsyn.com)
- Adaptability in Ideal Customer Profile- WithMe initially partnered with a few hundred independent coffee shops to place their PrintWithMe kiosks in. Although this segment was performing okay, the multi-family apartment segment turned out to be a much better segment to target. Jonathan and the early WithMe team had the foresight to change market segments when their initial beachhead market was turning out to not be an ideal fit. This turned out to be a key factor contributing to their success.
- Past Experience Scaling At GrubHub- Back in 2013, Jonathan was in the 50-100 person product & tech team at the pre-IPO GrubHub. Jonathan credits part of WithMe’s success to him having seen what scale looks like across different functional areas from his time at GrubHub.
- Recruitment Process- It’s pretty clear in talking with Jonathan that once he found product-market fit within the multi-family market, he became deeply focused on scaling his team efficiently. This as it turns out, it is quite challenging for many startups to consistently recruit and retain top talent at the pace needed to support the growth of their business. Jonathan developed WithMe’s recruitment processes after melding ideas he captured from books like Recruit Rockstars. Jonathan and the team at WithMe have not been willing to settle when it comes to adding new team members.
Congrats to Jonathan and the whole WithMe team on their amazing, capital efficient growth! The WithMe story is far from being complete, yet it is already truly an inspiring one.
Hunting Land Rentals By Owner, Inc., a Brainerd, MN-based company, provides hunters with direct access to landowners across the U.S. who offer their hunting land for lease using HLRBO’s online platform.
The $1M Series Seed round was led by Great North Ventures. Comeback Capital, Gopher Angels, and Right Side Capital also participated in the round. Rob Weber, Managing Partner at Great North Ventures and Jeff Peterson, member of Gopher Angels and former CFO of Cardinal Glass Industries, will join the company’s board of directors.
When asked why Great North Ventures decided to lead HLRBO’s Seed round, Rob Weber explained “Heath is among the scrappiest and most resourceful founders I’ve come across since starting our VC fund 7 years ago. To be able to bootstrap HLRBO to the national scale they’ve already reached is beyond impressive. And the market adoption of HLRBO is showing no signs of slowing down. HLRBO can become a very important business to the outdoor recreation space, serving potentially millions of consumers and a wide array of landowners in the years to come.”
The company intends to use the funds to grow its landowner base, expand its reach to hunters, and launch a mobile application to enhance user experience.
HLRBO CEO & Founder Heath Schubert said about closing this Seed round- “We are very excited to close our first investment round to support meeting the needs of hunters and landowners alike even faster. Rob Weber at Great North Ventures is an ideal lead investor to work with our team given his past experience as a founder scaling a consumer internet business to tens of millions of users annually which happened to be based here in Minnesota. Rob has the track record to help us scale HLRBO to become the dominant leader in our category, a category within the broader hospitality market that has been very slow to adopt new technology.”
Moss & Barnett represented the company in this transaction.
I am thrilled to announce the addition of our newest Associate, Grant Gibson, who brings a unique blend of business acumen and legal expertise to our Great North Ventures fund. Holding a law degree from St. Thomas School of Law, Grant passed the bar this past fall, solidifying his legal prowess. Prior to joining Great North Ventures, Grant gained invaluable experience as in-house counsel at a cybersecurity startup.
Great North Ventures looks forward to leveraging Grant’s diverse skill set to further enhance our ability to identify and nurture promising startups. Grant will be responsible for driving deal closures, assisting in deal sourcing, conducting due diligence, and working closely with portfolio companies to support their growth and success. His expertise will play a pivotal role in Great North Ventures’ mission to foster the next generation of transformative businesses.
Please join us in welcoming Grant Gibson to the Great North Ventures team.
The following is the second guest post in a series written by Victoria Schanen, founder of Ghrow.io, a consulting services firm specializing in fractional human resources and recruiting leadership for startups. We’ve enjoyed our conversations with Victoria and are pleased to share a series of guest posts authored by Victoria with you. Prior to launching Ghrow, Victoria served as an HR executive in three separate SaaS startup companies based in Minnesota. She speaks and presents at startup events such as MinneBar, Twin Cities Startup Week, and Enterprise Rising and performs comedy improv in her free time. To see the first post in the series, go here.
Startups are lean operations with tight budgets and, for good reason, they tend to staff up in two areas first: technology and sales. A dedicated human resources team member doesn’t make it into the picture until much later and so the function is often cobbled together and minimally viable. In this blog series, I’ll endeavor to demystify startup HR by unpacking common pitfalls and offering helpful redirects.
Moreover, because hiring a team is expensive, I hope my insights help founders protect and strengthen the people investment side of their businesses.
Early hires
Startup founders often hire past colleagues, friends, or even family members, understandably. It’s much easier to recruit someone who knows and trusts you. The founder also knows roughly what they are getting versus hiring an unknown quantity. Perhaps equity is offered in lieu of salary, or the offer package has other tradeoffs, saving a founder precious cash for other uses.
These early hires often don’t have a job description nor defined objectives. Since the employee and founder have a close relationship, responsibilities and expectations tend to be communicated and understood in the context of working closely together. This works for a while but then reaches a breaking point.
When an early hire’s performance doesn’t meet a founder’s expectations, the conversation is going to be a hard one without a job description to point to. Or worse, a founder may realize too late that the hire wasn’t actually a fit for the work that they needed them to perform.
To avoid these scenarios, I strongly recommend writing a job description, even if it’s just a list of responsibilities and objectives, before hiring anyone – even a former colleague. Job descriptions help define who it is your business needs and then sets the north star and criteria for what work needs to be completed. This will help the new hire be successful, which in turn helps the company be successful.
Leaders
Hiring functional heads for a startup – Head of Growth, Head of Engineering, etc. – is tricky. On the one hand, startups need leaders capable of strategic planning, which typically means someone who has previously held a director or vice president role. On the other hand, the leader will likely need to also perform hands-on work.
When hiring functional heads, I recommend being mindful that candidates who have a decade or more experience in a director or vice president role likely manage teams who execute all the work but they haven’t gotten their “hands dirty” in a while. That said, I wouldn’t swing the pendulum the other direction by hiring someone who has only ever been an individual contributor. A few profiles I’ve seen that translate well into startup functional heads: an experienced software engineer who just finished an MBA; an HR executive who spun up a new division from scratch; a former startup founder coming in as a head of Customer Success.
Managers
Setting up the function of people management in startups can also pose challenges. Often, the highest performing employee is offered a promotion to manager. Since promotions come with pay increases, which is hard to turn down…who doesn’t like money?…people tend to bite at the opportunity. In other words, they’re kinda forced into it. The issue is that being a strong individual contributor doesn’t necessarily translate into being a good manager of people. Further, strong performer often miss the hands-on work they need to give up to make time for management, leading to job dissatisfaction.
Here’s a manager introduction model I’ve seen work out. The functional head should talk to their employees about goals to get a sense of who is interested in a management vs. a technical specialization career path. Those interested in managing can be given “training wheels” such as managing an intern, a lower stakes / shorter term trial. If they like and are a good at it, you’ve got a manager pipelined!
People management is of course a complex topic, peppered with the sub-topics of learning and development and performance management. Please tune in for the next installment of “Startup HR Demystified” for a continued discussion touch on these areas.
I’m excited to introduce you all to Joseph Daher. Joseph has played an essential role in sourcing, evaluating, and supporting promising startups for the past nine months and I’m pleased to announce that he will be joining the Great North Ventures team full-time in the role of Associate.
Joseph grew up on Hemlock Ln in Maple Grove Minnesota. He graduated from Osseo Senior High in 2014 and proudly served his country in the United States Marine Corps from 2016-2020 as an aviation logistics management specialist; during this time, he also graduated Magna Cum Laude with a B.S. in psychology from Campbell University, North Carolina.
He will be graduating in May of this year with his MBA from the University of Minnesota Carlson School of Management. Before pursuing his MBA, Joseph attended Columbia University in New York where he studied Social-Organizational Psychology, with a focus on Organizational Leadership.
In addition to his professional and academic accomplishments, Joseph is deeply committed to giving back to the community. He currently volunteers as an Admissions Ambassador for Service to School where he coaches and mentors transitioning service members in their pursuit of higher education, and he is the founder of The Oak Tree Foundation which aims to provide educational resources and scholarships to young people.
We are confident that Joseph’s strong background in finance, psychology, and leadership, and his resilience forged during his time in the Marine Corps will help him make a significant impact on our firm and the innovative startups we support. Please join us in welcoming Joseph Daher to the Great North Ventures team.
“I am thrilled to be joining the Great North Ventures team and I am looking forward to identifying promising opportunities and supporting innovative startups that will shape the future.”
From my vantage point as a venture capitalist evaluating hundreds of early-stage startups annually, I’ve become puzzled why the vast majority of founders I come across are still choosing to develop their initial Minimum Viable Products (MVPs) via a website versus a native, mobile app. The data suggests they should not be.
According to eMarketer, over 88% of time spent on mobile is spent inside an app versus a web browser. It’s not just that startups are choosing to build their MVPs using a web application, but many are scaling well beyond their seed rounds and into their Series A or B round before ever getting around to launching a native, mobile app.
So what considerations should startups be weighing when deciding whether to be mobile-first and launch with a native app, or launch with a website? Let’s dive in with the help of some Twitter friends.
Advantages of a native mobile app
What are the advantages of launching with a native mobile app in a mobile-first world? The dominant consumption habit for the Internet is on a mobile device, and native apps have the most optimized user experience (UX) for mobile devices. But it isn’t just about user experience. The opportunity to drive re-engagement from device-triggered push notifications and home screen icons proved too much to resist for founder Alina Matson of Fitment, a new micro workouts startup.
From my vantage point, local push notifications are the #1 reason to launch a native, mobile app first, with clickthrough rates ranging as high as 12% to 40% depending on your category, according to insights shared by Andrew Chen of Andreessen Horowitz.
Email or other forms of reconnecting with users just do not come anywhere near as close as push notifications in terms of clickthrough rates. Also on the marketing front, you can receive additional visibility via App Store Search Optimization (ASO) in the App Store which you are giving up when choosing a website approach.
On the development front, there is easier access to other native APIs, although the differences between what you can and can’t do between a mobile app and website are fuzzier to me than ever given the advances in web technology. Finally, why not avoid costly technical debt and refactoring later in? When startups build for the web first, they start to compound technical debt which can dramatically slow down their ability to iterate later when they discover that the majority of their users want to use their application natively on their phone or tablet.
Advantages of a web app
Why would someone launch a website first? Launching a web app is often easier and faster than a mobile app. A founder may know very well that their user experience has more friction within a web app, however, as Maria Semykoz of Ukraine-based What’s In My Jar points out, the signal provided in a high friction web app can help to prioritize feature development for a more-costly native mobile app.
Web pages with rich content are more likely to rank higher in search results than content stuck inside a native mobile app. Marketplace startups like Omnia Fishing first launched websites because they knew a main driver of their go-to-market strategy could be ranking high in search results. Also, requiring your users to install an app versus just keying a website into a browser also can reduce initial trials, as Scott Resnick points out.
From a technical standpoint, there are ways to make the user experience more native now than when smartphones first hit the scene. There are web-wrapper products that can make a website look mostly native and minimize the poorer mobile user experience, which has historically been more common with websites on mobile screens, as Jeff Ericson of RubyRide points out.
Other considerations before starting to build
What are some of the other considerations founders should weigh when deciding between going truly mobile-first with a native app, or launching a mobile-optimized web app for your startup?
Since native mobile apps are generally more costly to develop as Derek Rucker points out, the ability for a founder to secure significant initial capital is an important consideration. Startups which are under-capitalized may want to opt for web-only launches. Also, if you do go the native app route, Derek points out that iOS is much simpler to launch on than Android. Android has so many more different device types, with different screen sizes, that it is easier to launch iOS-only than to design for Android.
An alternative to choice: The hybrid approach
Are you still finding it difficult to pick between starting with a native mobile app or a web app for your startup? You may want to take a hybrid approach, and launch with a native iOS app as well as a website like we are planning to do for our first venture studio startup, NextGem.
NextGem is a new social app for trading card enthusiasts to discover and share trading cards. Much of the core initial functionality for NextGem revolves around the use of modern, high definition camera features on the latest phones and tablets. It would be very difficult (if not impossible) to recreate the super high-resolution photo scanning of NextGem through a website.
These high-resolution photos are needed for trading card collectors who want the ability to closely inspect the condition of trading cards before purchasing or trading. The reason the NextGem team chose to also support a website view was for search engine optimization purposes primarily. Each scan of a trading card by a user leads to a new, search-friendly content page that can be easily indexed by Google.